Strategies in action
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  • 1. Chapter 5 Strategies in Action
    • Strategic Management: Concepts & Cases
    • 11 th Edition
    • Fred David
  • 2. Chapter Outline Long-Term Objectives Types of Strategies Integration Strategies
  • 3. Chapter Outline ( cont’d ) Intensive Strategies Diversification Strategies Defensive Strategies
  • 4. Chapter Outline ( cont’d ) Michael Porter’s Generic Strategies Means for Achieving Strategies First Mover Advantages
  • 5. Chapter Outline ( cont’d ) Outsourcing Strategic Management in Nonprofit & Governmental Organizations Strategic Management in Small Firms
  • 6.
    • Strategies for 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
  • 7.
    • -- Quest for higher revenues
    • -- Quest for higher profits
    Strategies in Action Companies Embrace Strategic Planning
  • 8.
    • Results expected from pursuing certain strategies
    • Strategies represent actions to accomplish long-term objectives
    Long-Term Objectives
  • 9. Long-Term Objectives Objectives --
    • Quantifiable
    • Measurable
    • Realistic
    • Understandable
    • Challenging
  • 10. Long-Term Objectives Objectives --
    • Hierarchical
    • Obtainable
    • Congruent
    • Time-line
  • 11. Long-Term Objectives Strategists Should Avoid --
    • Managing by Extrapolation
    • Managing by Crisis
    • Managing by Subjectives
    • Managing by Hope
  • 12. Varying Performance Measures by Organizational Level
  • 13. Financial vs. Strategic Objectives Financial Objectives
    • Growth in revenues
    • Growth in earnings
    • Higher dividends
    • Higher profit margins
    • Higher earnings per share
    • Improved cash flow
  • 14. 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
  • 15. 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
  • 16. Not Managing by Objectives
    • Managing by extrapolation
    • Managing by crisis
    • Managing by subjectives
    • Managing by hope
  • 17. 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
  • 18. Types of Strategies Operational Level Functional Level Division Level Corp Level A Large Company
  • 19. Types of Strategies Operational Level Functional Level Company Level A Small Company
  • 20. Types of Strategies Vertical Integration Strategies Forward Integration Backward Integration Horizontal Integration
  • 21. Vertical Integration Strategies Gain Control Over --
    • Distributors
    • Suppliers
    • Competitors
  • 22. Forward Integration Strategies Gain Control Over --
    • Distributors
    • Retailers
  • 23. Forward Integration Strategies Guidelines --
    • Current distributors – expensive or unreliable
    • Availability of quality distributors – limited
    • Firm competing in industry expected to grow markedly
    • Firm has both capital & HR to manage new business of distribution
    • Current distributors have high profit margins
  • 24. Backward Integration Strategies Ownership or Control --
    • Firm’s suppliers
  • 25. Backward Integration Strategies Guidelines --
    • Current suppliers – expensive or unreliable
    • # of suppliers is small; # of 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
  • 26. Horizontal Integration Strategies Ownership or Control --
    • Firm’s competitors
  • 27. Horizontal Integration Strategies Guidelines --
    • 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
  • 28. Types of Strategies Intensive Strategies Market Penetration Market Development Product Development
  • 29. Intensive Strategies Intensive Efforts --
    • Improve competitive position with existing products
  • 30. Market Penetration Strategies Increased Market Share --
    • Present products/services
    • Present markets
    • Greater marketing efforts
  • 31. 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
  • 32. Market Development Strategies New Markets --
    • Present products/services to new geographic areas
  • 33. Market Development Strategies Guidelines --
    • 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
  • 34. Product Development Strategies Increased Sales --
    • Improving present products/services
    • Developing new products/services
  • 35. Product Development Strategies Guidelines --
    • 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
  • 36. Types of Strategies Diversification Strategies Related Diversification Unrelated Diversification
  • 37. Diversification
    • Related – When their value chains posses competitively valuable cross-business strategic fits
    • Unrelated – When their value chains are so dissimilar that no competitively valuable cross-business relationships exist
  • 38. Related Diversification Preferred To Capitalize on:
    • Transferring competitively valuable expertise
    • Combining the related activities of separate businesses into a single operation to lower costs
    • Exploiting common use of a well-known brand name
    • Cross-business collaboration to create competitively valuable resource strengths and capabilities
  • 39. Diversification Strategies Less Popular --
    • More difficult to manage diverse business activities
    However --
    • The greatest risk of being in a single industry is having all your eggs in one basket
  • 40. Related Diversification May be Effective When:
    • An organization competes in a no-growth or a slow growth industry
    • Adding new, but related, products would significantly enhance the sales of current products
    • New, but related products could be offered at highly competitive prices
  • 41. Related Diversification May be Effective When:
    • New, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys
    • An organization’s products are currently in the declining stage of the product’s life cycle
    • An organization has a strong management team
  • 42. 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
  • 43. Unrelated Diversification
    • Favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance
    • Entails hunting to acquire companies:
      • Whose assets are undervalued
      • That are financially distressed
      • With high growth potential but are short on investment capital
  • 44. Unrelated Diversification May be Effective When:
    • Revenues derived from an organization’s current products or services would increase by adding new unrelated products
    • An organization competes in a highly competitive or a no growth industry
    • An organization’s current distribution channels can be used to market new products to existing customers
  • 45. Unrelated Diversification May be Effective When:
    • New products have countercyclical sales patterns
    • An organization’s basic industry is experiencing declining annual sales and profits
    • An organization has the capital and managerial talent to compete successfully in a new industry
  • 46. Unrelated Diversification May be Effective When:
    • An organization has the opportunity to purchase an unrelated business as an attractive investment opportunity
    • There exists financial synergy between the acquired and acquiring firm
    • Existing markets for the present products are saturated
    • Antitrust action could be charged against a company
  • 47. Types of Strategies Defensive Strategies Retrenchment Divestiture Liquidation
  • 48. Retrenchment Strategies Regrouping --
    • Cost & asset reduction to reverse declining sales & profit
  • 49. Bankruptcy
    • Chapter 7 – Liquidation
    • Chapter 9 – Municipalities
    • Chapter 11 – Reorganization for Corporations
    • Chapter 12 – Family Farmers
    • Cheaper 13 – Reorganization for Small Businesses and Individuals
  • 50. 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
  • 51. Divestiture Strategies
    • Selling a division or part of an organization
  • 52. 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
  • 53. Liquidation Strategies
    • Company’s assets, in parts, for their tangible worth
    Selling
  • 54. Liquidation Strategies Guidelines --
    • Retrenchment & divestiture failed
    • Only alternative is bankruptcy
    • Minimize stockholder loss by selling firm’s assets
  • 55. Michael Porter’s Generic Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies
  • 56.  
  • 57. Generic Strategies
    • In conjunction with differentiation
    • Economies or diseconomies of scale
    • Capacity utilization achieved
    • Linkages w/ suppliers & distributors
    Cost Leadership (Type 1 and Type 2)
  • 58. Cost Leadership
    • Ways of ensuring total costs across value chain are lower than competitors’ total costs
      • Perform value chain activities more efficiently than rivals and control factors that drive costs
      • Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities
  • 59. Cost Leadership
    • Can be especially effective when:
      • Price competition among rivals is vigorous
      • Rival’s products are identical and supplies are readily available
      • There are few ways to achieve differentiation
      • Most buyers use the product in the same way
      • Buyers have low switching costs
      • Buyers are large and have significant power
      • Industry newcomers use low prices to attract buyers
  • 60. 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
  • 61. Generic Strategies
    • Greater product flexibility
    • Greater compatibility
    • Lower costs
    • Improved service
    • Greater convenience
    • More features
    Differentiation (Type 3)
  • 62. Differentiation
    • Can be especially effective when:
      • There are many ways to differentiate and many buyers perceive the value of the differences
      • Buyer needs and uses are diverse
      • Few rival firms are following a similar differentiation approach
      • Technology change is fast paced and competition revolves around evolving product features
  • 63. Generic Strategies
    • Industry segment of sufficient size
    • Good growth potential
    • Not crucial to success of major competitors
    Focused Strategies (Type 4 & 5)
  • 64. Focused Strategy
    • Can be especially effective when:
      • The target market niche is large, profitable, and growing
      • Industry leaders do not consider the niche crucial
      • Industry leaders consider the niche too costly or difficult to meet
      • The industry has many different niches and segments
      • Few, if any, other rivals are attempting to specialize in the same target segment
  • 65.  
  • 66. Means for Achieving Strategies
      • Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity
    Joint Venture/Partnering -
  • 67. Reasons why Mergers and Acquisitions Fail
    • Integration difficulties
    • Inadequate evaluation of target
    • Large or extraordinary debt
    • Inability to achieve synergy
  • 68. Means for Achieving Strategies
      • R&D partnerships
      • Cross-distribution agreements
      • Cross-licensing agreements
      • Cross-manufacturing agreements
      • Joint-bidding consortia
    Cooperative Arrangements -
  • 69. 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 -
  • 70. 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
  • 71. Reasons why Mergers and Acquisitions Fail
    • Too much diversification
    • Managers overly focused on acquisition
    • Too large an acquisition
    • Difficult to integrate different organizational cultures
    • Reduced employee moral due to layoffs and relocations
  • 72. 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
  • 73. Recent Mergers Overnight Corp. United Parcel Service American West US Airways Macromedia Adobe Systems Brookstone OSIM International Ltd PeopleSoft Oracle National Steel Corp U.S. Steel PT Hanjaya Mandala Samp Philip Morris Ascential Software IBM Acquired Firm Acquiring Firm
  • 74. First Mover Advantages
      • Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms
  • 75. 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
  • 76. Outsourcing
      • Companies taking over the functional operations of other firms
    Business-process outsourcing (BPO)
  • 77. Outsourcing
      • Less expensive
      • Allows firm to focus on core business
      • Enables firm to provide better services
    Benefits
  • 78.
    • Key Terms & Concepts
    For Review (Chapter 5) Acquisition Concentric Diversification Backward Integration Conglomerate Diversification Bankruptcy Cooperative Arrangements Combination Strategy Cost Leadership
  • 79.
    • Key Terms & Concepts
    For Review (Chapter 5) Differentiation Focus Diversification Strategies Forward Integration Divestiture Franchising First Mover Advantages Generic Strategies
  • 80.
    • Key Terms & Concepts
    For Review (Chapter 5) Horizontal Diversification Intensive Strategies Horizontal Integration Joint Venture Hostile Takeover Leveraged Buyout Integration Strategies Liquidation
  • 81.
    • Key Terms & Concepts
    For Review (Chapter 5) Long-Term Objectives Outsourcing Market Development Product Development Market Penetration Retrenchment Merger Vertical Integration