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Strategic Management: Concepts and CasesArab World EditionFred R. DavidAbbas J. AliAbdulrahman Y. Al-Aali
Chapter 6: Strategies in Action
Ch 6 -2 Copyright © 2011 Pearson Education
Chapter Outline
Ch 6 -3 Copyright © 2011 Pearson Education
• Long-Term Objectives
• The Balanced Scorecard
• Types of Strategies
• Integration Strategies
• Intensive Strategies
• Diversification Strategies
Chapter Outline (cont’d)
Ch 6 -4 Copyright © 2011 Pearson Education
• Defensive Strategies
• Porter’s Five Generic Strategies
• Means For Achieving Strategies
• Strategic Management in Nonprofit and Governmental Organizations
• Strategic Management in Small Firms
“Strategies for taking the hill won’t necessarily hold it.” – Amar Bhide, Professor, Tufts University
Strategies in Action
“When you have diversification, you are better balanced.” – Shahira Zeid, CEO, MZ Investments - Egypt
Ch 6 -5 Copyright © 2011 Pearson Education
Ch 5 -6
Long-Term Objectives
• Quantifiable
• Measurable
• Realistic
• Understandable
• Challenging
• Hierarchical
• Obtainable
• Congruent
• Timeline
Ch 6 -6 Copyright © 2011 Pearson Education
Ch 5 -8
Financial vs. Strategic ObjectivesFinancial Objectives
• Growth in revenues
• Growth in earnings
• Higher dividends
• Higher profit margins
• Greater return on investment
• Higher earnings per share
• Rising stock price
• Improved cash flow
Ch 6 -8 Copyright © 2011 Pearson Education
Ch 5 -9
Not Managing by Objectives
• Managing by Extrapolation – If it ain’t broke, don’t fix it.
• Managing by Crisis – The true measure of a good strategist is the ability to fix problems.
• Managing by Subjectives – Do your own thing, the best way you know how.
• Managing by Hope – The future is full of uncertainty and if first you don’t succeed, then you may on the second or third try.
Ch 6 -9 Copyright © 2011 Pearson Education
The Balanced ScorecardRobert Kaplan & David Norton
• Strategy evaluation & control technique
• Balance financial measures with nonfinancial measures
• Balance shareholder objectives with customer & operational objectives
Ch 6 -10 Copyright © 2011 Pearson Education
Ch 6 -11 Copyright © 2011 Pearson Education
Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988) 40.
Ch 5 -12
Types of Strategies
Operational Level
Functional Level
Division Level
Corp Level
A Large Company
Ch 6 -12 Copyright © 2011 Pearson Education
Ch 5 -13
Types of Strategies
Vertical IntegrationStrategies
Forward Integration
BackwardIntegration
HorizontalIntegration
Ch 6 -13 Copyright © 2011 Pearson Education
Ch 5 -14
Types of Strategies
IntensiveStrategies
MarketPenetration
MarketDevelopment
ProductDevelopment
Innovation
Ch 6 -14 Copyright © 2011 Pearson Education
Ch 5 -15
Types of Strategies
DiversificationStrategies
Related Diversification
Unrelated Diversification
Ch 6 -15 Copyright © 2011 Pearson Education
Ch 5 -16
Types of Strategies
DefensiveStrategies
Retrenchment
Divestiture
Liquidation
Ch 6 -16 Copyright © 2011 Pearson Education
2010 Examples
ForwardIntegration
Aramco has domestic and international refineries
BackwardIntegration
Juhayna has 59 production lines manufacturing 28 different products
HorizontalIntegration
Almarai acquired Teeba dairy company in Jordan, Beyti in Egypt, HADCO, and Al Safwa Dairies
Ch 5 -17
Ch 6 -17 Copyright © 2011 Pearson Education
2010 Examples (cont’d)
MarketPenetration
Almarai secured agreements with large retailers such as Carrefour, Panda, and Al Othaim
Market Development
Alshaya Group’s (Kuwait) international network and profitable business partnerships
ProductDevelopment
Almarai introduced a variety of cheeses (e.g. full fat, light, and low salt)
InnovationApple Computer introduced the media-playing cell phone, the iPhone
Ch 5 -18
Ch 6 -18 Copyright © 2011 Pearson Education
2010 Examples (cont’d)
Related Diversification
LINKdotNET, the Egypt based internet services powerhouse, acquired eight new related online businesses
Unrelated Diversification
UAE based Al-Futtaim Group operates more than 65 companies across sectors as diverse as commerce, industry, and services
RetrenchmentNakheel, the property unit of Dubai World, cut several jobs in 2008 and 2010
Ch 5 -19
Ch 6 -19 Copyright © 2011 Pearson Education
2010 Examples (cont’d)
Divestiture Zain sold its operations in Africa to Bharti Airtel, India
LiquidationIraqi government decided to liquidate the assets of Iraqi Airways
Ch 5 -20
Ch 6 -20 Copyright © 2011 Pearson Education
Michael Porter’s Generic Strategies
Cost Leadership Strategies(Low-Cost & Best-Value)
Differentiation Strategies
Focus Strategies(Low-Cost Focus & Best-Value Focus)
Ch 6 -21 Copyright © 2011 Pearson Education
Means for Achieving Strategies
•Joint Venture/Partnering
•Mergers and Acquisitions
•Private Equity Acquisitions
•First-Mover Advantages
•Outsourcing
Ch 6 -24 Copyright © 2011 Pearson Education
Joint Venture/Partnering
• Joint venture is a popular strategy• Two or more companies form a temporary partnership
or consortium for the purpose of capitalizing on some opportunity.
• Unlike the many U.S. counterparts, Arab corporations have sought cooperative and joint venture agreements with global corporations
Ch 6 -25 Copyright © 2011 Pearson Education
Mergers and Acquisitions
• These are two commonly used ways to pursue strategies
• A merger occurs when two organizations of about equal size unite to form one enterprise
• A acquisition occurs when a large organization purchases a smaller firm or vice versa
Ch 6 -26 Copyright © 2011 Pearson Education
Mergers and Acquisitions (cont’d)
Key reasons why mergers and acquisitions fail:
• Organizational integration difficulties
• Inadequate evaluation of target
• Large or extraordinary debt
• Inability to achieve synergy
• Too much diversification
Ch 6 -27 Copyright © 2011 Pearson Education
Mergers and Acquisitions (cont’d)
Key reasons why mergers and acquisitions fail:
• Mergers overly focused on acquisitions
• Too large an acquisition
• Difficult to integrate different organizational cultures
• Reduced employee morale due to layoffs and relocations
Ch 6 -28 Copyright © 2011 Pearson Education
Private Equity Acquisitions
• Among the world’s largest 300 private equity firms in 2010, six were from the Arab world.
• Foreign private equity firms are expanding their activities in the Arab world.
Ch 6 -29 Copyright © 2011 Pearson Education
First Mover Advantages
First Mover AdvantagesBenefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.
Ch 6 -30 Copyright © 2011 Pearson Education
Outsourcing
Business-Process Outsourcing (BPO)Companies taking over the functional operations of other firms.
Ch 6 -31 Copyright © 2011 Pearson Education
Global Perspective
Joint Ventures Mandatory for All Foreign Firms in India
• The World Bank expects the Indian economy to grow by 8.7 percent in 2012
• This rapid growth is transforming the lives of 1 billion people in India
• India is experiencing 6.6% inflation
• Gap between rich and poor widening
• Vast majority of joint ventures fail
• Tourism also growing
Ch 6 -32 Copyright © 2011 Pearson Education
Strategic Management in Nonprofit and Governmental Organizations
• Educational Institutions
• Medical Organizations
• Governmental Agencies and Departments
Ch 6 -33 Copyright © 2011 Pearson Education
Strategic Management in Small Firms
• 95% of all businesses in the Arab world region are
family firms
• Most Arab entrepreneurs start off as owners of small
and medium-sized firms
• Strategic management is vital for small companies
• Lack of strategic management knowledge is a serious
obstacle for many small business owners
Ch 6 -34 Copyright © 2011 Pearson Education
For Review (Chapter 6)
Key Terms & Concepts
Acquisition Combination Strategy
Backward IntegrationCooperative
Arrangements
Bankruptcy Cost Leadership
Business-ProcessingOutsourcing (BPO)
Differentiation
Ch 6 -35 Copyright © 2011 Pearson Education
For Review (Chapter 6)
Key Terms & Concepts
Diversification Strategies
Forward Integration
Divestiture Franchising
First-Mover Advantages Friendly Merger
Focus Generic Strategies
Ch 6 -36 Copyright © 2011 Pearson Education
For Review (Chapter 6)
Key Terms & Concepts
Horizontal Integration Joint Venture
Hostile Takeover Leveraged Buyout
Integration Strategies Liquidation
Innovation Long-Term Objectives
Ch 6 -37 Copyright © 2011 Pearson Education
For Review (Chapter 6)
Key Terms & Concepts
Market Development Related Diversification
Market Penetration Retrenchment
Merger Takeover
Product DevelopmentTurbulent, High-Velocity
Markets
Ch 6 -38 Copyright © 2011 Pearson Education
For Review (Chapter 6)
Key Terms & Concepts
Competitive Advantage Ethnocentric
Competitive Risks Export
Contract Manufacturing Franchising
Contractual Approaches Geocentric
Ch 6 -39 Copyright © 2011 Pearson Education
For Review (Chapter 6)
Key Terms & Concepts
Unrelated diversification Vertical Integration
Ch 6 -40 Copyright © 2011 Pearson Education
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Ch 6 -41 Copyright © 2011 Pearson Education