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Grand strategy


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Grand strategy

  1. 2. AGENDA: STRATEGIES <ul><li>Choices/Types of Strategies </li></ul><ul><ul><li>Analytical Tools for Strategic Direction-Setting </li></ul></ul><ul><ul><li>SWOT, </li></ul></ul><ul><ul><li>BCG, </li></ul></ul><ul><ul><li>SPACE, </li></ul></ul><ul><ul><li>IE and </li></ul></ul><ul><ul><li>GRAND STRATEGY </li></ul></ul><ul><li>Setting of Strategic Objectives </li></ul>
  3. 4. TYPES OF STRATEGIES <ul><li>Intensive </li></ul><ul><li>Market Penetration </li></ul><ul><li>Market Development </li></ul><ul><li>Product Development </li></ul><ul><li>Defensive </li></ul><ul><li>Retrenchment </li></ul><ul><li>Divestiture </li></ul><ul><li>Liquidation </li></ul><ul><li>Diversification </li></ul><ul><li>Concentric Diversification </li></ul><ul><li>Horizontal Diversification </li></ul><ul><li>Conglomerate Diversification </li></ul><ul><li>Integration </li></ul><ul><li>Forward Integration </li></ul><ul><li>Backward Integration </li></ul><ul><li>Horizontal Integration </li></ul>
  4. 5. Forward Integration <ul><li>Gaining ownership or increased control over distributors. </li></ul><ul><li>FedEx completed a buyout of Tianjin Datian's domestic express delivery network as part of the $400 million deal, giving it 89 office locations across China to help it compete with UPS , DHL and TNT in the booming Chinese logistic market. </li></ul>
  5. 6. Backward Integration <ul><li>Seeking ownership or increased control of firm’s suppliers. </li></ul><ul><li>2007 - Symrise acquires Paris/Madagascar-based Aromatics S.A.S. Symrise, one of the world's leading manufacturers of flavors and fragrances, is continuing to expand its international business activities in the sector of natural raw materials and extracts. “This backward integration in the field of vanilla has successfully proven that it translates into first-class raw materials and a secure supply chain , as well as reliability and traceability for our customers,” said Heinrich Schaper, President Flavor & Nutrition EAME (Europe, Africa, Middle East) at Symrise </li></ul>
  6. 7. Horizontal Integration <ul><li>Seeking ownership of competitors. </li></ul><ul><li>2000: Pfizer, the manufacturer of Viagra, boosted its market cap from $172 billion to $271 billion after acquiring rival Warner-Lambert Co. rising from global No. 20 to No. 4. </li></ul><ul><li>2007: Pfizer has entered into an agreement to acquire Coley Pharmaceutical Group, Inc. a publicly-held biopharmaceutical company specializing in vaccine adjuvant technology and a new class of immunomodulatory drug candidates designed to fight cancers, allergy and asthma disorders, and autoimmune diseases. </li></ul>
  7. 8. <ul><li>Increasing market share for present products in present markets through greater marketing efforts. </li></ul><ul><li>In the 1960s and early 1970s, PepsiCo was a much more aggressive and innovative company than Coca Cola . When Coke finally woke up-after losing its market leadership--it did a terrific job of advertising, too. And when Pepsi's managers responded by revving up their already aggressive advertising, the result made history. Industry growth has doubled, and both companies' market shares were the highest ever. </li></ul><ul><li> </li></ul>Market Penetration
  8. 9. Market Development <ul><li>Introducing present products in new geographic area or finding new market segments for present products . . </li></ul><ul><li>After years of speculation, last June 2007 the iPhone, perhaps the most hyped consumer electronics device ever created, started shipping in the US. </li></ul><ul><li>Jobs said Apple plans to bring the iPhone to Europe in the fourth calendar quarter of 2007, and to Asia in 2008. </li></ul>
  9. 10. Product Development <ul><li>increasing sales by improving present products or developing new ones. </li></ul><ul><li>Nokia is constantly developing newer versions of their cell phones. </li></ul>
  10. 11. Related (Concentric) Diversification <ul><li>adding new but related products . </li></ul><ul><li>Telephone companies and cable firms offer Internet access. </li></ul>
  11. 12. Unrelated Diversification <ul><li>adding new unrelated products or services </li></ul><ul><li> originally offered books and CDs. Now its assortment is huge with kitchen sections, auction sections etc </li></ul><ul><li>GE makes power plants, locomotives, lightbulbs, and refrigerators; GE manages more credit cards than American Express. </li></ul>
  12. 13. Retrenchment <ul><li>Regroup through cost and asset reduction to reverse declining profit. </li></ul><ul><li>In 2002 Club Med kicked off a cost-cutting program expected to save up to $36 million a year by merging regional offices and closing 17 of 120 resorts. &quot;We're shrinking temporarily to face lower demand,&quot; says Bourguignon, Club Med CEO </li></ul>
  13. 14. Divestiture <ul><li>Selling a division or part of an organization. </li></ul><ul><li>In 1997 Sara Lee embarked on a major restructuring designed to boost both profits, which had been growing by just 6 percent a year since 1992. Sara Lee aimed to shift from a manufacturing and sales orientation to one focused foremost on marketing the firm's top brands. The company sold off more than 110 manufacturing and distribution facilities over the next two years. </li></ul>
  14. 15. Liquidation <ul><li>Selling all of a company’s assets. </li></ul><ul><li>GM liquidated its Canadian factory that made Camaros and Firebirds. </li></ul>
  15. 16. Means For Achieving Strategies <ul><li>Joint venture/Partnering – two firms form another org for cooperative purposes. Movielink is a joint venture by five major movie studios aimed at creating an Internet video-on-demand service. </li></ul><ul><li>Merger – when two organizations of about equal size unite to form one enterprise. Equitable and PCI Bank merge. </li></ul><ul><li>Acquisition – when a large organization purchases a smaller firm. Pfizer acquired Pharmacia for $50 billion. </li></ul>
  16. 17. Why Is It Not Advisable To Pursue Too Many Strategies At Once? <ul><li>Organizational resources are spread too thin. </li></ul><ul><li>All organizations have limited resources. No organization can pursue all the strategies . </li></ul><ul><li>No more than a few strategies can be financed, marketed, and managed effectively at the same time. </li></ul><ul><li>Some practitioners say only a single strategy should be pursued at a given time by a single organization. </li></ul>
  17. 18. Michael Porter’s Generic Strategies Target Market
  18. 19. Cost Leadership Strategy <ul><li>Successful cost leaders develop competitive advantage by offering of comparable quality at lower prices than most industry competitors. </li></ul><ul><li>Seeks efficient facilities, employs tight cost controls </li></ul><ul><li>Probably most effective in those markets where price is the most important factor (over service, technology, or product characteristics). </li></ul><ul><li>Seek to exploit economies of scale and experience by maximizing sales volume </li></ul>01/14/96
  19. 20. Differentiation Strategy <ul><li>Seeks to distinguish its products and services from competitors </li></ul><ul><li>Features what is important & valuable to buyers </li></ul><ul><li>Firms must develop strong marketing capabilities and a reputation for quality or uniqueness . </li></ul>01/14/96 <ul><li>technical superiority </li></ul><ul><li>quality </li></ul><ul><li>support services </li></ul><ul><li>guarantees </li></ul><ul><li>image/prestige/reliability </li></ul><ul><li>delivery </li></ul><ul><li>style </li></ul><ul><li>options </li></ul>
  20. 21. Focus Strategy <ul><li>These firms seek overall cost leadership or perceived uniqueness, but they “focus” that advantage on a particular market segment. </li></ul><ul><ul><li>segment is big enough to be profitable </li></ul></ul><ul><ul><li>segment has good growth potential </li></ul></ul><ul><ul><li>Firm has superior ability to serve buyers in segment </li></ul></ul>
  22. 23. SWOT MATRIX STRENGTHS 1 2 List 3 strengths 4 5 OPPORTUNITIES 1 2 List 3 opportunites 4 5 SO Strategies 1 2 Use strength 3 to take advan- 4 tage of oppor- 5 tunities THREATS 1 2 List 3 threats 4 5 ST Strategies 1 2 Use strengths 3 to avoid 4 threats 5 WT Strategies 1 2 Minimize 3 weaknesses & 4 avoid threats 5 WO Strategies 1 2 Overcome 3 weakness by 4 taking advantage 5 of opportunities WEAKNESSES 1 2 List 3 weaknesses 4 5 <ul><ul><ul><ul><ul><li>Fred David </li></ul></ul></ul></ul></ul>
  23. 24. SAMPLE SWOT STRENGTHS--S 1. Good editorial quality. 2. High readership ratings. 3. Market leadership. 4. Strong staff loyalty. 5. United Board of Directors OPPORTUNITIES—O 1. Better relations with government. 2. The youth market 3. The lower income markets. 4. Better newspaper technology. 5. Digital advertising. SO STRATEGIES 1. Introduce a new product for the youth market (S1, S2, S3,O1,O2) 2. Introduce a new product for the lower income market (S1,S2,S3, O1,O3) 3. Offer digital advertising services (S3, O4, O5). THREATS--T 1. Television. 2. High newsprint costs. 3. Declining readership. 4. Slowdown in the economy. 5. Internet and on-line publications. ST STRATEGIES 1. Introduce a free print medium. (S1,S2,S3, T1,T4) 2. Introduce a youth website. (S1,S3,T1,T5) WT STRATEGIES 1. Set up regional printing sites (W1, T2). 2. Merge non-revenue earning classifieds products into the main classifieds (W2,T2). WO STRATEGIES 1. Develop a readership program involving employees (W3,W4,O2,O3). 2. Convert non-revenue earning products into a youth publication (W1,W2, O2). WEAKNESSES—W 1. Profit margin squeeze. 2. No. 2 in classifieds. 3. Lack of a shared culture. 4. Complacency. 5. Lack of entrepreneurial spirit
  24. 25. Space Matrix Internal Strategic Position y-axis=fs + es IFE EFE
  25. 26. Space Matrix Example CPM External Strategic Position x-axis=ca + is 5 Forces
  26. 27. SPACE MATRIX Industry Strength -6 -5 -4 -3 -2 -1 Conservative Defensive Competitive Aggressive +1+2+3+4+5+6 +6 +5 +4 +3 +2 +1 -2 -3 -4 -5 -6 (+4.6, -3.2) External Strategic Position x-axis=ca(-1.0)+is(5.6)= +4.6 Internal Strategic Position y-axis=es(-5.2)+fs(2.0)= -3.2 The Company is competing fairly well in an unstable environment Financial Strength Environmental Stability Competitive Advantage
  27. 28. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX CA ES IS FS <ul><ul><ul><ul><ul><li>Fred David </li></ul></ul></ul></ul></ul>_ +1 +2 +3 +4 +5 +6 _ > Integration _ > Market Penetration _ > Market Development _ > Product Development _ > Joint Venture COMPETITIVE -6 -5 -4 -3 -2 -1 Rectify internal weaknesses -2 Avoid external threats -3 > Retrenchment -4 > Divestiture -5 > Liquidation -6 DEFENSIVE _ AGGRESSIVE _ > Market Penetration _ > Market Development _ > Product Development _ > Integration _ > Diversification CONSERVATIVE +6 Stay close to core comp, +5 No excessive risks +4 > Market Penetration +3 > Market Development +2 > Product Development +1 > Concentric Diversif 0
  28. 29. BCG MATRIX H M L Relative Market Share H M L 1.0 0.50 0.0 Industry Sales Growth Rate STARS Intensive strategies Integration strategies Diversification strategies QUESTION MARKS Intensive Strategies Divest DOGS Retrenchment Liquidation Divestment CASH COWS Product Development Concentric Diversification Grow Double or Quit Hold/Harvest Divest (Internal Strengths) (Industry Attractiveness ) <ul><ul><ul><ul><ul><li>Fred David </li></ul></ul></ul></ul></ul>
  29. 30. BCG MATRIX <ul><li>Used for Portfolio Management. </li></ul><ul><li>Relative market share: ratio of a division’s own market share to the market share held by the largest rival firm. Dividing point is usually selected to have only the two-three largest competitors fall in the high market share region. </li></ul><ul><li>Industry Growth Rate: Dividing point is typically the GNP’s growth rate. </li></ul><ul><li>Draws attention to the cash flow, investment characteristics and needs of the organization’s various divisions. </li></ul><ul><ul><ul><ul><ul><li>Pearce & Robinson </li></ul></ul></ul></ul></ul>
  30. 31. INTERNAL-EXTERNAL (IE) MATRIX I IV VII II VIII IX VI III V AVERAGE 2.0-2.99 WEAK 1.0-1.99 STRONG 3.0-4.0 MEDIUM 2.0-2.99 LOW 1.0-1.99 HIGH 3.0-4.0 Grow & Build Harvest & Divest Hold & Maintain TOTAL IFE WEIGHTED SCORES TOTAL EFE WEIGHTED SCORES Intensive Integrative Intensive Integrative Market penetration Prod. devt Market penetration Prod. devt Market penetration Prod. devt Divestment Divestment Divestment Intensive Integrative <ul><ul><ul><ul><ul><li>Fred David </li></ul></ul></ul></ul></ul>
  32. 33. THE GRAND STRATEGY MATRIX <ul><li>Quadrant II </li></ul><ul><li>market development </li></ul><ul><li>market penetration </li></ul><ul><li>product development </li></ul><ul><li>horizon integration </li></ul><ul><li>divestiture </li></ul><ul><li>liquidation </li></ul><ul><li>Quadrant I </li></ul><ul><li>market development </li></ul><ul><li>market penetration </li></ul><ul><li>product development </li></ul><ul><li>forward integration </li></ul><ul><li>backward integration </li></ul><ul><li>horizontal integration </li></ul><ul><li>concentric diversification </li></ul><ul><li>Quadrant III </li></ul><ul><li>retrenchment </li></ul><ul><li>concentric diversification </li></ul><ul><li>horizontal diversification </li></ul><ul><li>conglomerate diversification </li></ul><ul><li>divestiture </li></ul><ul><li>liquidation </li></ul><ul><li>Quadrant IV </li></ul><ul><li>concentric diversification </li></ul><ul><li>horizontal diversification </li></ul><ul><li>conglomerate diversification </li></ul><ul><li>joint venture </li></ul>WEAK COMPET I T IVE STRONG COMPET I T IVE RAPID MARKET GROWTH SLOW MARKET GROWTH <ul><ul><ul><ul><ul><li>Fred David </li></ul></ul></ul></ul></ul>
  33. 34. STRATEGIES SUMMARY STRATEGY OPTIONS TOWS SPACE IEM GSM TOTAL INTEGRATION STRATEGIES           1 Forward Integration   1   1 2 2 Backward Integration   1   1 2 3 Horizontal Integration   1   1 2 INTENSIVE STRATEGIES         0 4 Market Penetration 1 1 1 1 4 5 Market Development 1 1   1 3 6 Product Development   1 1 1 3 DIVERSIFICATION STRATEGIES         0 7 Concentric Diversification   1   1 2 8 Conglomerate Diversification   1     1 9 Horizontal Diversification   1     1 DEFENSIVE STRATEGIES         0 10 Joint Venture         0 11 Retrenchment         0 12 Divestiture         0 13 Liquidation         0            
  34. 35. THE QSP MATRIX (QSPM) <ul><li>STEPS </li></ul><ul><li>List key external opportunites/threats and internal strenths and weaknesses (identical to EFE & IFE) </li></ul><ul><li>Assign weights(identical to EFE & IFE) </li></ul><ul><li>Examine stage 2 matrices/identify alternatives – choose top 3 or 4 alternatives (see Matching Strategies Summary) </li></ul>
  35. 36. THE QSP MATRIX(QSPM) <ul><li>determine attractiveness score (AS) - b e sure not to assign the same AS in a given row . Recall that dashes should be inserted all the way across a given row when used. </li></ul><ul><ul><li>Not attractive </li></ul></ul><ul><ul><li>Somewhat attractive </li></ul></ul><ul><ul><li>Reasonably attractive </li></ul></ul><ul><ul><li>Highly attractive </li></ul></ul><ul><li>AS: Does this factor affect the choice of strategies being made? If the answer to the above question is no then use a dash across set. </li></ul><ul><li>If you assign an AS score to one strategy, you must assign an AS to the other strategies in the set </li></ul>
  38. 39. A rriving at a clearer definition of where we want to go and what we want to achieve in a given planning horizon. <ul><li>An Objective must be: </li></ul><ul><li>S pecific </li></ul><ul><li>M easurable </li></ul><ul><li>A chievable </li></ul><ul><li>R ealistic </li></ul><ul><li>T ime-bound </li></ul><ul><li>It must also be: </li></ul><ul><li>Challenging </li></ul><ul><li>Hierarchical </li></ul><ul><li>Understandable </li></ul>SETTING OF STRATEGIC OBJECTIVES
  39. 40. OBJECTIVE-SETTING TYPES OF OBJECTIVES: STRATEGIC & FINANCIAL EXAMPLES <ul><li>STRATEGIC OBJECTIVES </li></ul><ul><li>A bigger market share </li></ul><ul><li>Quicker design-to-market times than rivals </li></ul><ul><li>Higher product quality </li></ul><ul><li>Lower costs relative to competitors </li></ul><ul><li>Broader or more attractive product line </li></ul><ul><li>Superior customer service </li></ul><ul><li>Wider geographic coverage </li></ul><ul><li>FINANCIAL OBJECTIVES </li></ul><ul><li>Growth in revenues </li></ul><ul><li>Growth in earnings </li></ul><ul><li>Wider profit margins </li></ul><ul><li>Higher returns on invested capital </li></ul><ul><li>Attractive economic value added (EVA) performance </li></ul><ul><li>Bigger cash flows </li></ul><ul><li>A rising stock price </li></ul><ul><li>Earnings per Share </li></ul><ul><li>Strong bond and credit ratings </li></ul>
  40. 41. EXAMPLE <ul><li>STRATEGIC OBJECTIVE: TO DOUBLE REVENUES IN FIVE YEARS </li></ul><ul><li>STRATEGIES: </li></ul><ul><li>Improve product quality through the acquisition of new production facilities with advance/better technology </li></ul><ul><li>Build a strong brand image through greater advertising efforts </li></ul><ul><li>Strengthen sales and distribution system, and focus on the institutional outlets </li></ul><ul><li>Enter the low-end market through the acquisition of XYZ Company </li></ul>
  41. 42. EXAMPLE <ul><li>STRATEGIC OBJECTIVE: To improve profitability from 6% to 12% by 2008 </li></ul><ul><li>STRATEGIES: </li></ul><ul><li>To rationalize product line by eliminating low-margin and slow-moving products </li></ul><ul><li>To move from in-house selling, warehousing and distribution to third-party distributorship system </li></ul><ul><li>To change packaging materials from imported to locally-sourced ones </li></ul><ul><li>To reduce manpower complement by 20% by integrating the Finance and HR functions, and the Marketing and Sales Units </li></ul>