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Strategies in Action
This document outlines strategies discussed in Chapter 5 of the 8th edition of the textbook "Strategic Management Concepts & Cases" by Fred R. David. It discusses various types of strategies companies use, including intensive strategies like market penetration and product development, integrative strategies involving vertical and horizontal integration, diversification strategies, defensive strategies such as retrenchment and divestiture, and Porter's generic strategies of cost leadership, differentiation, and focus. Key terms related to strategic management concepts are also defined.
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Introduction to the strategic management concepts presented in Chapter 5, focusing on strategies in action.
Overview of the comprehensive strategic management model including vision, audits, and strategies in action.
Highlighted strategic planning philosophies emphasizing long-term investment and innovation.
The significance of strategic planning for higher revenues and profits.
Explains the nature of long-term objectives including being measurable, realistic, and congruent.
Identifies pitfalls in strategic management such as managing by extrapolation and hope, emphasizing proactive strategies.
Discusses vertical integration strategies: forward, backward, and horizontal integration with examples.
Explains horizontal integration, with guidelines for successful implementation.
Introduction to intensive strategies focused on market penetration, development, and product development.
Details on seeking increased market share in current markets through enhanced marketing efforts.
Explains how businesses can introduce existing products to new geographic areas.
Discusses developing new or improved products to increase sales within an industry context.
Introduces diversification strategies including concentric, conglomerate, and horizontal diversification.Details the strategic approach of adding related products or services.
Describes introducing unrelated products/services to leverage existing customer bases.
Discusses the strategy of adding unrelated products for existing customers to increase revenues.
Introduces defensive strategies including joint ventures, retrenchment, divestiture, and liquidation.Details the strategic alliance between firms for cooperative purposes with guidelines.
Explains the financial strategy of regrouping through cost reduction when facing declining profits.
Examines the process of selling parts of an organization and reasons for divestiture.
Describes the process of selling off assets when all other strategic options have failed.
Introduction to Michael Porter’s generic strategies: cost leadership, differentiation, and focus.
Lists key terms and concepts essential for understanding strategic management, from acquisitions to outsourcing.
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Strategies in Action
- 1. © 2001 PrenticeHall Ch. 5-1 Strategic Management Concepts & Cases 8th edition Fred R. David Chapter 5: Strategies in Action PowerPoint Slides By: Anthony F. Chelte Western New England College
- 2. © 2001 PrenticeHall Ch. 5-2 Comprehensive Strategic Management Model Vision & Mission Statements Chapter 2 External Audit Chapter 3 Strategies In Action Chapter 5 Internal Audit Chapter 4 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9
- 3. © 2001 PrenticeHall Ch. 5-3 Strategies in Action “Planning. Doing things today to make us better tomorrow. Because the future belongs to those who make the hard decisions today.” —Eaton Corporation—
- 4. © 2001 PrenticeHall Ch. 5-4 Strategies in Action “If you don’t invest for the long term, there is no short term.” —George David—
- 5. © 2001 PrenticeHall Ch. 5-5 Strategies in Action “Innovate or evaporate. Particularly in technology-driven businesses, nothing quite recedes like success.” —Bill Saporito—
- 6. © 2001 PrenticeHall Ch. 5-6 Strategies in Action Companies embrace strategic planning. • Quest for higher revenues and profits
- 7. © 2001 PrenticeHall Ch. 5-7 Strategies in Action Long-Term Objectives: • Results expected from pursuing certain strategies Tme frame —2 to 5 years
- 8. © 2001 PrenticeHall Ch. 5-8 Strategies in Action Nature of Long-Term Objectives Quantitative Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent among organizational units
- 9. © 2001 PrenticeHall Ch. 5-9 Strategies in Action Nature of Long-Term Objectives (Cont’d) Objectives are associated with a time line and stated in terms: • Growth in assets • Growth in sales • Profitability • Market share • Diversification • Integration • EPS • Social responsibility
- 10. © 2001 PrenticeHall Ch. 5-10 Strategies in Action Nature of Long-Term Objectives (Cont’d) Objectives are the basis for: • Designing jobs • Organizing activities • Providing direction • Organizational synergy • Standards for evaluation
- 11. © 2001 PrenticeHall Ch. 5-11 Strategies in Action Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by extrapolation “If it ain’t broke, don’t fix it.”
- 12. © 2001 PrenticeHall Ch. 5-12 Strategies in Action Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by crisis: Reactive vs. proactive
- 13. © 2001 PrenticeHall Ch. 5-13 Strategies in Action Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by subjectives: Mystery approach to decision making Subordinates are left to figure out what is happening and why
- 14. © 2001 PrenticeHall Ch. 5-14 Strategies in Action Nature of Long-Term Objectives (Cont’d) Strategists should avoid: • Managing by hope: Good times are just around the corner
- 15. © 2001 PrenticeHall Ch. 5-15 Strategies in Action Vertical Integration Strategies • Forward integration • Backward integration • Horizontal integration
- 16. © 2001 PrenticeHall Ch. 5-16 Strategies in Action Defined • Gaining ownership or increased control over distributors or retailers Example • General Motors is acquiring 10% of its dealers. Forward Integration
- 17. © 2001 PrenticeHall Ch. 5-17 Strategies in Action Guidelines for Forward Integration Present distributors are expensive, unreliable, or incapable of meeting firm’s needs Availability of quality distributors is limited When firm competes in an industry that is expected to grow markedly Advantages of stable production are high Present distributor have high profit margins
- 18. © 2001 PrenticeHall Ch. 5-18 Strategies in Action Defined • Seeking ownership or increased control of a firm’s suppliers Example • Motel 8 acquired a furniture manufacturer. Backward Integration
- 19. © 2001 PrenticeHall Ch. 5-19 Strategies in Action Guidelines for Backward Integration When present suppliers are expensive, unreliable, or incapable of meeting needs Number of suppliers is small and number of competitors large High growth in industry sector Firm has both capital and human resources to manage new business Advantages of stable prices are important Present supplies have high profit margins
- 20. © 2001 PrenticeHall Ch. 5-20 Strategies in Action Defined • Seeking ownership or increased control over competitors Example • Hilton recently acquired Promus. Horizontal Integration
- 21. © 2001 PrenticeHall Ch. 5-21 Strategies in Action Guidelines for Horizontal Integration Firm can gain monopolistic characteristics without being challenged by federal government Competes in growing industry Increased economies of scale provide major competitive advantages Faltering due to lack of managerial expertise or need for particular resources
- 22. © 2001 PrenticeHall Ch. 5-22 Strategies in Action Intensive Strategies • Market penetration • Market development • Product development
- 23. © 2001 PrenticeHall Ch. 5-23 Strategies in Action Defined • Seeking increased market share for present products or services in present markets through greater marketing efforts Example • Ameritrade, the on-line broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions. Market Penetration
- 24. © 2001 PrenticeHall Ch. 5-24 Strategies in Action Guidelines for Market Penetration Current markets not saturated Usage rate of present customers can be increased significantly Market shares of competitors declining while total industry sales increasing Increased economies of scale provide major competitive advantages
- 25. © 2001 PrenticeHall Ch. 5-25 Strategies in Action Defined • Introducing present products or services into new geographic area Example • Britain’s leading supplier of buses, Henlys PLC, acquires Blue Bird Corp. North America’s leading school bus maker. Market Development
- 26. © 2001 PrenticeHall Ch. 5-26 Strategies in Action Guidelines for Market Development New channels of distribution that are reliable, inexpensive, and good quality Firm is very successful at what it does Untapped or unsaturated markets Capital and human resources necessary to manage expanded operations Excess production capacity Basic industry rapidly becoming global
- 27. © 2001 PrenticeHall Ch. 5-27 Strategies in Action Defined • Seeking increased sales by improving present products or services or developing new ones Example • Apple developed the G4 chip that runs at 500 megahertz. Product Development
- 28. © 2001 PrenticeHall Ch. 5-28 Strategies in Action Guidelines for Product Development Products in maturity stage of life cycle Competes in industry characterized by rapid technological developments Major competitors offer better-quality products at comparable prices Compete in high-growth industry Strong research and development capabilities
- 29. © 2001 PrenticeHall Ch. 5-29 Strategies in Action Diversification Strategies • Concentric diversification • Conglomerate diversification • Horizontal diversification
- 30. © 2001 PrenticeHall Ch. 5-30 Strategies in Action Defined • Adding new, but related, products or services Example • National Westminister Bank PLC in Britain bought the leading British insurance company, Legal & General Group PLC. Concentric Diversification
- 31. © 2001 PrenticeHall Ch. 5-31 Strategies in Action Guidelines for Concentric Diversification Competes in no- or slow-growth industry Adding new & related products increases sales of current products New & related products offered at competitive prices Current products are in decline stage of the product life cycle Strong management team
- 32. © 2001 PrenticeHall Ch. 5-32 Strategies in Action Defined • Adding new, unrelated products or services Example • H&R Block, the top tax preparation agency, said it will buy discount stock brokerage Olde Financial for $850 million in cash. Conglomerate Diversification
- 33. © 2001 PrenticeHall Ch. 5-33 Strategies in Action Guidelines for Conglomerate Diversification Declining annual sales and profits Capital and managerial talent to compete successfully in a new industry Financial synergy between the acquired and acquiring firms Exiting markets for present products are saturated
- 34. © 2001 PrenticeHall Ch. 5-34 Strategies in Action Defined • Adding new, unrelated products or services for present customers Example • The New York Yankees baseball team are merging with the New Jersey Nets basketball team. Horizontal Diversification
- 35. © 2001 PrenticeHall Ch. 5-35 Strategies in Action Guidelines for Horizontal Diversification Revenues from current products/services would increase significantly by adding the new unrelated products Highly competitive and/or no-growth industry w/low margins and returns Present distribution channels can be used to market new products to current customers New products have counter cyclical sales patterns compared to existing products
- 36. © 2001 PrenticeHall Ch. 5-36 Strategies in Action Defensive Strategies • Joint venture • Retrenchment • Divestiture • Liquidation
- 37. © 2001 PrenticeHall Ch. 5-37 Strategies in Action Defined • Two or more sponsoring firms forming a separate organization for cooperative purposes Example • Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones. Joint Venture
- 38. © 2001 PrenticeHall Ch. 5-38 Strategies in Action Guidelines for Joint Venture Combination of privately held and publicly held can be synergistically combined Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks Distinctive competencies of two or more firms are complementary Overwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline) Two or more smaller firms have trouble competing with larger firm A need exists to introduce a new technology quickly
- 39. © 2001 PrenticeHall Ch. 5-39 Strategies in Action Defined • Regrouping through cost and asset reduction to reverse declining sales and profit Example • Singer, the sewing machine company, declared bankruptcy. Retrenchment
- 40. © 2001 PrenticeHall Ch. 5-40 Strategies in Action Guidelines for Retrenchment Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies Firm is one of the weaker competitors Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. When an organization’s strategic managers have failed Very quick growth to large organization where a major internal reorganization is needed.
- 41. © 2001 PrenticeHall Ch. 5-41 Strategies in Action Defined • Selling a division or part of an organization Example • Harcourt General, the large US publisher, is selling its Neiman Marcus division. Divestiture
- 42. © 2001 PrenticeHall Ch. 5-42 Strategies in Action Guidelines for Divestiture When firm has pursued retrenchment but failed to attain needed improvements When a division needs more resources than the firm can provide When a division is responsible for the firm’s overall poor performance When a division is a misfit with the organization When a large amount of cash is needed and cannot be obtained from other sources.
- 43. © 2001 PrenticeHall Ch. 5-43 Strategies in Action Defined • Selling all of a company’s assets, in parts, for their tangible worth Example • Ribol sold all its assets and ceased business. Liquidation
- 44. © 2001 PrenticeHall Ch. 5-44 Strategies in Action Guidelines for Liquidation When both retrenchment and divestiture have been pursued unsuccessfully If the only alternative is bankruptcy, liquidation is an orderly alternative When stockholders can minimize their losses by selling the firm’s assets
- 45. © 2001 PrenticeHall Ch. 5-45 Michael Porter’s Generic Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies
- 46. © 2001 PrenticeHall Ch. 5-46 Key Terms & Concepts • Acquisition • Backward integration • Bankruptcy • Combination strategy • Concentric diversification • Conglomerate diversification • Cooperative arrangements • Cost leadership • Differentiation • Diversification strategies • Divestiture • Focus • Forward integration • Franchising • Generic strategies • Horizontal diversification • Horizontal integration • Integration strategies
- 47. © 2001 PrenticeHall Ch. 5-47 Key Terms & Concepts (Cont’d) • Intensive strategies • Joint venture • Leveraged buyout • Liquidation • Merchant banking • Market development • Market penetration • Merger • Outsourcing • Product development • Retrenchment • Takeover • Vertical integration
- 48. © 2001 PrenticeHall Ch. 5-48 Key Terms & Concepts (Cont’d) • Product and service planning • Production/operations functions • Profitability ratios • Research and development • Selling • Social responsibility • Staffing • Synergy • Test marketing