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8/10/2019 Chap5 David Chap5 Strategyaction New

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Copyright 2009 Pearson Education, Inc.Publishing as Prentice Hall

Ch 5 -1

Chapter 5

Strategies in Action

Strategic Management:

Concepts & Cases

12thEdition

Fred David


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Chapter Objectives Discuss the value of establishing long-term objectives.

Identify types of business strategies. Identify numerous examples of organizations pursuing different types of

strategies.

Discuss guidelines when particular strategies are most appropriate to pursue.

Discuss Porters five generic strategies.

Describe strategic management in nonprofit, governmental, and smallorganizations.

Discuss joint ventures as a way to enter the Russian market.

Discuss the Balanced Scorecard.

Compare and contrast financial with strategic objectives.

Discuss the levels of strategies in large versus small firms. Explain the First Mover Advantages concept.

Discuss recent trends in outsourcing.

Discuss strategies for competing in turbulent, high velocity markets.

Ch 5 -2


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Ch 5 -3

The Nature of Long-Term Objectives

Quantifiable (quantitative)

Measurable

Realistic

Understandable

Challenging

Hierarchical

Obtainable

Congruent

Timeline


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Ch 5 -4

Varying Performance Measures

by Organizational Level


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Ch 5 -5

Financial vs. Strategic Objectives

Financial Objectives

Growth in revenues

Growth in earnings

Higher dividends

Higher profit margins

Higher earnings per share

Improved cash flow


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Ch 5 -6

Not Managing by Objective

Managing by Extrapolationkeep on doing aboutthe same things in the same ways because things

are going well - (If it aint broke, dont fix it.)

Managing by CrisisThe true measure of a good

strategist is the ability to fix problemsManaging by SubjectivesNo general ways of how

to do things. Just do what you think best. (Do your

own thing, the best way you know how.)

Managing by HopeThe future is full of uncertaintyand if first you dont succeed, then you mayon the

second or third try.


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Ch 5 -7

The Balanced Scorecard -

Robert Kaplan & David Norton, 1993

Characteristics:

Strategy evaluation and control techniqueBalance financial measures with nonfinancial

measures

Balance shareholder objectives with customer

& operational objectives


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Ch 5 -8


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Ch 5 -9

Types of Strategies

Operational Level

Functional Level

Division Level

CorpLevelA Large Company


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Ch 5 -10

Types of Strategies

Operational Level

Functional Level

Corp

Level

A Small Company


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Types of Strategies

Forward Integration

Forward integration involves gaining ownership orincreased control over distributors or retailers.

Franchising is an effective means of implementing

forward integration.

Ch 5 -11


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Forward IntegrationSix guidelines when forward integration may be an especially effective

strategy: When an organizations present distributors are especially

expensive or unreliable, or incapable of meeting firms distribution

needs.

When the availability of quality distributors is so limited as to offer a

competitive advantage to those firms that integrate forward. When an organization competes in an industry that is growing and

expected to continue to grow markedly.

When an organization has both the capital and human resources

needed to manage the new business.

When the advantages of stable production are particularly high.

When present distributors have high profit margins

Ch 5 -12


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Types of StrategiesBackward Integration

Backward integration is a strategy of seeking ownership orincreased control of a firms suppliers. This strategy can be

especially appropriate when a firms current suppliers are

unreliable, too costly, or cannot meet the firms needs.

Some industries in the United States (such as automotive and

aluminum industries) are reducing their historic pursuit of

backward integration. Instead of owning their suppliers,

companies negotiate with several outside suppliers.

Outsourcing, whereby companies use outside suppliers, shop

around, play one seller against another, and go with the bestdeal is becoming widely practiced.

Ch 5 -13


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Backward IntegrationSeven guidelines for when backward integration may be especially

effective: When an organizations present suppliers are especially expensive,

or unreliable, or incapable of meeting the firms needs for parts,

components, assemblies, or raw materials;

When the number of suppliers is small and the number of

competitors is large; When an organization competes in an industry that is growing

rapidly;

When an organization has both capital and human resources to

manage the new business of supplying its own raw materials;

When the advantages of stable prices are particularly important;

When present supplies have high profit margins; and

When an organization needs to quickly acquire needed resources.

Ch 5 -14


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Types of Strategies

Horizontal Integration Horizontal integration refers to a strategy of seekingownership of or increased control over a firms

competitors. One of the most significant trends in

strategic management today is the increased use of

horizontal integration as a growth strategy. Mergers,

acquisitions, and takeovers among competitors allow for

increased economies of scale and enhanced transfer of

resources and competencies.

Ch 5 -15


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Backward IntegrationFive guidelines for when horizontal integration may be an

especially effective strategy: When an organization can gain monopolistic

characteristics.

When an organization competes in a growing industry.

When increased economies of scale provide major

competitive advantages.

When an organization has both the capital and human

talent needed to successfully manage an expanded

organization.

When competitors are faltering due to lack of managerial

expertise or a need for particular resources that an

organization possesses.Ch 5 -16


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Intensive StrategiesMarket Penetration - seeks to increase market share for present

products or services in present markets through greater marketingefforts.

Market penetration includes increasing the number of salespersons,

advertising expenditures, and publicity efforts or offering extensive

sales promotion items.

Five guidelines for when market penetration is especially effective: When current markets are not saturated.

When usage rate of current customers could be increased.

When market shares of major competitors have been declining while

total industry sales have been increasing.

When the correlation between dollar sales and dollar marketing

expenditures historically has been high.

When increased economies of scale provide major advantages.

Ch 5 -17


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Intensive StrategiesMarket Development - involves introducing present products or

services into new geographic areas. The climate for international market development is becoming more

favorable. In many industries, such as airlines, it is going to be hard

to maintain a competitive edge by staying close to home.

Six guidelines for when this is may be effective:

When new channels of distribution are available that are reliable,inexpensive, and of good quality.

When an organization is very successful at what it does.

When new untapped or unsaturated markets exist.

When an organization has the needed capital and human resources

to manage expanded operations.

When an organization has excess production capacity.

When an organizations basic industry rapidly is becoming global in

scope.

Ch 5 -18


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Intensive StrategiesProduct Development - seeking increased sales by improving or

modifying present products or services. Product developmentusually entails large research and development expenditures.

Five guidelines for when to use product development:

When an organization has successful products that are in the

maturity stage of the product life cycle.

When an organization competes in an industry that is characterized

by rapid technological developments.

When major competitors offer better-quality products at comparable

prices.

When an organization competes in a high-growth industry.

When an organization has especially strong research and

development capabilities.

Ch 5 -19


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Diversification StrategiesRelated Diversification

Businesses are said be related when their value chains

possess competitively valuable cross-business strategic

fits.

Related diversification strategies enable businesses to

capitalize on synergies such as:

transferring competitively valuable expertise,

combining the related activities of separate businesses

into a single operation to achieve lower costs,

exploiting common use of a well-known brand name, and

collaborating across businesses to create valuable

resource strengths and capacities.

Ch 5 -20


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Diversification StrategiesUnrelated Diversification

Businesses are said to be unrelated when their value

chains are so dissimilar that no competitively valuable

cross-business relationships exist.

An unrelated diversification strategy favors capitalizing

upon a portfolio of businesses that are capable of

delivering excellent financial performance in their

respective industries.

Ch 5 -21


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Defensive StrategiesRetrenchment - Retrenchment occurs when an

organization regroups through cost and assetreduction to reverse declining sales and profits.

Sometimes called a turnaround or

reorganizational strategy, retrenchment isdesigned to fortify an organizations basic

distinctive competence.

Bankruptcy can be an effective retrenchment

strategy.

Ch 5 -22


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Defensive StrategiesRetrenchment - Retrenchment occurs when an

organization regroups through cost and assetreduction to reverse declining sales and profits.

Divestiture- Selling a division or part of an

organization is called divestiture. Divestiture

often is used to raise capital for further strategic

acquisitions or investments.

Liquidation- Selling all of a companys assets, in

parts, for their tangible worth is calledliquidation. Liquidation is recognition of defeat

and consequently can be an emotionally difficult

strategy.Ch 5 -23


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Ch 5 -24

Types of Strategies

VerticalIntegration

Strategies

Forward

Integration

BackwardIntegration

Horizontal

Integration


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Ch 5 -25

Types of Strategies

IntensiveStrategies

Market

Penetration

MarketDevelopment

Product

Development


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Ch 5 -26

Types of Strategies

DiversificationStrategies

Related

Diversification

Unrelated

Diversification


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Ch 5 -27

Types of Strategies

DefensiveStrategies

Retrenchment

Divestiture

Liquidation


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Short Scenario Discussion 1Syarikat Eko Sdn Bhd terlibat di dalam industri pengeluaran baja organik

yang sedang bertumbuh dengan pesat. Kedudukan kewangan syarikat ini

adalah kukuh dan meningkat dari tahun ke tahun kerana jualan danpermintaan yang tinggi terhadap baja organik daripada industri pertanian.

Namun begitu, syarikat menghadapi masalah dengan pengedar yang

mengenakan caj perkhidmatan yang mahal dan perkhidmatan yang

diberikan kadangkala kurang memuaskan. Ini disebabkan bilangan

pengedar di pasaran adalah terhad dan dimonopoli sebilangan pemilik.Disebabkan itu juga, pengedar mendapat untung margin yang tinggi.

Berdasarkan situasi persekitaran, matlamat dan kedudukan syarikat,

nyatakan satustrategi yang paling sesuai untuk dilaksanakan oleh syarikat

tersebut bagi setiap kes. Berikan alasan kenapa strategi tersebut palingsesuai untuk dijalankan dan apakah pulangan yang dijangka dengan

pelaksanaan strategi tersebut.

Ch 5 -28


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Short Scenario Discussion 2Syarikat Zam terlibat di dalam industri pengeluaran air mineral. Syarikat

menghadapi tekanan persaingan kerana industri ini terlalu kompetitif

disebabkan oleh produk yang standard, kos penggantian yang rendah, dankemasukan pesaing baru ke dalam industri adalah tinggi dan mudah. Oleh

itu, kebanyakan syarikat dalam industri ini menggunakan kepimpinan kos

sebagai strategi persaingan. Namun begitu, pengurusan atasan Syarikat

EmbunSuci percaya kesedaran orang Islam terhadap isu halal dan

kesucian bahan makanan dan minuman menawarkan peluang yangmenarik. Dengan jenama yang sesuai dan kemampuan teknologi yang

dimiliki oleh syarikat, syarikat percaya niche pengguna Muslim masih

terbuka luas untuk diterokai.

Berdasarkan situasi persekitaran, matlamat dan kedudukan syarikat,nyatakan satustrategi yang paling sesuai untuk dilaksanakan oleh syarikat

tersebut bagi setiap kes. Berikan alasan kenapa strategi tersebut paling

sesuai untuk dijalankan dan apakah pulangan yang dijangka dengan

pelaksanaan strategi tersebut.Ch 5 -29


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Ch 5 -30

Natural Environment PerspectiveSongbirds and Coral Reefs in Trouble

Songbirds76 songbird species havedramatically declined in numbers

Coral ReefsTrawl fishing destroys

coral reefs

Total area of fully protectedmarine habitats in the US is only

50 square miles (93 million acres

of national wildlife refuges and

national parks)


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Ch 5 -31

2007 Examples

ForwardIntegration

Southwest Airlines selling ticketsthrough Galileo

BackwardIntegration

Hilton Hotels could acquire a large

furniture manufacturer

HorizontalIntegration

Huntington Bancshares and Sky

Financial Group mergedMAS dan Air Asia


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Ch 5 -32

2007 Examples

MarketPenetration

McDonalds selling millions ofShrek the Third items to a

healthier image

MarketDevelopment

Burger King opened its first

restaurant in JapanFelda ventures into plantations in

Myanmar

ProductDevelopment

Google introduced Google

Presents to compete withPowerPoint


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Copyright 2009 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 5 -33

2007 Examples

RelatedDiversification

MGM Mirage is opening its first non-casino luxury hotel

Proton dan DRB-Hicom

Unrelated

Diversification

Ford Motor Company entered the

industrial bank business

Retrenchment Discovery Channel closed 103 mall-based and stand-alone stores


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Ch 5 -34

2007 Examples

Divestiture Whirlpool sold its struggling Hooverfloor-care business to TechtronicIndustries

Liquidation Follow Me Charters sold all of itsassets and ceased doing business


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Ch 5 -35

Michael Porters Generic Strategies

Cost Leadership Strategies

(Low -Cost & Best-Value)

DifferentiationStrategies

Focus Strategies

(Low-Cost Focus &

Best-Value Focus)


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Michael Porters Generic StrategiesFive generic strategies:

1. Cost leadership-low cost - producing

standardized products at a very low per-unit

cost for consumers who are price-sensitive;

A low-cost strategy offers products to a widerange of customers at the lowest price available

on the market.

A best-value strategy offers products to a wide

range of customers at the best price-valueavailable on the market.

Ch 5 -36


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Michael Porters Generic Strategies2. Cost leadership-best value -

3. Differentiation- producing products that areconsidered unique.

4. Focus-low cost - A low-cost focus strategy

offers products or services to a small range(niche) of customers at the lowest price available

on the market.

5. Focus-best value - A best-value focus strategy

offers products to a small range of customers atthe best price-value available on the market.

This is sometimes called focused differentiation.

Ch 5 -37


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Ch 5 -38


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Ch 5 -39


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Ch 5 -40


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Means for Achieving Strategies

Joint Venture/Partnering

Merger/Acquisition

Private-Equity Acquisition

First Mover Advantages

Outsourcing

Ch 5 -41


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Ch 5 -42

First Mover Advantages

Benefits a firm may achieve by entering a

new market or developing a new product orservice prior to rival firms


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Ch 5 -43

Outsourcing

Companies taking over the functionaloperations of other firms

Business-Process Outsourcing(BPO)


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Ch 5 -44

Global PerspectiveJoint Ventures Mandatory for All Foreign Firms in India

Indias experiencing fastest growth in over 18 years

Second fastest (behind China) growth rate at 10.7%

Also experiencing 6.6% inflation

Gap between rich andpoor widening

Joint venture mandatory

Vast majority of joint

ventures fail Tourism also growing


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Copyright 2009 Pearson Education, Inc. Ch 5 -45

Strategic Management in Nonprofit and

Governmental Organizations

Educational Institutions

Medical Organizations

Governmental Agencies and Departments

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