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Strategic Change: Implementing Strategies to Build and Develop a Company

Chapter 8

Essentials of Strategic Management, 3/eCharles W.L. Hill | Gareth R. Jones

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Strategic Change

The movement of a company away from its present state toward some desired future state to increase its competitive advantage and profitability

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The Change Process

Distinct steps of the change process:– Determining the need for change– Determining the obstacles to change– Managing and evaluating change

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Portfolio of Core Competencies

A core competence is a core skill of a company

Identifying these central value-creating capabilities tells a company which business opportunity to pursue

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Strategy Implementation

Strategies implemented through: Internal new ventures Acquisitions Strategic alliances

© 2012 South-Western, a part of Cengage Learning

Internal New Ventures

Involve creating the value-chain functions necessary to start a new business from scratch

Typically used to leverage or recombine valuable competencies to enter a new business area

Generally science-based companies tend to favor internal new ventures as a strategy implementation

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Internal New Ventures (cont’d)

Although these can be profitable, the reported failure rate is very high

Three reasons for failure: Market entry occurs on too small a scale Poor commercialization of the new product Poor corporate management of the venture

© 2012 South-Western, a part of Cengage Learning

Internal New Ventures (cont’d)

Ways to limit risk: Adopt a structured approach to managing the

venture Foster close links between R&D and

marketing Set up project teams Choose ventures with greatest probability of

commercial success Monitor projects closely

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Acquisitions

Involve one company purchasing another company

Usually done by a company that: wants to move fast is in a well established industry and has

barriers of entry Used in two ways:

To strengthen competitive positioning by purchasing a competitor

To enter a new business or industry

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Acquisitions (cont’d)

Advantages Faster than building a

new business Less risk than internal

new ventures Ability to circumvent

most entry barriers

Disadvantages Often end up

dissipating value Often fail to realize

anticipated benefits Tend to be expensive Difficult to integrate

various corporate cultures

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Acquisitions (cont’d)

Ways to limit risk: Target identification and pre-acquisition

screening Bidding strategy (this works best when the

stock market undervalues a company) Integration

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Strategic Alliances

Cooperative agreements between companies to work together and share resources to achieve a common goal

Can be informal or short-term agreements Can be joint ventures- a formal type of

strategic alliance where two companies create a new separate company

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Strategic Alliances (cont’d)

Advantages Facilitate entry into

a market Share the fixed

costs and risks that arise

Bring together complementary skills and assets

Disadvantages May provide

competitors with access to valuable knowledge

© 2012 South-Western, a part of Cengage Learning

Strategic Alliances (cont’d)

Ways to limit risk: Careful partner selection Alliance structure Alliance management