strategies in action
TRANSCRIPT
Copyright 2005 Prentice Hall Ch 5 -1
Chapter 5Strategies in Action
Strategic Management: Concepts & Cases
10th EditionFred David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Copyright 2005 Prentice Hall Ch 5 -2
Chapter Outline
Long-Term Objectives
Types of Strategies
Integration Strategies
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Chapter Outline (cont’d)
Intensive Strategies
Diversification Strategies
Defensive Strategies
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Chapter Outline (cont’d)
Michael Porter’s Generic Strategies
Means for Achieving Strategies
First Mover Advantages
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Chapter Outline (cont’d)
Outsourcing
Strategic Management in Nonprofit & Governmental Organizations
Strategic Management in Small Firms
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Strategies fro taking the hill won’t necessarily hold it. –Amar Bhide
Strategies in Action
The early bird may get the worm, but the second mouse gets the cheese. – Unknown
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Strategies in Action
-- Quest for higher revenues
-- Quest for higher profits
Companies Embrace Strategic Planning
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Results expected from pursuing certain strategies.
Strategies represent actions to accomplish long-term objectives.
Long-Term Objectives
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Long-Term Objectives
Objectives --
Quantifiable
Measurable
Realistic
Understandable
Challenging
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Long-Term Objectives
Objectives --
Hierarchical
Obtainable
Congruent
Time-line
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Long-Term Objectives
Objectives Necessary --
Corporate Level
Divisional Level
Functional Level
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Long-Term Objectives
Strategists Should Avoid --
Managing by Extrapolation
Managing by Crisis
Managing by Subjectives
Managing by Hope
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Varying Performance Measures by Organizational Level
Organizational Level
Basis for Annual Bonus/Merit Pay
Corporate75% on long-term objectives25% on annual objectives
Division50% on long-term objectives50% on annual objectives
Function25% on long-term objectives75% on annual objectives
Long-Term Objectives
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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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Financial vs. Strategic Objectives
Strategic Objectives
Larger market share
Quicker on-time delivery than rivals
Quicker design-to-market times than rivals
Lower costs than rivals
Higher product quality than rivals
Wider geographic coverage than rivals
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Financial vs. Strategic Objectives
Trade-Off
Maximize short-term financial objectives – harm long-term strategic objectives
Pursue increased market share at the expense of short-term profitability
Tradeoffs related to risk of actions; concern for business ethics; need to preserve natural environment; social responsibility issues
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Types of Strategies
Operational Level
Functional Level
Division Level
Corp LevelA Large Company
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Types of Strategies
Operational Level
Functional Level
Company Level
A Small Company
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The Balanced Scorecard
Robert Kaplan & David Norton --
Strategy evaluation & control technique
Balance financial measures with non-financial measures
Balance shareholder objectives with customer & operational objectives
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Types of Strategies
Vertical IntegrationStrategies
Forward Integration
BackwardIntegration
HorizontalIntegration
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Vertical Integration Strategies
Gain Control Over --
Distributors
Suppliers
Competitors
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Forward Integration Strategies
Gain Control Over --
Distributors
Retailers
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Forward Integration Strategies
Guidelines --
Current distributors – expensive or unreliable
Availability of quality distributors – limited
Firm competes in industry expected to grow markedly
Firm has both capital & HR to manage new business of distribution
Current distributors have high profit margins
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Backward Integration Strategies
Ownership or Control --
Firm’s suppliers
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Backward Integration StrategiesGuidelines --
Current suppliers – expensive or unreliable
# of suppliers is small; # competitors is large
High growth in industry sector
Firm has both capital & HR to manage new business
Stable prices are important
Current suppliers have high profit margins
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Horizontal Integration Strategies
Ownership or Control --
Firm’s competitors
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Horizontal Integration StrategiesGuidelines --
Gain monopolistic characteristics w/o federal government challenge
Competes in growing industry
Increased economies of scale – major competitive advantages
Faltering due to lack of managerial expertise or need for particular resource
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Types of Strategies
IntensiveStrategies
MarketPenetration
MarketDevelopment
ProductDevelopment
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Intensive Strategies
Intensive Efforts --
Improve competitive position with existing products
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Market Penetration Strategies
Increased Market Share --
Present products/services
Present markets
Greater marketing efforts
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Market Penetration Strategies
Guidelines --
Current markets not saturated
Usage rate of present customers can be increased significantly
Shares of competitors declining; industry sales increasing
Increased economies of scale provide major competitive advantage
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Market Development Strategies
New Markets --
Present products/services to new geographic areas
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Market Development StrategiesGuidelines --
New channels of distribution – reliable, inexpensive, good quality
Firm is successful at what it does
Untapped/unsaturated markets
Excess production capacity
Basic industry rapidly becoming global
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Product Development Strategies
Increased Sales --
Improving present products/services
Developing new products/services
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Product Development StrategiesGuidelines --
Products in maturity stage of life cycle
Industry characterized by rapid technological development
Competitors offer better-quality products @ comparable prices
Compete in high-growth industry
Strong R&D capabilities
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Types of Strategies
DiversificationStrategies
ConcentricDiversification
ConglomerateDiversification
HorizontalDiversification
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Diversification Strategies
Less Popular --
More difficult to manage diverse business activities
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Concentric Diversification Strategies
Addition --
New & related products/services
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Concentric Diversification Strategies
Guidelines --Compete in no/slow growth industry
New & related products increases sales of current products
New & related products offered at competitive prices
Current products—decline stage of product life cycle
Strong management team
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Conglomerate Diversification Strategies
Addition --
New & unrelated products/services
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Conglomerate Diversification Strategies
Guidelines --
Declining annual sales & profits
Capital & managerial ability to compete in new industry
Financial synergy between acquired and acquiring firms
Current markets for present products - saturated
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Horizontal Diversification Strategies
Addition --
New & unrelated products/services for current customers
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Horizontal Diversification Strategies
Guidelines --
Adding new products/services would significantly increase revenues
Highly competitive and/or no-growth industry; low margins & returns
Current distribution channels can be used
New products have counter cyclical sales patterns
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Types of Strategies
DefensiveStrategies
Retrenchment
Divestiture
Liquidation
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Retrenchment Strategies
Regrouping --
Cost & asset reduction to reverse declining sales & profit
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Retrenchment Strategies
Guidelines --
Failed to meet objectives & goals consistency; has distinctive competencies
Firm is one of weaker competitors
Inefficiency, low profitability, poor employee morale, pressure for stockholders
Strategic managers have failed
Rapid growth in size; major internal reorganization necessary
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Divestiture Strategies
Selling a division or part of an organization.
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Divestiture Strategies
Guidelines --
Retrenchment failed to attain improvements
Division needs more resources than are available
Division responsible for firm’s overall poor performance
Division is a mis-fit with organization
Large amount of cash is needed and cannot be raised through other sources
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2003 Examples
ForwardIntegration
Doll maker & mail order firm, Pleasant Co., opened a retail store in Manhattan
BackwardIntegration
McDonalds recently acquired a paper cup producer
HorizontalIntegration
Callaway Golf recently acquired Top-Flite Golf Company
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2003 Examples
MarketPenetration
SABMiller Plc spent $500 million in 2003 on marketing its Miller brands of beer
Market Development
JetBlue is adding dozens of new routes
ProductDevelopment
GM developing hydrogen powered automobiles or Pfizer developing a new antismoking pill
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2003 Examples
ConcentricDiversification
Microsoft launched its first personal computers that double as entertainment centers
ConglomerateDiversification
The video-rental firm Blockbuster may acquire the DVD and music direct-marketing firm Columbia House
HorizontalDiversification
Viacom acquired Comedy Central, from AOL
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2003 Examples
RetrenchmentAmerica West Airlines closing its hub at Columbus, Ohio and laying off 390 employees
DivestitureConocoPhillips recently sold its Circle K convenience store chain to Alimentation Couche-Tard, a Canadian firm
LiquidationSprint liquidated its Web-hosting division
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Liquidation Strategies
Company’s assets, in parts, for their tangible worth
Selling
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Liquidation Strategies
Guidelines --
Retrenchment & divestiture failed
Only alternative is bankruptcy
Minimize stockholder loss by selling firm’s assets
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Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
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Generic Strategies
In conjunction with differentiation
Economies or diseconomies of scale
Capacity utilization achieved
Linkages w/ suppliers & distributors
Cost Leadership
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Generic Strategies
Many price-sensitive buyers
Few ways of achieving differentiation
Buyers not sensitive to brand differences
Large # of buyers w/bargaining power
Low Cost Producer Advantage
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Generic Strategies
Greater product flexibility
Greater compatibility
Lower costs
Improved service
Greater convenience
More features
Differentiation
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Generic Strategies
Industry segment of sufficient size
Good growth potential
Not crucial to success of major competitors
Focus
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Means for Achieving Strategies
Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.
Joint Venture/Partnering -
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Means for Achieving Strategies
R&D partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia
Cooperative Arrangements -
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Means for Achieving Strategies
Managers who must collaborate daily; not involved in developing the venture
Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the
partners
Why Joint Ventures Fail -
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Joint Ventures
Guidelines --Synergies between private and publicly held
Domestic with foreign firm, local management can reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable (e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
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Means for Achieving Strategies
Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers,
products, creditors
Mergers & Acquisitions
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Recent Mergers
Acquiring Firm Acquired Firm
IBM Rational Software Corp
Yahoo Inktomi Corp
U.S. Steel National Steel Corp
Pfizer Pharmacia
Krispy Kreme Doughnuts Montana Mills
Oracle People Soft
Palm Handspring
Nike Converse
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First Mover Advantages
Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.
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First Mover Advantages
Securing access to rare resources Gaining new knowledge of key factors &
issues Carving out market share Easy to defend position & costly for rival
firms to overtake
Potential Advantages
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Outsourcing
Companies taking over the functional operations of other firms
Business-process outsourcing (BPO)
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Outsourcing
Less expensive Allows firm to focus on core business Enables firm to provide better services
Benefits
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Key Terms & Concepts
For Review (Chapter 5)
AcquisitionConcentric
Diversification
Backward Integration
Conglomerate Diversification
BankruptcyCooperative
Arrangements
Combination Strategy
Cost Leadership
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Key Terms & Concepts
For Review (Chapter 5)
Differentiation Focus
DiversificationStrategies
Forward Integration
Divestiture Franchising
First Mover Advantages
Generic Strategies
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Key Terms & Concepts
For Review (Chapter 5)
HorizontalDiversification
Intensive Strategies
HorizontalIntegration
Joint Venture
Hostile Takeover Leveraged Buyout
IntegrationStrategies
Liquidation
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Key Terms & Concepts
For Review (Chapter 5)
Long-TermObjectives
Outsourcing
Market Development Product Development
Market Penetration Retrenchment
Merger Vertical Integration