Strategies in Action

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Strategies in Action.

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Strategies in Action

  1. 1. Ch. 5-1 Strategic Management Concepts & Cases 8th edition Fred R. David Chapter 5: Strategies in Action PowerPoint Slides By: Anthony F. Chelte Western New England College
  2. 2. Ch. 5-2 Comprehensive Strategic Management ModelComprehensive Strategic Management Model Vision & Mission Statements Chapter 2 External Audit Chapter 3 Internal Audit Chapter 4 Strategies In Action Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9
  3. 3. Ch. 5-3 Strategies in ActionStrategies in Action “Planning. Doing things today to make us better tomorrow. Because the future belongs to those who make the hard decisions today.” —Eaton Corporation—
  4. 4. Ch. 5-4 Strategies in ActionStrategies in Action “If you don’t invest for the long term, there is no short term.” —George David—
  5. 5. Ch. 5-5 Strategies in ActionStrategies in Action “Innovate or evaporate. Particularly in technology-driven businesses, nothing quite recedes like success.” —Bill Saporito—
  6. 6. Ch. 5-6 Strategies in ActionStrategies in Action Companies embrace strategic planning. • Quest for higher revenues and profits
  7. 7. Ch. 5-7 Strategies in ActionStrategies in Action Long-Term Objectives:Long-Term Objectives: • Results expected from pursuing certain strategies  Time frame —2 to 5 years
  8. 8. Ch. 5-8 Strategies in ActionStrategies in Action Nature of Long-Term ObjectivesNature of Long-Term Objectives  Quantitative  Measurable  Realistic  Understandable  Challenging  Hierarchical  Obtainable  Congruent among organizational units
  9. 9. Ch. 5-9 Strategies in ActionStrategies in Action Nature of Long-Term ObjectivesNature of Long-Term Objectives (Cont’d)(Cont’d) Objectives are associated with a time line and stated in terms: • Growth in assets • Growth in sales • Profitability • Market share • Diversification • Integration • EPS • Social responsibility
  10. 10. Ch. 5-10 Strategies in ActionStrategies in Action Nature of Long-Term ObjectivesNature of Long-Term Objectives (Cont’d)(Cont’d) Objectives are the basis for: • Designing jobs • Organizing activities • Providing direction • Organizational synergy • Standards for evaluation
  11. 11. Ch. 5-11 Strategies in ActionStrategies in Action Nature of Long-Term Objectives (Cont’d)Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by extrapolation “If it ain’t broke, don’t fix it.”
  12. 12. Ch. 5-12 Strategies in ActionStrategies in Action Nature of Long-Term Objectives (Cont’d)Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by crisis: Reactive vs. proactive
  13. 13. Ch. 5-13 Strategies in ActionStrategies in Action Nature of Long-Term Objectives (Cont’d)Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by subjectives: Mystery approach to decision making  Subordinates are left to figure out what is happening and why
  14. 14. Ch. 5-14 Strategies in ActionStrategies in Action Nature of Long-Term Objectives (Cont’d)Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by hope: Good times are just around the corner
  15. 15. Ch. 5-15 Strategies in ActionStrategies in Action Vertical Integration StrategiesVertical Integration Strategies • Forward integration • Backward integration • Horizontal integration
  16. 16. Ch. 5-16 Strategies in ActionStrategies in Action DefinedDefined • Gaining ownership or increased control over distributors or retailers ExampleExample • General Motors is acquiring 10% of its dealers. ForwardForward IntegrationIntegration
  17. 17. Ch. 5-17 Strategies in ActionStrategies in Action Guidelines for Forward IntegrationGuidelines for Forward Integration  Present distributors are expensive, unreliable, or incapable of meeting firm’s needs  Availability of quality distributors is limited  When firm competes in an industry that is expected to grow markedly  Advantages of stable production are high  Present distributor have high profit margins
  18. 18. Ch. 5-18 Strategies in ActionStrategies in Action DefinedDefined • Seeking ownership or increased control of a firm’s suppliers ExampleExample • Motel 8 acquired a furniture manufacturer. BackwardBackward IntegrationIntegration
  19. 19. Ch. 5-19 Strategies in ActionStrategies in Action Guidelines for Backward IntegrationGuidelines for Backward Integration  When present suppliers are expensive, unreliable, or incapable of meeting needs  Number of suppliers is small and number of competitors large  High growth in industry sector  Firm has both capital and human resources to manage new business  Advantages of stable prices are important  Present supplies have high profit margins
  20. 20. Ch. 5-20 Strategies in ActionStrategies in Action DefinedDefined • Seeking ownership or increased control over competitors ExampleExample • Hilton recently acquired Promus. HorizontalHorizontal IntegrationIntegration
  21. 21. Ch. 5-21 Strategies in ActionStrategies in Action Guidelines for Horizontal IntegrationGuidelines for Horizontal Integration  Firm can gain monopolistic characteristics without being challenged by federal government  Competes in growing industry  Increased economies of scale provide major competitive advantages  Faltering due to lack of managerial expertise or need for particular resources
  22. 22. Ch. 5-22 Strategies in ActionStrategies in Action Intensive StrategiesIntensive Strategies • Market penetration • Market development • Product development
  23. 23. Ch. 5-23 Strategies in ActionStrategies in Action DefinedDefined • Seeking increased market share for present products or services in present markets through greater marketing efforts ExampleExample • Ameritrade, the on- line broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions. MarketMarket PenetrationPenetration
  24. 24. Ch. 5-24 Strategies in ActionStrategies in Action Guidelines for Market PenetrationGuidelines for Market Penetration  Current markets not saturated  Usage rate of present customers can be increased significantly  Market shares of competitors declining while total industry sales increasing  Increased economies of scale provide major competitive advantages
  25. 25. Ch. 5-25 Strategies in ActionStrategies in Action DefinedDefined • Introducing present products or services into new geographic area ExampleExample • Britain’s leading supplier of buses, Henlys PLC, acquires Blue Bird Corp. North America’s leading school bus maker. MarketMarket DevelopmentDevelopment
  26. 26. Ch. 5-26 Strategies in ActionStrategies in Action Guidelines for Market DevelopmentGuidelines for Market Development  New channels of distribution that are reliable, inexpensive, and good quality  Firm is very successful at what it does  Untapped or unsaturated markets  Capital and human resources necessary to manage expanded operations  Excess production capacity  Basic industry rapidly becoming global
  27. 27. Ch. 5-27 Strategies in ActionStrategies in Action DefinedDefined • Seeking increased sales by improving present products or services or developing new ones ExampleExample • Apple developed the G4 chip that runs at 500 megahertz. ProductProduct DevelopmentDevelopment
  28. 28. Ch. 5-28 Strategies in ActionStrategies in Action Guidelines for Product DevelopmentGuidelines for Product Development  Products in maturity stage of life cycle  Competes in industry characterized by rapid technological developments  Major competitors offer better-quality products at comparable prices  Compete in high-growth industry  Strong research and development capabilities
  29. 29. Ch. 5-29 Strategies in ActionStrategies in Action Diversification StrategiesDiversification Strategies • Concentric diversification • Conglomerate diversification • Horizontal diversification
  30. 30. Ch. 5-30 Strategies in ActionStrategies in Action DefinedDefined • Adding new, but related, products or services ExampleExample • National Westminister Bank PLC in Britain bought the leading British insurance company, Legal & General Group PLC. ConcentricConcentric DiversificationDiversification
  31. 31. Ch. 5-31 Strategies in ActionStrategies in Action Guidelines for Concentric DiversificationGuidelines for Concentric Diversification  Competes in no- or slow-growth industry  Adding new & related products increases sales of current products  New & related products offered at competitive prices  Current products are in decline stage of the product life cycle  Strong management team
  32. 32. Ch. 5-32 Strategies in ActionStrategies in Action DefinedDefined • Adding new, unrelated products or services ExampleExample • H&R Block, the top tax preparation agency, said it will buy discount stock brokerage Olde Financial for $850 million in cash. ConglomerateConglomerate DiversificationDiversification
  33. 33. Ch. 5-33 Strategies in ActionStrategies in Action Guidelines for Conglomerate DiversificationGuidelines for Conglomerate Diversification  Declining annual sales and profits  Capital and managerial talent to compete successfully in a new industry  Financial synergy between the acquired and acquiring firms  Exiting markets for present products are saturated
  34. 34. Ch. 5-34 Strategies in ActionStrategies in Action DefinedDefined • Adding new, unrelated products or services for present customers ExampleExample • The New York Yankees baseball team are merging with the New Jersey Nets basketball team. HorizontalHorizontal DiversificationDiversification
  35. 35. Ch. 5-35 Strategies in ActionStrategies in Action Guidelines for Horizontal DiversificationGuidelines for Horizontal Diversification  Revenues from current products/services would increase significantly by adding the new unrelated products  Highly competitive and/or no-growth industry w/low margins and returns  Present distribution channels can be used to market new products to current customers  New products have counter cyclical sales patterns compared to existing products
  36. 36. Ch. 5-36 Strategies in ActionStrategies in Action Defensive StrategiesDefensive Strategies • Joint venture • Retrenchment • Divestiture • Liquidation
  37. 37. Ch. 5-37 Strategies in ActionStrategies in Action DefinedDefined • Two or more sponsoring firms forming a separate organization for cooperative purposes ExampleExample • Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones. Joint VentureJoint Venture
  38. 38. Ch. 5-38 Strategies in ActionStrategies in Action Guidelines for Joint VentureGuidelines for Joint Venture  Combination of privately held and publicly held can be synergistically combined  Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks  Distinctive competencies of two or more firms are complementary  Overwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline)  Two or more smaller firms have trouble competing with larger firm  A need exists to introduce a new technology quickly
  39. 39. Ch. 5-39 Strategies in ActionStrategies in Action DefinedDefined • Regrouping through cost and asset reduction to reverse declining sales and profit ExampleExample • Singer, the sewing machine company, declared bankruptcy. RetrenchmentRetrenchment
  40. 40. Ch. 5-40 Strategies in ActionStrategies in Action Guidelines for RetrenchmentGuidelines for Retrenchment  Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies  Firm is one of the weaker competitors  Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.  When an organization’s strategic managers have failed  Very quick growth to large organization where a major internal reorganization is needed.
  41. 41. Ch. 5-41 Strategies in ActionStrategies in Action DefinedDefined • Selling a division or part of an organization ExampleExample • Harcourt General, the large US publisher, is selling its Neiman Marcus division. DivestitureDivestiture
  42. 42. Ch. 5-42 Strategies in ActionStrategies in Action Guidelines for DivestitureGuidelines for Divestiture  When firm has pursued retrenchment but failed to attain needed improvements  When a division needs more resources than the firm can provide  When a division is responsible for the firm’s overall poor performance  When a division is a misfit with the organization  When a large amount of cash is needed and cannot be obtained from other sources.
  43. 43. Ch. 5-43 Strategies in ActionStrategies in Action DefinedDefined • Selling all of a company’s assets, in parts, for their tangible worth ExampleExample • Ribol sold all its assets and ceased business. LiquidationLiquidation
  44. 44. Ch. 5-44 Strategies in ActionStrategies in Action Guidelines for LiquidationGuidelines for Liquidation  When both retrenchment and divestiture have been pursued unsuccessfully  If the only alternative is bankruptcy, liquidation is an orderly alternative  When stockholders can minimize their losses by selling the firm’s assets
  45. 45. Ch. 5-45 Michael Porter’s Generic StrategiesMichael Porter’s Generic Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies
  46. 46. Ch. 5-46 Key Terms & ConceptsKey Terms & Concepts • Acquisition • Backward integration • Bankruptcy • Combination strategy • Concentric diversification • Conglomerate diversification • Cooperative arrangements • Cost leadership • Differentiation • Diversification strategies • Divestiture • Focus • Forward integration • Franchising • Generic strategies • Horizontal diversification • Horizontal integration • Integration strategies
  47. 47. Ch. 5-47 Key Terms & ConceptsKey Terms & Concepts (Cont’d)(Cont’d) • Intensive strategies • Joint venture • Leveraged buyout • Liquidation • Merchant banking • Market development • Market penetration • Merger • Outsourcing • Product development • Retrenchment • Takeover • Vertical integration
  48. 48. Ch. 5-48 Key Terms & ConceptsKey Terms & Concepts (Cont’d)(Cont’d) • Product and service planning • Production/operations functions • Profitability ratios • Research and development • Selling • Social responsibility • Staffing • Synergy • Test marketing

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