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Strategic management ch 05 by wajahat ali


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Strategic management ch 05 by wajahat ali :

Strategic management ch 05 by wajahat ali :

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  • 1. 1
  • 3. First of all thanks to Allah Almighty who gave usthe spirit to complete this task, which was givenby Honorable ‘Sir Prof.Ghulam Nabi,Chairman Dept. of Business Administration’and thanks to our parents who supported us alot for all of this. 3
  • 4. GROUP INTRODUCTIONName of Wajahat Ali Ghulam (Group Leader),Group Zill-e-Subhani, Majid Mehmood,Members: Kamran Rasheed, Safdar Hussain.Roll Nos. 01, 15, 23, 48, 83Group NO. 01 FACULTY OF ADMINISTRATIVE SCEICNES UNIVERSITY OF AZAD JAMMU & KASHMIR DEPARTMENT OF BUSINESS ADMINISTRATION. 4
  • 5. PRESENTATION ON• Chapter Five• Strategic Management CONCEPTS & CASES• Thirteenth Edition• By FRED R. DAVID 5
  • 6. LONG TERM OBJECTIVES Long – Term Objective Long – Term objectives represent the results expected from perusing certain strategies. Strategies represent the actions to be taken to accomplish long – term objectives. 6
  • 7. The Nature of Long – Term ObjectivesObjectives should be: - Quantitative Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent 7
  • 8. Long term Objectives are Needed:1). Corporate Level2). Divisional Level3).Functional LevelThey are important measure of managerialPerformance. 8
  • 9. FINANCIAL VS. STRATEGIC OBJECTIVESTwo Types of objectives are especiallycommon in organizations: -1) . Financial Objectives2) . Strategic Objectives 9
  • 10. 1). FINANCIAL OBJECTIVESFinancial objectives include those associated with1) Growth in revenues2) Growth in earning3) Higher dividends4) Larger profit margins5) Greater return on investment6) Higher earning per share7) A rising stock price8) Improved cash cow, and so on; 10
  • 11. 2). STRATEGIC OBJECTIVESStrategic objectives include those associated with1) Larger market share2) Quicker on – time delivery than rivals3) Shorter design-to-market than rivals4) Lower costs than rivals5) Higher product quality than rivals6) Wider geographic coverage than rivals7) Achieving technological leadership8) Consistently getting new or improved products to markets ahead of rivals, and so on 11
  • 12. NOT MANAGING BY OBJECTIVESStrategists should avoid the followingalternatives ways to “ Not managing byObjectives”.1). Managing by Extrapolation2). Managing by Crisis3). Managing by Subjectives4). Managing by Hope 12
  • 13. 1).Managing by Extrapolation:- Adheres to the principle“If it isnt broke, don’t fix it.” The idea is to keep on doingabout the same things in the same ways because thingsare going well.2).Managing by Crisis:- Based on the belief that the truemeasure of really good strategist is the ability to solveproblems.3). Managing by Subjectives:- Built on the idea that thereis no general plan for which way to go and what to do; justdo the best you can accomplish what you think should bedone.4). Managing by Hope:- Based on the fact that the future isladen with great uncertainty and that if we try and do notsucceed, then we hope our second (or third) attempt will. 13
  • 14. THE BALANCED SCORECARD It is a strategy evaluation and control technique. An effective Balanced Scorecard contains a carefully chosen combination of strategic and financial objectives tailored to the companys business. A Balanced Scorecard for a firm is simply a listing of all key objectives to work toward, along with an associated time dimension of when each objective is to be accomplished. It is also a primary responsibility or contact person, department, or division for each objective. 14
  • 15. TYPES OF STRATEGIESTypes of strategies that a enterprise could perusecan be categorized in to 11 action: -1) Forward Integration2) Backward Integration3) Horizontal Integration4) Market Penetration5) Market Development6) Product Development7) Related Diversification8) Unrelated Diversification9) Retrenchment10) Divestiture11) Liquidation. 15
  • 16. INTEGRATION STRATEGIESForward Integration, Backward Integration & HorizontalIntegration are sometimes collectively referred to asintegration strategies.Vertical integration strategies allow a firm to gain controlover distributors, suppliers, and/ or competitors.Forward Integration: -It involves gaining ownership or increased control overdistributors or retailers.Increasing numbers of manufacturers (suppliers) today arepursuing a forward integration strategy by establishingWebsites to directly sell products to consumers. 16
  • 17. Six Guidelines indicate when forward integration may be an effective strategy: -1. When an organization’s present distributors are especially expensive, or unreliable, or incapable of meeting the firm’s distribution needs.2. When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward.3. When an organization competes in an industry that is growing and is expected to continue to grow markedly.4. When an organization has both the capital and human resources needed to manage the new business of distributing its own products.5. When the advantages of stable production are particularly high.6. When present distributors or retailers have high profit margins. 17
  • 18. BACKWARD INTEGRATION Both manufacturers and retailers purchase needed material from suppliers. Backward integration is a strategy of seeking ownership or increased control of a firm’s suppliers. This strategy can be especially appropriate when a firm’s current suppliers are unreliable, too costly, or cannot meet the firm’s needs. 18
  • 19. Seven Guidelines indicate when backward integration may be an effective strategy: -1. When an organization’s present suppliers are especially expensive, or unreliable, or incapable of meeting the firm’s distribution needs for parts, components, assemblies, or raw materials.2. When the number of suppliers is small and the number of competitors is large.3. When an organization competes in an industry that is growing rapidly.4. When an organization has both the capital and human resources needed to manage the new business of supplying its own raw materials.5. When the advantages of stable prices are particularly important.6. When present supplies have high profit margins.7. When an organization needs to quickly acquire a needed resources. 19
  • 20. HORIZENTAL INTEGRATION Horizontal Integration refers to a strategy of seeking ownership of or increased control over firm’s competitors. Horizontal Integration is now a significant trend in Strategic Management. 20
  • 21. Five Guidelines indicate when Horizontal integration may be an effective strategy: -1) When an organization can gain monopolistic characteristics in a particular area or region.2) When an organization competes in a growing industry. When increased economies of scale provide major competitive advantages.3) When an organization has both the capital and human competitive advantages.4) When competitors are faltering due to a lack of managerial expertise or a need for particular resources that an organization possesses. 21
  • 22. INTENSIVE STRATEGIES“Market penetration, market development,and product development are sometimesreferred to as intensive strategies becausethey require intensive efforts if a firm’scompetitive position with existing products isto improve”. 22
  • 23. MARKET PENETRATIONA Market penetration strategy seeks to increase marketshare for present products or services in presentmarket through greater marketing efforts.A Market penetration includes increasing the numberof salespersons, increasing advertising expenditures,offering extensive sales promotion items, or increasingpublicity efforts. 23
  • 24. Five Guidelines indicate when Market Penetration may be an effective strategy: -1). When current markets are not saturated with a particular product or service.2). When the usage rate of present customers could be increased significantly.3). When the market share of major competitors have been declining while total industry sales have been Increasing.4). When the correlation between dollar sales and dollar marketing expenditures historically has been high. When increased economics of scale provide major competitive advantages. 24
  • 25. MARKET DEVELOPEMENT“Market development involves introducing products or servicesinto new geographic area.”Six Guidelines indicate when Market Development may be an effective strategy: -1).When new channels of distribution are available that arereliable, inexpensive, and of good quality.2).When an organization is very successful at what it does.3).When new untapped or unsaturated at what it does.4).When an organization has the needed capital and human resources to mange expanded operations.5).When an organization has excess production capacity.6).When an organizations basic industry is rapidly becoming global in scope. 25
  • 26. PRODUCT DEVELOPEMENT Product Development is a strategy that seeks increased sales by improving or modifying present products or services. Product Development usually entails large research and development expenditures. 26
  • 27. Six Guidelines indicate when Product Development may be an effective strategy: -1). When an organization has successful products that are in the maturity stage of the product life cycle.2). When an organization competes in an industry that is characterized by rapid technological developments.3). When major competitors offer better-quality products at comparable prices.4). When an organization competes in an high – growth industry.5). When an organization has especially strong research and development capabilities. 27
  • 28. DIVERSIFICATION STRATEGIESThere are two general types of diversification strategies: -1). Related diversification strategies2). Unrelated diversification strategies 28
  • 29. 1). Related Diversification & 2). Unrelated Diversification1). Businesses are said to be related when their value chains posses competitively valuable cross – business strategic fits;2). Businesses are said to be unrelated when their value are so dissimilar that no competitively valuable cross – business relationship exist. 29
  • 30. Six Guidelines indicate for when related diversification may be an effective strategy are as follows: -1).When an organization competes in a no – growth or a slow – growth industry.2).When adding new, nut related, products would significantly enhance the sales or current products.3).When new, but related, products could be offered at highly competitive prices.4).When new, but related, products have seasonal sales levels that counterbalance an organizations existing peaks and valleys.5).When an organization’s products are currently in the declining stage of the product’s life cycle.6). When an organization has a strong management team. 30
  • 31. Ten Guidelines when un - related diversification may be an especially effective strategy are: -1). When revenues derived from an organization’s current products or services would increase significantly by adding the new, related products.2). When an organization competes in an highly competitive and/or no – growth industry.3). When an organization’s present channels of distribution can be used to market the new products.4).When the new products have countercyclical sales patterns compared to an organization’s products.5). When an organization’s basic industry is experiencing declining annual sales and profits 31
  • 32. Six Guidelines indicate for when related diversification may be an effective strategy are as follows: -6). When an organization has the capital and managerial talent needed to compete successfully in a new industry.7). When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity.8). When there exists financial synergy between the acquired and acquiring firm.9). When the existing markets for an organizations present products are saturated.10). When antitrust action could be charged against an organization that historically has concentrated on a single industry. 32
  • 33. DEFENSIVE STRATEGIESIn addition to integrative, intensive, and diversificationstrategies, organizations also could pursueretrenchment, divestiture, or liquidation.Retrenchment: -Retrenchment occurs when an organization regroupsthrough cost and asset reduction to reverse decliningsales and profits.Sometimes called a turn round or reorganizationstrategy, retrenchment is designed to fortify anorganization’s basic distinctive competence. 33
  • 34. Five Guidelines indicate for when retrenchment may be an especially effective strategy are as follows: -1). When an organizations has a clearly distinctive competence but has failed consistently to meet its objectives and goals over time.2). When an organizations is one of the weaker competitors in given industry.3). When an organization’s is plagued by inefficiently, low profitability, poor employee morale, and pressure from stockholders to improve performance.4). When an organization has failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses overtime.5). When an organization has grown so large so quickly 34 that major internal reorganization is needed.
  • 35. DIVESTITURE Selling a division or part of an organization is called divestiture. Divestiture is often used to raise capital for further strategic acquisitions or investments. Divestiture can be part of an overall retrenchment strategy to rid an organization of business that are unprofitable, that require too much capital, or that do not fit well with the firm’s other activities. Divestiture has also become a popular strategy for firms to focus on their core businesses and become less diversified. 35
  • 36. Six Guidelines indicate for when Divestiture may be an especially effective strategy are as follows: -1). When an organization has pursued a retrenchment strategy and failed to accomplish needed improvements.2). When a division needs more resources to be competitive than the company can provide.3). When a division is responsible for an organization’s overall poor performance.4). When a division is misfit with the rest of an organization.5). When a large amount of cash is need quickly and cannot be obtained reasonably from other sources.6). When Government antitrust action threatens an organization. 36
  • 37. LIQUIDATION“Selling all of company’s assets, in parts, for their tangible worth is called liquidation. Liquidation is a recognition of defeat and consequently can be an emotionally difficult strategy”. 37
  • 38. Three Guidelines indicate for when Liquidation may be an especially effective strategy are as follows: -1). When an organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful.2). When an organization’s only alternative is bankruptcy.3). When the stakeholders of a firm can minimize their losses by selling the organizations assets. 38
  • 39. Michael Porter’s Five Generic StrategiesAccording to porter, strategy allow organizationsTo gain competitive advantage from three differentbases:1). Cost leadership2). Differentiation3). FocusPorter called these bases “Generic Strategies”. 39
  • 40. COST LEADERSHIPCost leadership emphasizes producingstandardized products at a very low per –unit cost for consumers who are price –sensitive.Two alternative types of cost leadershipstrategies can defined: -1). TYPE 12). TYPE 2 40
  • 41. TYPE 1 & TYPE 2 TYPE 1 & TYPE 2Type 1 is low cost strategy that offers products or services to wide range of customers at the lowest price available on the market.Type 2 is best – value available on the Market; the best – value strategy aims to offer customers a range of products or services at the lowest price available compared to rival’s products with similar attributes. 41
  • 42. TYPE 3 (Differentiation)Porter’s Type 3 generic strategy isdifferentiation, a strategy aimed at producingproducts and services considered uniqueindustry wide and directed at consumerswho are relatively price – insensitive. 42
  • 43. FOCUS FOCUSFocus means producing products andservices that fulfill the needs of small groupsof consumers. Two alternative types of focusstrategies are: -1). TYPE 42). TYPE5 43
  • 44. TYPE 4 & TYPE 5Type 4 is low – cost focus strategy that offers products or services to a small group niche group) of customers at the lowest price available on the market.Type 5 is best – value available on the market. Sometimes called “Focused Differentiation”, the best – value focus strategy aims to offer a niche group of customers products or services that meet their tastes and requirements better than rivals’ products do. 44
  • 45. PORTERS’ GENERIC STRATEGIES Cost Leadership Differentiation FocusLARGE TYPE 1 TYPE 3 TYPE 2 TYPE 3 TYPE 4SMALL TYPE 5 45
  • 46. COST LEADERSHIP STRATEGIES (TYPE 1 & TYPE 2) A primary reason for pursuing forward, backward and horizontal integration strategies is to gain low – cost or best – value cost leadership benefits. But cost leadership generally must be pursued in conjunction with differentiation. A number of cost elements affect the relative attractiveness of generic strategies, including economics or diseconomies of the scale achieved, learning experience curve effects, the percentage of capacity utilization achieved, and linkages with suppliers and distributors. 46
  • 47. Seven Guidelines indicate for when TYPE 1 & TYPE 2may be an especially effective strategy are as follows:1). When price competition among rival sellers is especially vigorous.2).When the products of rival sellers are essentially identical and suppliers are readily available from any of several eager sellers.3). When there are few ways to achieve product differentiation that have value to buyers.4). When most buyers use the product in the same ways.5). When buyers incur low costs in switching their purchases from one seller to another.6). When buyers are large and have significant power to bargain down prices.7). When industry newcomers use introductory low prices 47 to attract buyers and build a customer base.
  • 48. DIFFERENTIATION STRATEGIES (TYPE 3) Different strategies offer different degrees of differentiation. Differentiation does not guarantee competitive advantage, especially if standard products sufficiently meet customer needs or if rapid imitation by competitors is possible. Durable products protected by barriers to quick copying by competitors are best. Successful differentiation can mean greater product flexibility, greater compatibility, lower costs, improved service, less maintenance, greater convenience, or more features. 48
  • 49. Four Guidelines indicate for when TYPE 3 may be an especially effective strategy are as follows:1). When there are many ways to differentiate the product or service and many buyers perceive these differences as having value.2). When buyers needs and uses are diverse.3). When few rival firms are following a similar differentiation approach.4). When technological change is fast paced and competition revolves around rapidly evolving product features. 49
  • 50. FOCUS STRATEGY (TYPE 4 & TYPE 5)“A successful focus strategy depends on anindustry segment tat is of sufficient size, hasgood growth potential, and is not crucial tothe success of to other major competitors.Strategies such as market penetration andmarket development offer substantialfocusing advantages”. 50
  • 51. Four Guidelines indicate for when TYPE 4 & TYPE 5 may be an especially effective strategy are as follows:1).When the target market niche is large, profitable, and growing.2). When industry leaders do not consider the niche to be crucial to their own success.3). When an industry leaders consider it too difficult to meet the specialized needs of target market niche while taking care of their mainstream customers.4). When the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources.5). When few, if any, other rivals are attempting to specialize in the same target segment. 51
  • 52. Strategies for competing in Turbulent, High – Velocity MarketsThe World is changing more and more rapidly, andconsequently industries and firms themselves are changingfaster than ever.Some industries are changing so fast that researchers callthem turbulent, high – velocity markets, such astelecommunications, medical, biotechnology,pharmaceuticals, computer hardware, software, andvirtually all internet based industries. 52
  • 53. Means For Achieving Strategies Cooperation Among Competitors Strategy that stress cooperation among competitors are being used more. For collaboration between competitors to succeed, both firms must contribute something distinctive, such as technology ,distribution, basic research, or manufacturing capacity. But a major risk is that unintended transfers of important skills or technology may occur at organizational levels below where the deal was signed. 53
  • 54. JOINT VENTURE/PARTNERINGJoint venture is popular strategy that occurs when two ormore companies form a temporary partnership orconsortium for the purpose of capitalizing on someopportunity.Often the two or more sponsoring firms form a separateorganization and have shared equity ownership in the newentity. 54
  • 55. A few common problems that cause joint ventures to fail are as follows:1). Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture.2). The Venture may benefit the partnering companies but may not benefit customers, who then complain about poorer service or criticize that companies in other ways.3). The venture may not be supported equally by both partners. If supported unequally, problem arise.4). The venture may begin to compete more with one of the partners than the other. 55
  • 56. Six Guidelines indicate for when Joint Venture may be an especially effective means for pursuing strategies:1).When a private owned organization is forming a joint venture with a publicity owned organization; there are some advantages to being privately held, such as closed ownership.2). When a domestic organization is forming a joint venture with a foreign company.3). When the distinct competencies of two or more firms complement each other especially well.4). When the project is potentially very profitable but requires overwhelming resources and risks.5). When two or more smaller firms have trouble competing with a large firm.6). When there exists a need to quickly introduce a new 56 technology.
  • 57. MERGER/AQUISTIONMerger and acquisition are two commonly used ways topursue strategies .A merger occurs when two organizationsof about equal size unite to form one enterprise.An Acquisition occurs when a large organization purchases(Acquires) a smaller firm, or vice versa. 57
  • 58. FIRST MOVER ADVANTAGESFirst mover advantage refer the benefits a firm mayachieve by entering a new market or developing a newproduct or service prior to rival firms.Strategic management research indicates that first moveradvantage tend to be greatest when competitors areroughly than same size and possess similar resources. 58
  • 59. OUTSOURCINGBusiness – process outsourcing (BPO) is rapidly growingnew business that involves companies taking over the Functional operations such as human resources information systems, payroll, accounting, customer service, and even marketing of other firms. 59
  • 60. Companies are choosing to outsource their functional operations more and more for several reasons: -1). It is less expensive2). It allows the firm to focus on its core businesses3). It enables the firm to provide better services.Other advantages of outsourcing are that the strategy:1). Allows the firm to align itself with “Best – in – World”. Suppliers who focus on performing the special task.2). Provides the firm flexibility should customer needs shift unexpectedly.3). Allows the firm to concentrate on other internal value chain activities critical to sustaining competitive advantage. 60
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