David PPT Exp Ch05

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Copyright 2007 Prentice HallCh 5 -1

Chapter 5

Strategies in Action

Strategic Management:

Concepts & Cases11thEdition

Fred David


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Chapter Outline

Long-Term Objectives

Types of Strategies

Integration Strategies


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Chapter Outline (contd!

Intensive Strategies

Diversification Strategies

Defensive Strategies


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Michael Porters Generic Strategies

Means for chieving Strategies

!irst Mover "vantages


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O#tso#rcing

Strategic Management in $onprofit %Governmental Organi&ations

Strategic Management in Small !irms


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Strategies in Action

-- '#est for higher reven#es

-- '#est for higher profits

(ompanies )mbrace Strategic Planning


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*es#lts e+pecte" from p#rs#ing certain

strategies Strategies represent actions to accomplish

long-term objectives

"ong#$erm O%ectives


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"ong#$erm O%ectives

O%ectives ##

'#antifiable

Meas#rable

*ealistic

,n"erstan"able

(hallenging


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"ong#$erm O%ectives

O%ectives ##

ierarchicalObtainable

(ongr#ent

Time-line


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"ong#$erm O%ectives

Strategists Should Avoid ##

Managing by )+trapolationManaging by (risis

Managing by S#bjectives

Managing by ope


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.arying Performance Meas#res by

Organi&ational Level


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Financial vs' Strategic

O%ectives

Financial O%ectives

Gro/th in reven#es

Gro/th in earnings

igher "ivi"en"s

igher profit margins

igher earnings per share

Improve" cash flo/


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Financial vs' Strategic

O%ectives

Strategic O%ectives

Larger mar0et share

'#ic0er on-time "elivery than rivals

'#ic0er "esign-to-mar0et times than rivals

Lo/er costs than rivals

igher pro"#ct 1#ality than rivals

2i"er geographic coverage than rivals


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$pes o) Strategies

Operational "evel

Functional "evel

Division "evel

Corp"evelA "arge Compan


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$pes o) Strategies

Operational "evel

Functional "evel

Compan

"evel

A Small Compan


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$pes o) Strategies

*ertical+ntegration

Strategies

For,ard

+ntegration

-ac.,ard+ntegration

/ori0ontal

+ntegration


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*ertical +ntegration Strategies

ain Control Over ##

Distrib#torsS#ppliers

(ompetitors


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For,ard +ntegration Strategies

ain Control Over ##

Distrib#tors*etailers


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For,ard +ntegration Strategies

uidelines ##

(#rrent "istrib#tors 3 e+pensive or #nreliable

vailability of 1#ality "istrib#tors 3 limite"!irm competing in in"#stry e+pecte" to gro/

mar0e"ly

!irm has both capital % * to manage ne/

b#siness of "istrib#tion

(#rrent "istrib#tors have high profit margins


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-ac.,ard +ntegration

Strategies

O,nership or Control ##

!irms s#ppliers


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-ac.,ard +ntegration

Strategies

uidelines ##

(#rrent s#ppliers 3 e+pensive or #nreliable

4 of s#ppliers is small5 4 of competitors is largeigh gro/th in in"#stry sector

!irm has both capital % * to manage ne/

b#siness

Stable prices are important

(#rrent s#ppliers have high profit margins


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/ori0ontal +ntegration

Strategies

O,nership or Control ##

!irms competitors


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/ori0ontal +ntegration

Strategies

uidelines ##

Gain monopolistic characteristics /6o fe"eral

government challenge

(ompetes in gro/ing in"#stry

Increase" economies of scale 3 major competitive

a"vantages

!altering "#e to lac0 of managerial e+pertise ornee" for partic#lar reso#rce


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$pes o) Strategies

+ntensiveStrategies

Mar.et

2enetration

Mar.etDevelopment

2roduct

Development


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+ntensive Strategies

+ntensive E))orts ##

Improve competitive position /ithe+isting pro"#cts


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Mar.et 2enetration Strategies

+ncreased Mar.et Share ##

Present pro"#cts6services

Present mar0ets

Greater mar0eting efforts


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Mar.et 2enetration Strategies

uidelines ##

(#rrent mar0ets not sat#rate"

,sage rate of present c#stomers can be increase"

significantly

Shares of competitors "eclining5 in"#stry sales

increasing

Increase" economies of scale provi"e majorcompetitive a"vantage


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Mar.et Development

Strategies

3e, Mar.ets ##

Present pro"#cts6services to ne/

geographic areas


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Mar.et Development

Strategies

uidelines ##

$e/ channels of "istrib#tion 3 reliable7 ine+pensive7

goo" 1#ality

!irm is s#ccessf#l at /hat it "oes

,ntappe"6#nsat#rate" mar0ets

)+cess pro"#ction capacity

8asic in"#stry rapi"ly becoming global


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2roduct Development

Strategies

+ncreased Sales ##

Improving present pro"#cts6services

Developing ne/ pro"#cts6services


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2roduct Development

Strategies

uidelines ##

Pro"#cts in mat#rity stage of life cycle

In"#stry characteri&e" by rapi" technological

"evelopment

(ompetitors offer better-1#ality pro"#cts 9

comparable prices

(ompete in high-gro/th in"#stry

Strong *%D capabilities


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$pes o) Strategies

Diversi)icationStrategies

4elated

Diversi)ication

nrelated

Diversi)ication


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Diversification

*elate" 3 2hen their val#e chains posses

competitively val#able cross-b#siness

strategic fits

,nrelate" 3 2hen their val#e chains are so"issimilar that no competitively val#able

cross-b#siness relationships e+ist


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*elate" Diversification Preferre"

To (apitali&e on:

Transferring competitively val#able e+pertise

(ombining the relate" activities of separate

b#sinesses into a single operation to lo/er

costs )+ploiting common #se of a /ell-0no/n

bran" name

(ross-b#siness collaboration to createcompetitively val#able reso#rce strengths

an" capabilities


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Diversi)ication Strategies

"ess 2opular ##

More "iffic#lt to manage "iverse

b#siness activities

/o,ever ##

The greatest ris0 of being in a singlein"#stry is having all yo#r eggs in one

bas0et


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*elate" Diversification May be )ffective

2hen:

n organi&ation competes in a no-gro/th or a

slo/ gro/th in"#stry

""ing ne/7 b#t relate"7 pro"#cts /o#l"

significantly enhance the sales of c#rrentpro"#cts

$e/7 b#t relate" pro"#cts co#l" be offere" at

highly competitive prices


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*elate" Diversification May be )ffective

2hen:

$e/7 b#t relate"7 pro"#cts have seasonal

sales levels that co#nterbalance an

organi&ations e+isting pea0s an" valleys

n organi&ations pro"#cts are c#rrently inthe "eclining stage of the pro"#cts life cycle

n organi&ation has a strong management

team


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Conglomerate Diversi)ication

Strategies

uidelines ##

Declining ann#al sales % profits

(apital % managerial ability to compete in ne/in"#stry

!inancial synergy bet/een ac1#ire" an" ac1#iring

firms

(#rrent mar0ets for present pro"#cts - sat#rate"


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,nrelate" Diversification

!avors capitali&ing on a portfolio of

b#sinesses that are capable of "elivering

e+cellent financial performance

)ntails h#nting to ac1#ire companies: 2hose assets are #n"erval#e"

That are financially "istresse"

2ith high gro/th potential b#t are short oninvestment capital


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,nrelate" Diversification May be )ffective

2hen:

*even#es "erive" from an organi&ations

c#rrent pro"#cts or services /o#l" increase

by a""ing ne/ #nrelate" pro"#cts

n organi&ation competes in a highlycompetitive or a no gro/th in"#stry

n organi&ations c#rrent "istrib#tion

channels can be #se" to mar0et ne/pro"#cts to e+isting c#stomers


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2hen:

$e/ pro"#cts have co#ntercyclical sales

patterns

n organi&ations basic in"#stry is

e+periencing "eclining ann#al sales an"profits

n organi&ation has the capital an"

managerial talent to compete s#ccessf#lly ina ne/ in"#stry


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Copyright 2007 Prentice Hall

Ch 5 -42


2hen:

n organi&ation has the opport#nity to

p#rchase an #nrelate" b#siness as an

attractive investment opport#nity

There e+ists financial synergy bet/een theac1#ire" an" ac1#iring firm

)+isting mar0ets for the present pro"#cts are

sat#rate" ntitr#st action co#l" be charge" against a

company


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Ch 5 -43

$pes o) Strategies

De)ensiveStrategies

4etrenchment

Divestiture

"i6uidation


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Ch 5 -44

4etrenchment Strategies

4egrouping ##

(ost % asset re"#ction to reverse

"eclining sales % profit


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Ch 5 -45

4etrenchment Strategies

uidelines ##!aile" to meet objectives % goals consistency5 has

"istinctive competencies

!irm is one of /ea0er competitorsInefficiency7 lo/ profitability7 poor employee morale7

press#re for stoc0hol"ers

Strategic managers have faile"

*api" gro/th in si&e5 major internal reorgani&ation

necessary


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Ch 5 -46

Divestiture Strategies

Selling a "ivision or part of an

organi&ation


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Ch 5 -47

Divestiture Strategies

uidelines ##*etrenchment faile" to attain improvements

Division nee"s more reso#rces than are available

Division responsible for firms overall poor

performance

Division is a mis-fit /ith organi&ation

Large amo#nt of cash is nee"e" an" cannot beraise" thro#gh other so#rces


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Ch 5 -48

"i6uidation Strategies

(ompanys assets7 in parts7 for

their tangible /orth

Selling


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Ch 5 -49

"i6uidation Strategies

uidelines ##

*etrenchment % "ivestit#re faile"

Only alternative is ban0r#ptcy

Minimi&e stoc0hol"er loss by selling firms assets


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Ch 5 -50

Michael Porters Generic Strategies

Cost "eadership Strategies

Di))erentiationStrategies

Focus Strategies


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Ch 5 -51


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Ch 5 -52

eneric Strategies

In conj#nction /ith "ifferentiation

)conomies or "iseconomies of

scale

(apacity #tili&ation achieve"

Lin0ages /6 s#ppliers % "istrib#tors

(ost Lea"ership;Type < an" Type =>


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Ch 5 -53

(ost Lea"ership

2ays of ens#ring total costs across val#e

chain are lo/er than competitors total costs


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Ch 5 -54

(ost Lea"ership

(an be especially effective /hen:


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Ch 5 -55

eneric Strategies

Many price-sensitive b#yers

!e/ /ays of achieving "ifferentiation

8#yers not sensitive to bran"

"ifferences

Large 4 of b#yers /6bargaining po/er

Lo/ (ost Pro"#cer "vantage


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Ch 5 -56

eneric Strategies

Greater pro"#ct fle+ibility

Greater compatibility

Lo/er costs

Improve" service

Greater convenience

More feat#res

Differentiation ;Type @>

Diff ti ti


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Ch 5 -57

Differentiation



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Ch 5 -58

eneric Strategies

In"#stry segment of s#fficient si&e

Goo" gro/th potential

$ot cr#cial to s#ccess of major competitors

!oc#se" Strategies ;Type A % B>


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Ch 5 -59

!oc#se" Strategy



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Ch 5 -60


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Ch 5 -61

Means )or Achieving Strategies

T/o or more companies form a temporary

partnership or consorti#m for p#rpose of

capitali&ing on some opport#nity

7oint *enture82artnering #

* h M " i iti ! il


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Ch 5 -62

*easons /hy Mergers an" c1#isitions !ail

Integration "iffic#lties

Ina"e1#ate eval#ation of target

Large or e+traor"inary "ebt

Inability to achieve synergy


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Ch 5 -63


*%D partnerships

(ross-"istrib#tion agreements

(ross-licensing agreements

(ross-man#fact#ring agreements

Eoint-bi""ing consortia

Cooperative Arrangements #


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Ch 5 -64


Managers /ho m#st collaborate "aily5 not

involve" in "eveloping the vent#re

8enefits the company not the c#stomers

$ot s#pporte" e1#ally by both partners

May begin to compete /ith one of thepartners

9h 7oint *entures Fail #


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Copyright 2007 Prentice Hall Ch 5 -65

7oint *entures

uidelines ##Synergies bet/een private an" p#blicly hel"

Domestic /ith foreign firm7 local management can

re"#ce ris0

(omplementary "istinctive competencies

*eso#rces % ris0s /here project is highly profitable

;e?g? las0a Pipeline>

T/o or more smaller firms competing /6larger firm

$ee" to intro"#ce ne/ technology 1#ic0ly



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Too m#ch "iversification

Managers overly foc#se" on ac1#isition

Too large an ac1#isition

Diffic#lt to integrate "ifferent organi&ational

c#lt#res

*e"#ce" employee moral "#e to layoffs an"

relocations


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Provi"e improve" capacity #tili&ation

8etter #se of e+isting sales force

*e"#ce managerial staff

Gain economies of scale

Smooth o#t seasonal tren"s in sales

Gain ne/ technology ccess to ne/ s#ppliers7 "istrib#tors7 c#stomers7

pro"#cts7 cre"itors

Mergers & Ac6uisitions

*ecent Mergers


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*ecent Mergers

Ac6uiring Firm Ac6uired Firm

I8M scential Soft/are

Philip Morris PT anjaya Man"ala Samp

,?S? Steel $ational Steel (orp

Oracle PeopleSoft

OSIM International Lt" 8roo0stone

"obe Systems Macrome"ia

,S ir/ays merican 2est,nite" Parcel Service Overnight (orp?


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First Mover Advantages

8enefits a firm may achieve by entering a

ne/ mar0et or "eveloping a ne/ pro"#ct orservice prior to rival firms


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First Mover Advantages

Sec#ring access to rare reso#rces

Gaining ne/ 0no/le"ge of 0ey factors %iss#es

(arving o#t mar0et share

)asy to "efen" position % costly for rivalfirms to overta0e

2otential Advantages


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Outsourcing

(ompanies ta0ing over the f#nctionaloperations of other firms

8#siness-process o#tso#rcing;8PO>


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Outsourcing

Less e+pensive llo/s firm to foc#s on core b#siness

)nables firm to provi"e better services

8enefits


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Fey Terms % (oncepts

For 4evie, (Chapter 5!

Ac6uisitionConcentric

Diversi)ication

-ac.,ard

+ntegration

Conglomerate

Diversi)ication

-an.ruptcCooperative

Arrangements

Com%ination

StrategCost "eadership

(C !


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Di))erentiation Focus

Diversi)ication

StrategiesFor,ard +ntegration

Divestiture Franchising

First Mover

Advantageseneric Strategies

F 4 i (Ch 5!


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/ori0ontal

Diversi)ication+ntensive Strategies

/ori0ontal

+ntegration7oint *enture

/ostile $a.eover "everaged -uout

+ntegration

Strategies"i6uidation

F 4 i (Ch t 5!


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"ong#$erm

O%ectivesOutsourcing

Mar.et Development 2roduct Development

Mar.et 2enetration 4etrenchment

Merger *ertical +ntegration

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David PPT Exp Ch05