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Strategic Mgmt ch07

Strategic Mgmt ch07

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Published by: farazalam08 on Feb 17, 2011
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Chapter 7Long-Term Objectives and Strategies
0Chapter Summary
Before we learn how strategic decisions are made, it is important to understand the two principal components of any strategic choice; namely, long-term objectives and the grandstrategy. The purpose of this chapter is to convey that understanding.Long-term objectives are defined as the result a firm seeks to achieve over a specified period,typically five years. Seven common long-term objectives are discussed: profitability, productivity, competitive position, employee development, employee relations, technologicalleadership, and public responsibility. These, or any other long-term objectives, should beacceptable, flexible, measurable over time, motivating, suitable, understandable, andachievable.Grand strategies are defined as comprehensive approaches guiding the major actions designedto achieve long-term objectives. Fifteen grand strategy options are discussed: concentratedgrowth, market development, product development, innovation, horizontal integration,vertical integration, concentric diversification, conglomerate diversification, turnaround,divestiture, liquidation, bankruptcy, joint ventures, strategic alliances, and consortia.
0Learning Objectives
1.Discuss seven different topics for long-term corporate objectives.2.Describe the seven qualities of long-term corporate objectives that make themespecially useful to strategic managers.3.Explain the generic strategies of low-cost leadership, differentiation, and focus.4.Discuss the importance of the value disciplines.5.List, describe, evaluate, and give examples of the 15 grand strategies that decisionmakers use as building blocks in forming their company’s competitive plan.6.Understand the creation of sets of long-term objectives and grand strategies options.
0Lecture Outline
I0.Long-Term ObjectivesA0.Strategic managers recognize that short-run profit maximization is rarely the bestapproach to achieving sustained corporate growth and profitability.10.An often repeated adage states that if impoverished people are given food, theywill eat it and remain impoverished, whereas if they are given seeds and toolsand shown how to grow crops, they will be able to improve their condition permanently. A parallel choice confronts strategic decision makers:a0)Should they eat the seeds to improve the near-term profit picture andmake large dividend payments through cost-saving measures such as
laying off workers during periods of slack demand, selling off inventories, or cutting back on research and development? b0)Or should they sow the seeds in the effort to reap long-term rewards byreinvesting profits in growth opportunities, committing resources toemployee training, or increasing advertising expenditures?2.For most strategic managers, the solution is clear—distribute a small amount of  profit now but sow most of it to increase the likelihood of a long-term supply.This is the most frequently used rationale in selecting objectives.3.To achieve long-term prosperity, strategic planners commonly establish long-term objectives in seven areas:a)Profitability(1)The ability of any firm to operate in the long run depends onattaining an acceptable level of profits.(2)Strategically managed firms characteristically have a profitobjective, usually expressed in earnings per share or return onequity. b)Productivity(1)Strategic managers constantly try to increase the productivity of their systems.(2)Firms that can improve the input-output relationship normallyincrease profitability.(3)Thus, firms almost always state an objective for productivity.(4)Commonly used productivity objectives are the number of items produced or the number of services rendered per unit of input.(5)However, productivity objectives sometimes are stated in terms of desired cost decreases.c)Competitive Position(1)One measure of corporate success is relative dominance in themarketplace.(2)Larger firms commonly establish an objective in terms ocompetitive position, often using total sales or market share asmeasures of their competitive position.d)Employee Development(1)Employees value education and training, in part because they leadto increased compensation and job security.(2)Providing such opportunities often increases productivity anddecreases turnover.(3)Therefore, strategic decision makers frequently include anemployee development objective in their long-range plans.
e)Employee Relations(1)Whether or not they are bound by union contracts, firms activelyseek good employee relations.(2)In fact, proactive steps in anticipation of employee needs andexpectations are characteristic of strategic managers.(3)Strategic managers believe that productivity is linked to employeeloyalty and to appreciation of mangers’ interest in employeewelfare.(4)They, therefore, set objectives to improve employee relations.(5)Among the outgrowths of such objectives are safety programs,worker representation of management committees, and employeestock option plans.f)Technological Leadership(1)Firms must decide whether to lead or follow in the marketplace.(2)Either approach can be successful, but each requires a differentstrategic posture.(3)Therefore, many firms state an objective with regard totechnological leadership.g)Public Responsibility(1)Managers recognize their responsibilities to their customers and tosociety at large.(2)In fact, many firms seek to exceed government requirements.B.Qualities of Long-Term Objectives1.There are seven criteria that should be used in preparing long-term objectives:acceptable, flexible, measurable over time, motivating, suitable, understandable,and achievable.a)Acceptable(1)Managers are most likely to pursue objectives that are consistentwith their preferences.(2)They may ignore or even obstruct the achievement of objectivesthat offend them or that they believe to be inappropriate or unfair.(3)In addition, long-term corporate objectives frequently are designedto be acceptable to groups external to the firm. b)Flexible(1)Objectives should be adaptable to unforeseen or extraordinarychanges in the firm’s competitive or environmental forecasts.(2)Unfortunately, such flexibility usually is increased at the expenseof specificity.

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