This chapter discusses various business strategies that organizations can pursue, including long-term objectives, integration strategies, intensive strategies, diversification strategies, defensive strategies, and Porter's five generic strategies. It provides guidelines for when each type of strategy may be most appropriate. Examples are given of companies that have used different strategies, such as forward integration, market penetration, and focus strategies. The means for achieving strategies, such as mergers and acquisitions, and benefits and challenges of strategies like being a first mover are also examined.

1. Strategies in
Action
Chapter Five

2. Chapter Objectives
1. Discuss the value of establishing long-term objectives.
2. Identify 16 types of business strategies.
3. Identify numerous examples of organizations pursuing
different types of strategies.
4. Discuss guidelines when particular strategies are most
appropriate to pursue.
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3. Long-Term Objectives
Long-term objectives represent the
results expected from pursuing certain
strategies.
Strategies represent the actions to be
taken to accomplish long-term objectives.
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4. The Nature of Long-Term
Objectives
Objectives should be:
 quantitative, measurable, realistic,
understandable, challenging, hierarchical,
obtainable, and congruent among
organizational units
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5. The Nature of Long-Term
Objectives
Objectives are commonly stated in terms
such as growth in assets, growth in sales,
profitability, market share,
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6. Clearly established objectives
offer many benefits
Objectives
 provide direction
 aid in evaluation
 establish priorities
 reduce uncertainty
 minimize conflicts
 aid in both the allocation of resources and
the design of jobs
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7. Varying Performance Measures
by Organizational Level
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8. Financial versus Strategic
Objectives
Financial objectives include those
associated with growth in revenues, growth in
earnings, higher dividends, larger profit
margins, greater return on investment and so
on.
 strategic objectives include things such as a
larger market share, quicker on-time delivery
than rivals, shorter design-to-market times than
rivals, lower costs than rivals, higher product
quality than rivals.
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9. Alternative Strategies Defined
and Exemplified
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10. Alternative Strategies Defined
and Exemplified
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11. Levels of Strategies With Persons
Most Responsible
Strategy making is not just a task for top
executives, middle and lower-level
managers too must be involved in the
strategic-planning process.
Long-term objectives are needed at the
corporate, divisional, and functional levels
of an organization.
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12. Levels of Strategies With Persons
Most Responsible
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13. Integration Strategies
 Forward integration
 involves gaining ownership or increased
control over distributors or retailers
 example of forward integration strategy underway
today is in the computer industry where Packard Bell
begun to sell personal computers directly to business
customers, I.e. opening retail stores
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14.  Backward integration
 strategy of seeking ownership or increased
control of a firm’s suppliers
 Horizontal integration
 a strategy of seeking ownership of or increased
control over a firm’s competitors
 Example, takeover, acquisition, and mergers among
competitors allow for increased economies of scale
and enhanced transfer of resources and
competencies.
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15. Forward Integration Guidelines
 When an organization’s present distributors
are especially expensive
 When the availability of quality distributors is
so limited as to offer a competitive
advantage
 When an organization competes in an
industry that is growing
 When present distributors or retailers have
high profit margins
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16. Backward Integration Guidelines
 When an organization’s present suppliers
are especially expensive or unreliable
 When the number of suppliers is small and
the number of competitors is large
 When an organization needs to quickly
acquire a needed resource
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17. Horizontal Integration Guidelines
 When an organization can gain monopolistic
characteristics in a particular area or region
without being challenged by the federal
government
 When an organization competes in a growing
industry
 When increased economies of scale provide
major competitive advantages
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18. Intensive Strategies
 Market penetration strategy
 seeks to increase market share for present
products or services in present markets
through greater marketing efforts
This means that increasing:
 the number of salespersons,
 advertisement expenditure,
 offering extensive sales promotion items, or
increasing etc.
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19.  Market development
 involves introducing present products or
services into new geographic areas
 Product development strategy
 seeks increased sales by improving or
modifying present products or services
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20. Market Penetration Guidelines
 When current markets are not saturated with a
particular product or service
 When the usage rate of present customers
could be increased significantly
 When increased economies of scale provide
major competitive advantages
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21. Market Development Guidelines
 When new channels of distribution are
available that are reliable, inexpensive, and of
good quality
 When an organization is very successful at
what it does
 When an organization has excess production
capacity
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22. Product Development Guidelines
 When an organization competes in an industry
that is characterized by rapid technological
developments
 When major competitors offer better-quality
products at comparable prices
 When an organization competes in a high-
growth industry
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23. Diversification Strategies
Related
diversification
 Is the addition
new activities that
have some
connection with
existing activities
Unrelated
diversification
 When business
adds un related
product line for
example: a
company phone
go to television
business
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24. Defensive Strategies
Defensive Strategies:
These are the strategic actions that allow
a firm not to loose as when competition
is very fierce.
Strategic actions under this category are:
A. Joint Venture;
B. Retrenchment;
C. Divestiture; and
D. Liquidation.
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25. Defensive Strategies
Joint Venture:
This means that two or more sponsoring
firms form a separate organization and
have shared equity ownership in the new
entity.
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26. Defensive Strategies
Retrenchment
 occurs when an organization regroups
through cost and asset reduction to reverse
declining sales and profits
 also called a turnaround or reorganizational
strategy
 designed to fortify an organization’s basic
distinctive competence
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27. Retrenchment Guidelines
 When an organization is one of the weaker
competitors in a given industry
 When an organization is plagued by
inefficiency, low profitability, and poor
employee morale
 When an organization has grown so large so
quickly that major internal reorganization is
needed
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28. retrenchment:
 During retrenchment, strategists work
with limited resources and face pressure
from:
1. Shareholders;
2. Employees; and
3. Media.
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29. The retrenchment strategy can entail:
Selling off land and building to raise
needed cash;
Closing marginal businesses or factories;
Reducing number of employees; and
Instituting expense control systems.
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30. Defensive Strategies
Divestiture
 Selling a division or part of an organization
 often used to raise capital for further strategic
acquisitions or investments
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31. Divestiture Guidelines
 When an organization has pursued a
retrenchment strategy and failed to accomplish
needed improvements
 When a division needs more resources to be
competitive than the company can provide
 When a division is responsible for an
organization’s overall poor performance
 When a division is a misfit with the rest of an
organization
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32. Defensive Strategies
Liquidation
 selling all of a company’s assets, in parts, for
their tangible worth
 can be an emotionally difficult strategy
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33. Liquidation Guidelines
 When an organization has pursued both a
retrenchment strategy and a divestiture
strategy, and neither has been successful
 When an organization’s only alternative is
bankruptcy
 When the stockholders of a firm can
minimize their losses by selling the
organization’s assets
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34. Strategy combination:
 No firm can afford to pursue all the
strategies that might benefit the firm,
because of limited resources;
 Etc.
 a combination strategy can be
exceptionally risk if carried too far.
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35. End of part one
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36. Porter’s Five Generic Strategies
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37.  Michael Porter’s Generic Strategies:
The author of the most widely read books.
According to Porter, firms gain competitive
advantage from three different bases:
1. Cost Leadership strategies;
2. Differentiation strategies; and
3. Focus strategies.
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38. Michael Porter’s Five
Generic Strategies
Cost leadership
 emphasizes producing standardized products
at a very low per-unit cost for consumers who
are price-sensitive
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39. Cost Leadership Strategies
To employ a cost leadership strategy
successfully, a firm must ensure that its
total costs across its overall value chain
are lower than competitors’ total costs.
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40. Michael Porter’s Five
Generic Strategies
Type 1
 low-cost strategy
that offers
products or
services to a wide
range of
customers at the
lowest price
available on the
market
Type 2
 best-value
strategy that offers
products or
services to a wide
range of
customers at the
best price-value
available on the
market
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41. Michael Porter’s Five
Generic Strategies
Type 4
 low-cost focus
strategy that offers
products or
services to a niche
group of
customers at the
lowest price
available on the
market
Type 5
 best-value focus
strategy that offers
products or
services to a small
range of
customers at the
best price-value
available on the
market
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42. Cost Leadership Strategies
Two ways:
1.Perform value chain activities more
efficiently than rivals and control the factors
that drive the costs of value chain activities
2.Revamp the firm’s overall value chain to
eliminate or bypass some cost-producing
activities
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43. Cost Leadership Guidelines
 When price competition among rival sellers is
especially vigorous
 When there are few ways to achieve product
differentiation that have value to buyers
 When most buyers use the product in the same
ways
 When buyers incur low costs in switching their
purchases from one seller to another
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44. Michael Porter’s Five
Generic Strategies
Differentiation
 strategy aimed at producing products and
services considered unique industry-wide
and directed at consumers who are relatively
price-insensitive
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45. Differentiation Strategies
Differentiation strategy should be pursued
only after a careful study of buyers’ needs
and preferences to determine the
feasibility of incorporating one or more
differentiating features into a unique
product that features the desired
attributes
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46. Differentiation
When there are many ways to
differentiate the product
When buyer needs and uses are diverse
When few rival firms are following a
similar differentiation approach
When technological change is fast paced
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47. Focus Strategy:
• A focus strategy may concentrate on a
particular group of customers,
geographic markets, or product line
segments in order to serve a well-
defined but narrow market better than
competitor who serve a broader
market.
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48. Focus Strategies
Successful focus strategy depends on an
industry segment that is of sufficient size,
has good growth potential, and is not
crucial to the success of other major
competitors
Most effective when consumers have
distinctive preferences
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49. Focus Strategy Guidelines
 When the target market niche is large,
profitable, and growing
 When industry leaders do not consider the
niche to be crucial to their own success
 When the industry has many different niches
and segments
 When few, if any, other rivals are attempting to
specialize in the same target segment
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50. Means for Achieving Strategies
Cooperation Among Competitors
Joint Venture/Partnering
Merger/Acquisition
Private-Equity Acquisitions
First Mover Advantages
Outsourcing
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51. Key Reasons Why Many Mergers
and Acquisitions Fail
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52. Potential Benefits of Merging With
or Acquiring Another Firm
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53. Benefits of a Firm Being
the First Mover
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54. Copyright © 2011
Pearson Education
Ch 5 -54
Strategic Management in Nonprofit and
Governmental Organizations
Educational Institutions
Medical Organizations
Governmental Agencies and
Departments

55. 5-55
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