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Lecture Outline
• Intensive Strategies
• Diversification Strategies
• Defensive Strategies
• Means for Achieving Strategies
Lecture Outline
• Michael Porter’s Generic Strategies
• Strategic Management in Nonprofit and Governmental Organizations
• Strategic Management in Small Firms
Strategies in Action
Even if you’re on the right track, you’ll get run over if you just sit there.
-- Will Rogers
Strategies in Action
Hundreds of companies today –
• Embrace strategic planning• Quest for higher revenues• Quest for higher profits
Long-Term Objectives
Objectives –
– Quantifiable– Measurable– Realistic– Understandable– Challenging– Hierarchical– Obtainable – Congruent– Time-line
Long-Term Objectives
Long-term objectives are necessary –
– Corporate– Divisional– Functional levels
Long-Term Objectives
Strategists should avoid –
– Managing by Extrapolation– Managing by Crisis– Managing by Subjectives– Managing by Hope
Integration StrategiesIntegration Strategies
Vertical Integration Strategies
Forward Integration
Backward Integration
Horizontal Integration
Integration Strategies
Vertical Integration strategies –
– Allow a firm to gain control over:• Distributors• Suppliers• competitors
Integration Strategies
Forward Integration –
– Gaining ownership or increased control over distributors or retailers
Integration Strategies
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 Organization has both capital and human resources
needed to manage new business of distribution Advantages of stable production are high Present distributors have high profit margins
Integration Strategies
Backward Integration –
– Seeking ownership or increased control of a firm’s suppliers
Integration Strategies
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
Integration Strategies
Horizontal Integration –
– Seeking ownership or increased control over competitors
Integration Strategies
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
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Generic Strategies
Cost Leadership Strategies –
Pursued in conjunction with differentiation Economies or diseconomies of scale Capacity utilization achieved Linkages with suppliers and distributors
Generic Strategies
Low Cost Producer Advantages –
Market of many price-sensitive buyers Few ways of achieving product differentiation Buyers not sensitive to brand differences Large number of buyers with bargaining power
Generic Strategies
Differentiation Strategies –
Greater product flexibility Greater compatibility Lower costs Improved service Greater convenience More features
Generic Strategies
Differentiation Strategies –
Allow firm to charge higher price Gain customer loyalty
Generic Strategies
Focus Strategies –
Industry segment of sufficient size Good growth potential Not crucial to success of major competitors
Generic Strategies
Focus Strategies –
Consumers have distinctive preferences Rival firms not attempting to specialize in the
same target segment
Intensive StrategiesIntensive Strategies
Intensive Strategies
Market Penetration
Market Development
Product Development
Intensive Strategies
Intensive strategies –
– Require intensive efforts to improve a firm’s competitive position with existing products
Intensive Strategies
Market Penetration –
– Seeking increased market share for present products or services in present markets through greater marketing efforts
Intensive Strategies
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
Intensive Strategies
Market Development –
– Introducing present products or services into new geographic area
Intensive Strategies
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
Intensive Strategies
Product Development –
– Seeking increased sales by improving present products or services or developing new ones
Intensive Strategies
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
Diversification StrategiesDiversification Strategies
Diversification Strategies
Concentric Diversification
Conglomerate Diversification
Horizontal Diversification
Diversification Strategies
Diversification strategies –
– Becoming less popular as organizations are finding it more difficult to manage diverse business activities
Diversification Strategies
Concentric Diversification –
– Adding new, but related, products or services
Diversification Strategies
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
Diversification Strategies
Conglomerate Diversification –
– Adding new, unrelated products or services
Diversification Strategies
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
Diversification Strategies
Horizontal Diversification –
– Adding new, unrelated products or services for present customers
Diversification Strategies
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