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Copyright 2007 Prentice Hall Ch 5 -1
Chapter 5Strategies in Action
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2007 Prentice Hall Ch 5 -2
Long-Term Objectives
Objectives --
Quantifiable
Measurable
Realistic
Understandable
Challenging
Copyright 2007 Prentice Hall Ch 5 -3
Long-Term Objectives
Objectives --
Hierarchical
Obtainable
Congruent
Time-line
Copyright 2007 Prentice Hall Ch 5 -4
Varying Performance Measures by Organizational Level
Organizational Level
Basis for Annual Bonus/Merit Pay
Corporate75% on long-term objectives25% on annual objectives
Division50% on long-term objectives50% on annual objectives
Function25% on long-term objectives75% on annual objectives
Long-Term Objectives
Copyright 2007 Prentice Hall Ch 5 -5
Financial vs. Strategic Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher earnings per share
Improved cash flow
Copyright 2007 Prentice Hall Ch 5 -6
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
Copyright 2007 Prentice Hall Ch 5 -7
Types of Strategies
Operational Level
Functional Level
Division Level
Corp LevelA Large Company
Copyright 2007 Prentice Hall Ch 5 -8
Types of Strategies
Vertical IntegrationStrategies
Forward Integration
BackwardIntegration
HorizontalIntegration
Copyright 2007 Prentice Hall Ch 5 -9
Types of Strategies
IntensiveStrategies
MarketPenetration
MarketDevelopment
ProductDevelopment
Copyright 2007 Prentice Hall Ch 5 -10
Types of Strategies
DiversificationStrategies
Related Diversification
Unrelated Diversification
Copyright 2007 Prentice Hall Ch 5 -11
Types of Strategies
DefensiveStrategies
Retrenchment
Divestiture
Liquidation
Copyright 2007 Prentice Hall Ch 5 -12
2003 Examples
ForwardIntegration
Budget Rent-a-Car is Opening car rental shops in Wal-Mart
BackwardIntegration
Hotels, Inc. purchased a furniture producer
HorizontalIntegration
Federated Department Stores acquired May Department Stores
Copyright 2007 Prentice Hall Ch 5 -13
2003 Examples
MarketPenetration
Coca-Cola is spending millions to advertise Coca-Cola Zero
Market Development
Bank of America purchased a 9% stake in China Construction Bank
ProductDevelopment
Advanced Medical Optics is using acquisition to obtain all medical aspects of eye care
Copyright 2007 Prentice Hall Ch 5 -14
2003 Examples
Related Diversification
UPS acquired Overnite to diversify its packaging business into the trucking business
Unrelated Diversification
Tupperware Corp. has entered and is growing its skin and Beauty business through BeautiControl
RetrenchmentViacom is selling non-core assets
Copyright 2007 Prentice Hall Ch 5 -15
2003 Examples
DivestitureGoodyear Tire & Rubber Co. sold its North American farm-tire business to Titan International
Liquidation
Britain’s last major car manufacturer, MG Rover Group Ltd., liquidated in 2005 and laid off its 5,000 employees
Copyright 2007 Prentice Hall Ch 5 -16
Michael Porter’s Generic Strategies
Cost Leadership Strategies(Low-Cost & Best-Value)
Differentiation Strategies
Focus Strategies(Low-Cost Focus & Best-Value Focus)
Copyright 2007 Prentice Hall Ch 5 -17
Copyright 2007 Prentice Hall Ch 5 -18
Copyright 2007 Prentice Hall Ch 5 -19
Recent MergersAcquiring Firm Acquired Firm
IBM Ascential Software
Philip Morris PT Hanjaya Mandala Samp
U.S. Steel National Steel Corp
Oracle PeopleSoft
OSIM Int’l Ltd Brookstone
Adobe Systems Macromedia
US Airways American West
United Parcel Service Overnight Corp.
Copyright 2007 Prentice Hall Ch 5 -20
First Mover Advantages
Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms
Copyright 2007 Prentice Hall Ch 5 -21
Outsourcing
Companies taking over the functional operations of other firms
Business-process outsourcing (BPO)
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