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Strategic Management - Module 2 – MG University - Manu Melwin Joy
- 1. Strategic Management Module 2– MG University
- 2. Prepared By Kindly restrictthe use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations. Manu Melwin Joy Assistant Professor Ilahia School of Management Studies Kerala, India. Phone – 9744551114 Mail – manu_melwinjoy@yahoo.com
- 3. Contents • Business levelstrategies. – Cost leadership, Differentiation, Focus. • Corporate level strategies. – Stability strategies. – Expansion strategies – Intensification, Integration, International expansion. – Diversification stratégies, Merger, Acquisitions, Strategic alliance. – Turnaround strategies
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- 7. Market penetration • Marketpenetration involves trying to gain additional share of a firm’s existing markets using existing products. Often firms will rely on advertising to attract new customers with existing markets.
- 8. Examples of Marketpenetration • Nike features famous athletes in print and television ads designed to take market share within the athletic shoes business from Adidas and other rivals.
- 9. Examples of Marketpenetration • McDonald’s has pursued market penetration in recent years by using Latino themes within some of its advertising. The firm also maintains a Spanish- language website at http://www.meencanta.com ; the website’s name is the Spanish translation of McDonald’s slogan “I’m lovin’ it.” McDonald’s hopes to gain more Latino customers through initiatives such as this website.
- 10. Market Development • Marketdevelopment involves taking existing products and trying to sell them within new markets.
- 11. Examples of MarketDevelopment • One way to reach a new market is to enter a new retail channel. Starbucks has stepped beyond selling coffee beans only in its stores and now sells beans in grocery stores. This enables Starbucks to reach consumers that do not visit its coffeehouses.
- 12. Examples of MarketDevelopment • Entering new geographic areas is another way to pursue market development. Philadelphia-based Tasty Baking Company has sold its Tastykake snack cakes since 1914 within Pennsylvania and adjoining states. Now it is extensively distributing Tastykake’s products within the southeastern United States. Displaced Pennsylvanians in the south rejoiced.
- 13. Product Development • Productdevelopment involves creating new products to serve existing markets.
- 14. Examples of ProductDevelopment • In the 1940s, for example, Disney expanded its offerings within the film business by going beyond cartoons and creating movie featuring real actors.
- 15. Examples of ProductDevelopment • Coca-Cola and Pepsi regularly introduce new varieties— such as Coke Zero and Pepsi Cherry Vanilla—in an attempt to take market share from each other and from their smaller rivals.
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- 17. Vertical Integration • Whenpursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.
- 18. Examples of VerticalIntegration • Oil companies like ConocoPhillips can be involved in all stages of the value chain, including crude oil exploration, drilling for oil, shipping oil to refineries, refining crude oil into products such as gasoline, distributing fuel to gas stations, and operating gas stations.
- 19. Forward Integration • Whenpursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.
- 20. Examples of ForwardIntegration • Disney has pursued forward vertical integration by operating more than three hundred retail stores that sell merchandise based on Disney’s characters and movies. This allows Disney to capture profits that would otherwise be enjoyed by another store.
- 21. Backward Integration • Whenpursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.
- 22. Examples of BackwardIntegration • Ford Motor Company created subsidiaries that provided key inputs to vehicles such as rubber, glass, and metal. This approach ensured that Ford would not be hurt by suppliers holding out for higher prices or providing materials of inferior quality.
- 23. Horizontal Integration • Itis a type of integration strategies pursued by a company in order to strengthen its position in the industry. A corporate that implements this type of strategy usually mergers or acquires another company that is in the same production stage.
- 24. Example of HorizontalIntegration • One example of horizontal integration is what happened between the infamous Daimler Benz and Chrysler merger (car developing, manufacturing and retailing).
- 25. Acquisition • An acquisitiontakes place when one company purchases another company. Generally, the acquired company is smaller than the firm that purchases it.
- 26. Examples of Acquisition •Disney was much bigger than Miramax and Pixar when it joined with these firms in 1993 and 2006, respectively, thus these two horizontal integration moves are considered to be acquisitions.
- 27. Merger • A mergeris a combination of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash or both the organization are dissolved and the assets and liabilities are combined and new stock is issued.
- 28. Examples of Merger •Big oil got even bigger in 1999, when Exxon and Mobil signed a $81 billion agreement to merge and form Exxon Mobil. ExxonMobil remains the strongest leader in the oil market, with a huge hold on the international market and dramatic earnings.
- 29. Strategic Alliance • Astrategic alliance is a cooperative arrangement between two or more organizations that does not involve the creation of a new entity.
- 30. Examples of StrategicAlliance • In June 2011,Twitter announced the formation of a strategic alliance with Yahoo! Japan. The alliance involves relevant Tweets appearing within various functions offered by Yahoo! Japan.
- 31. Diversification strategies • Firmsusing diversification strategies enter entirely new industries. While vertical integration involves a firm moving into a new part of a value chain that it is already is within, diversification requires moving into new value chains.
- 32. Examples of Diversificationstrategies • Avon's move to market jewellery through its door-to-door sales force involved marketing new products through existing channels of distribution.
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- 34. Concentric Diversification • Whenan organization takes up an activity in such a manner that is related to the existing business definition of one or more of firms businesses, either in terms of customer groups, customer’s functions or alternative technologies, it is called concentric diversification.
- 35. Example of ConcentricDiversification • The addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. is an example of technological- related concentric diversification
- 36. Conglomerate Diversification • Whenan organization adopts a strategy which requires taking of those activities which are unrelated to the existing businesses definition of one or more of its businesses either in terms of their respective customer groups, customer functions or alternative technologies, it is called conglomerate diversification.
- 37. Examples of ConglomerateDiversification • Example of Indian company which have adopted apart of growth and expansion through conglomerate diversification the classic examples is of ITC, a cigarette company diversifying into the hotel industry.
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- 39. Export • Exporting isan effective entry strategy for companies that are just beginning to enter a new foreign market. It’s a low-cost, low-risk option compared to the other strategies.
- 40. Imports • Importing isthe flipside of exporting. Importing refers to buying goods and services from foreign sources and bringing them back into the home country.
- 41. Licensing Licensing is anotherway to enter a foreign market with a limited degree of risk. Under international Licensing, a firm in one country permits a firm in another country to use its intellectual property( Patents, trade marks etc).
- 42. Example of Licensing •Examples of licenses include a company using the design of a popular character, e.g. Mickey Mouse, on their products.
- 43. Franchising Franchising is abusiness model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues.
- 44. Example of Franchise •Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts.
- 45. Joint Ventures An equityjoint venture is a contractual, strategic partnership between two or more separate business entities to pursue a business opportunity together.
- 46. Example of JointVentures Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones.
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- 48. Stability strategies Stability strategyis a strategy in which the organization retains its present strategy at the corporate level and continues focusing on its present products and markets.
- 49. Examples of Stabilitystrategies Steel Authority of India has adopted stability strategy because of over capacity in steel sector. Instead it has concentrated on increasing operational efficiency of its various plants rather than going for expansion. Others industries are ‘heavy commercial vehicle’, ‘coal industry’.
- 50. Examples of Stabilitystrategies Cigarette, liquor industries fall in this category because of strict control over capacity expansion. Both these industries require license under the provisions of Industries (Development and regulations) Act, 1951.
- 51. Pause/ Proceed withCaution Strategy It is employed by the firm that wish to test the ground before moving ahead with a full fledged grand strategy, or by firms that have an intense pace of expansion and wish to rest for a while before moving ahead
- 52. Example • In theIndia shoe market dominated by Bata and Liberty, Hindustan Levers better known for soaps and detergents, produces substantial quantity of shoes and shoe uppers for the export market. In late 2000, it started selling a few thousand pairs in the cities to find out the market reaction. This is a pause proceed with caution strategy before it goes full steam into another FMCG sector that has a lot of potential
- 53. No-Change Strategy It isa conscious decision to do nothing new. The firm will continue with its present business definition. When a firm has a stable internal and external environment the firm will continue with its present strategy.
- 54. Profit Strategy • Aprofit strategy is one that capitalizes on a situation in which old and obsolete product or technology is being replaced by a new one. This type of strategy does not require new investment, so it is not a growth strategy. Firms adopting this strategy decide to follow the same technology, at least partially, while transiting into new technological domains.
- 55. Examples of ProfitStrategy • Sylvania, RCA, and GE are among the firms that followed this strategy. They decided to stay in the vacuum tube market until the “end of the game.”
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- 57. Retrenchment strategy • Aretrenchment grand strategy is followed when an organization aims at a contraction of its activities through substantial reduction or the elimination of the scope of one or more of its businesses in terms of their respective customer groups, customer functions, or alternative technologies either singly or jointly in order to improve its overall performance.
- 58. Examples of Retrenchmentstrategy • General Motors of the United States stopped producing a number of "makes" of automobile. GM decided that it needed to retrench by concentrating on just a few "makes." It hoped this would help it return to profitability.
- 59. Turnaround strategies • Turnaround strategies derives their name from the action involved that is reversing a negative trend. There are certain conditions or indicators which point out that a turnaround is needed for an organization to survive. An organization which faces one or more of these issues is referred to as a ‘sick’ company.
- 60. Turnaround strategies • Thereare three ways in which turnarounds can be managed – The existing chief executive and management team handles the entire turnaround strategy with the advisory support of a external consultant. – In another case the existing team withdraws temporarily and an executive consultant or turnaround specialist is employed to do the job. – The last method involves the replacement of the existing team specially the chief executive, or merging the sick organization with a healthy one.
- 61. Examples of Turnaroundstrategies • Xerox revealed a Turnaround Programme in December 2000, which included cutting $1 billion in costs, and raising up to $4 billion through the sale of assets, exiting non-core businesses and lay-offs. Subsequently, in August 2001, Mulcahy was made CEO. Xerox continued to report losses in 2001, but it returned to profit in 2002 and continued to report profits in 2003.
- 62. Divestment strategy • Adivestment strategy involves the sale or liquidation of a portion of business, or a major division.
- 63. Divestment strategy • TATAgroup is a highly diversified entity with a range of businesses under its fold. They identified their non – core businesses for divestment. TOMCO was divested and sold to Hindustan Levers as soaps and a detergent was not considered a core business for the Tatas.
- 64. Liquidation Strategy • Aretrenchment strategy which is considered the most extreme and unattractive is the liquidation strategy, which involves closing down a firm and selling its assets. It is considered as the last resort because it leads to serious consequences such as loss of employment for workers and other employees, termination of opportunities where a firm could pursue any future activities and the stigma of failure.
- 65. Examples of LiquidationStrategy • JC Penney recently sold its Eckerd chain of drugstores to focus on the corporation’s core business of department stores and Internet and catalog sales. Studies show that between 33 per cent and 50 per cent of all acquisitions are later divested.
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- 67. Business Level Strategies •Business-level strategy addresses the question of how a firm will compete in a particular industry. • It is a general way of positioning a firm within an industry.
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- 70. Competitive dimensions • Accordingto Porter, two competitive dimensions are the keys to business- level strategy. • The first dimension is a firm’s source of competitive advantage. • The second dimension is firms’ scope of operations.
- 71. Cost Leadership • Perhapsthe most famous cost leader is Walmart, which has used a cost leadership strategy to become the largest company in the world. • The firm’s advertising slogans such as “Always Low Prices” and “Save Money. Live Better” communicate Walmart’s emphasis on price slashing to potential customers.
- 72. Common characteristics • Theability to charge low prices and still make a profit is challenging. • Cost leaders manage to do so by emphasizing efficiency. • As part of the effort to be efficient, most cost leaders spend little on advertising, market research, or research and development. • Many cost leaders rely on economies of scale to achieve efficiency. Economies of scale are created by selling more items.
- 73. Examples of Costleadership • McDonald's - McDonald's has been extremely successful with this strategy by offering basic fast-food meals at low prices. They are able to keep prices low through a division of labor that allows it to hire and train inexperienced employees rather than trained cooks.
- 74. Examples of Costleadership • Ikea -The Swedish furniture retailer Ikea revolutionized the furniture industry by offering cheap but stylish furniture. Ikea is able to keep its prices low by sourcing its products in low-wage countries and by offering a very basic level of service.
- 75. Examples of Costleadership • Southwest Airlines - Southwest attempts to offer the lowest prices possible by being more efficient than traditional airlines. They minimize the time that their planes spend on the tarmac in order to keep them flying and to keep profits up.
- 76. Differentiation • A firmfollowing a differentiation strategy attempts to convince customers to pay a premium price for its good or services by providing unique and desirable features.
- 77. Examples of Differentiation •Apple - Steve Jobs said this about the difference between Dell and Apple: Apple and Dell are the only ones in this industry making money. They make it by being Wal- Mart. We make it by innovation.
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- 81. Focused cost leadershipstrategy • A focused cost leadership strategy requires competing based on price to target a narrow market. • A firm that follows this strategy does not necessarily charge the lowest prices in the industry. Instead, it charges low prices relative to other firms that compete within the target market.
- 82. Examples of Focusedcost leadership Redbox uses vending machines placed outside grocery stores and other retail outlets to rent DVDs of movies for $1.
- 83. Focused Differentiation strategy •A focused differentiation strategy requires offering unique features that fulfill the demands of a narrow market. • Some firms using a focused differentiation strategy concentrate their efforts on a particular sales channel, such as selling over the Internet only.
- 84. Examples of FocusedDifferentiation The dedication of Mercedes-Benz to cutting-edge technology, styling, and safety innovations has made the firm’s vehicles prized by those who are rich enough to afford them.