,types of Strategies

Strategic Management Process: Strategy formulation 2.
By: Prof. Dr. Andrs Nbrdi PhD, MBA

University of Debrecen
Faculty of Ag. Economics and Rural Development Dept.: Business Management and Marketing HUNGARY
Dr. Nbrdi Andrs DE-AVK
Tasks of strategic management

Outline
Establish long term objectives Types of strategies Integration Intensive Defensive Generic Achieving strategies
Strategy formulation Strategy Implementation
Strategy Evaluation
First stage of the strategic management

Outline
Develop Vision and Mission Statements Establish long term objectives Generate, evaluate, and select strategies
Strategy formulation (Strategic planning)
Strategy formulation
Outline
Developing vision and mission Indetifying external opportunities and threats Determining internal strenghts and weaknesses Establishing long term objectives Generating alternative strategies Choosing particular strategies to pursue Deciding what new business to enter How to allocate resources Expand or diversify operations Entering or not international market Merge or form joint venture How to avoid a hostile takeover
Outline
PERFORMANCE OBJECTIVES
Organizations target for achievement; both short and long range objectives are needed.
FINANCIAL OBJECTIVES
Financial performance targets a company wants to achieve.
STRATEGIC OBJECTIVES
Targets relating to strenghtening a companys overall market position and competetive viability.
Outline
LONG-RANGE OBJECTIVES
Achiement levels to be reached within the next three to five years.
SHORT-RANGE OBJECTIVES
Near-term performance target; they establish the pace for achieving the long-range objectives.
Establishing long term objectives

Outline
Should be: quantitative ( data, %, ) measurable ( what is now, what will be) realistic (no politicians promise ) understandable ( clear in different levels of a company corporate division functional operational CDFO) challenging (emotional risk) hierarchical (CDFO) associated with timeline ( within 3 year, end of the next year)
Varying performance Measures by organizational level

Outline
Establish long term objectives Types of strategies Integration Intensive Defensive Generic Achieving strategies Division division president, executive vice president Functional Finance, marketing, manufacturing, MIS, HRM Organizational level Corporate (president) Basis foe annual bonus or merit pay 85 % based on long term objectives 15 % based on annual objectives 75 % based on long term objectives 25 % based on annual objectives 50 % based on long term objectives 50 % based on annual objectives
Operational 25 % based on long term objectives Plant managers, sales 75 % based on annual objectives managers, production and department managers

Outline
Types of long term objectives Financial

Growth in revenues Growth in earnings Higher dividends Larger profit margins Greater return on investment Higher earnings per share Rising stock price Improved cash flow
Strategic
Larger market share Quicker on-time delivery than rivals Shorter design-to-market times than rivals Lower costs than rivals Higher product quality than rivals Achieving technological leadership Consistently getting new products to market ahead of rivals
Types of strategies
Outline
Defensive
Retrenchment Divestiture Liquidation
Do nothing Offensive
Integration Forward Backward Horizontal Intensive Market penetration Market development Product Development Diversification
Types of strategies
Outline
Establish long term objectives Types of strategies Integration Intensive Defensive Generic Achieving strategies Backward integration
I. Integration
Strategy
Forward integration
Description
Gaining ownership or increased control over distributors or retailers Seeking ownership or increased control of a firms suppliers Seeking ownership or increased control over competitors
Example
An agricultural company purchased a regional bakerychain Hotels Inc. purchased a furniture producer One department store acquired another department store
Horizontal integration
Types of strategies
Outline
Forward integration effective when:

present distributors are especially expensive or unreliable availability of quality distributors is limited competes in an industry growing and expected to continue to grow an organization has both capital and HR needed to manage of distributing its own products present distributors or retailers have high profit margin
distributors
Types of strategies
Outline
Backward integration effective when:

present suppliers are especially expensive or unreliable number of suppliers is small and the number of competitors is large competes in an industry growing and expected to continue to grow an organization has both capital and HR to manage new business of supplying its own raw materials the advantages of a stable raw material price particularly important
present suppliers have high profit margin

suppliers
Types of strategies
Outline
Horizontal integration effective when:

increase economic of scale provide major competitive advantages competes in an industry growing and expected to continue to grow an organization has both capital and HR needed to manage an expanded organization
competitors
Types of strategies
Outline
II. Intensive
Strategy
Market penetration Market development Product development Related diversification Unrelated diversification
Description
Increased market share for present products in present market through greater marketing efforts
Example
Coca cola is spending millions to advertise its drinks
Introducing present products or services into new geographic area Increased sales by improving present products or developing new ones
MOL purchased a 10 % stake in Slovakoil

Glaxo Smith Kline (UK) introduced the new Aquafresh 3 total care toothpaste Glaxo Smith Kline (UK) introduced the new ADAPTOR toothbrush A kitchenware company entered into a growing skin and beauty business
Adding new but related products or services Adding new unrelated products and services
Types of strategies
Outline
Market penetration effective when:

Current markets are not saturated with a particular product or service usage rate of present customers could be increased significantly market share of major competitors have been declining while total industry sales have been increasing increased economies of scale provide major competitive advantages
present products in present market

Sony co. is spending over $141 million in a new advertising and
promotion drive to market its high-definition television named BRAVIA sets in the USA. 2006
Types of strategies
Outline
Market development effective when:

new channels of distribution are available, inexpensive an organization is very successful at what it does new untapped or unsaturated markets exists
an organization has both capital and HR needed to manage an expanded organization an organization has excess production capacity an organizations basic industry is becoming rapidly global is scope present products in new geographic area
Adidas in May 2005 had 1500 stores in China and stated that it would open another 40 stores every month for the next 40 months
Types of strategies
Outline
Product development effective when:

an organization has successful products that are in maturity stage of the product life cycle. an industry represented by rapid technological developments major competitors offer better-quality products in comparable prices an organization competes in a high-growth industry an organization has especially strong R& D capabilities
improving present products or developing new ones

In 2005 Heineken developed and introduced low-calorie low carbohydrate beer Heineken Light into US. Brad Pitt and John Travolta are promotes its product.
Product Life Cycle

Outline
Establish long term objectives Types of strategies Money / Time Integration Intensive Defensive Generic Achieving strategies 10 8 6 4 2 0 -2
0 1 2 3 4 5 6 Cash-flow
Birth
Growing
Maturity
Declining
Time
Types of strategies
Outline
II. Intensive
Strategy
Market penetration Market development Product development Related diversification Unrelated diversification
Description
Increased market share for present products in present market through greater marketing efforts
Example
Coca cola is spending millions to advertise its drinks
Introducing present products or services into new geographic area Increased sales by improving present products or developing new ones
MOL purchased a 10 % stake in Slovakoil

Glaxo Smith Kline (UK) introduced the new Aquafresh 3 total care toothpaste Glaxo Smith Kline (UK) introduced the new ADAPTOR toothbrush A kitchenware company entered into a growing skin and beauty business
Adding new but related products or services Adding new unrelated products and services
Types of strategies
Outline
Related diversification effective when:

an organization competes in a no-growth or slow-growth industry related products would enhance the sales of current products related products could be offered at highly competitive prices related products have no seasonal sales level that can balance existing trade problems (grain flour bakery) existing products are in a declining stage of the products life cycle
Adding new but related products

Dell computer Inc. turned to produce flat-panel televisions and MP3 players, and opened an online music-downloading store.
Types of strategies
Outline
Unrelated diversification effective when:

an organization competes in a highly competitive industry as indicated by
low profit margins and returns present marketing channels can be used to new products to current customers an organizations basic industry is experiencing declining sales and profits an organization has both capital and HR to compete in a new industry purchase an unrelated business is an attractive investment opportunity
Adding new unrelated products

Hospitals are creating small malls by offering banks, bookstores, coffee shops, restaurants, drugstores and other retail stores within their buildings
Summary of the intensive strategies

Outline
Name
Current markets
Market penetration
New markets
Market development
Current products
New products
Market development Market penetration Related diversification
Unrelated diversification
Types of strategies
Outline
Establish long term objectives Types of strategies Integration Intensive Defensive Generic Achieving strategies Liquidation
III. Defensive
Strategy
Retrenchment Reorganizational strategy Divestiture
Description
Regrouping through costs and assets reduction to serve declining sales and profit. Selling a division or part of an organization Selling all of a companys assets, in parts, for their tangible worth
Example
Sanyo Electric is cutting its global workforce by 15% in 2006 for reducing its dept. Goodyear Co. sold its North American farm-tire business to Titan Inc. Britains last major car manufacturer, MG Rover Group Ltd., liquidated in 2005 and laid off its 5000 employees.
Types of strategies
Outline
Retrenchment effective when:

an organization has failed consistently to meet its objectives and goals
over time an organization is one of the weaker competitors in a given industry an organization occurs inefficiency, low profitability, poor employee moral, and pressure from stockholders to improve performance an organization has grown so large so quickly that major internal reorganization is needed
Tools: reorganization bankruptcy regrouping asset reduction cost reduction
Types of strategies
Outline
Divestiture effective when:

a division is responsible for an organizations poor performance
a division needs more resources to be competitive than company can provide a large amount of cash needed quickly and cannot be obtained from other sources a division is a misfit with the rest of an organization
Selling a division or part of an organization

Types of strategies
Outline
Liquidation effective when:

both a reorganization and a divestiture has not been successful
an organizations only alternative is bankruptcy the stockholders can minimize their losses by selling the organizations assets
Selling an organization
Types of strategies
Outline
Establish long term objectives Types of strategies Integration Intensive Defensive Generic Achieving strategies Large
Michael Porters Five Generic strategies

Cost leadership Differentiation Focus
Low cost Diff. Best value
Low cost
Size of market
Small
Diff. Best value
Types of strategies
Outline
Generic strategies
To gain competitive advantage from 3 different bases: Cost leadership: producing standardized products at very low perunit cost for consumers who are price-sensitive. Two alternatives: low cost strategy: concentrate on a low cost best value: concentrate on best-price-value compared to rivals Differentiation Considered unique or industrywide products and services Focus: fulfill the needs of small groups of consumers Two alternatives low cost focus: best value focus
Types of strategies
Outline
Cost leadership effective when:

price competition among rivals vigorous
products of rival sellers are identical most buyers use the product in same ways buyers are large and have significant power to bargain down prices
Tools: integration R&D Capacity utilization Outsourcing
Types of strategies
Outline
Differentiation effective when:

there are many ways to differentiate the products
few rival firm are following a similar approaches buyers needs and users are diverse technological change is fast
Tools: Market penetration Market development Related diversification R&D
Types of strategies
Outline
Focus effective when:

Industry leaders consider it too costly or difficult to meet the specialized
needs few other rivals are attempting to specialize in the same segment
Tools: Market penetration Market development Related diversification R&D Outsourcing

,types of Strategies

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

,types of Strategies

Uploaded by

Copyright:

Available Formats

Strategic Management Process: Strategy formulation 2.

By: Prof. Dr. Andrs Nbrdi PhD, MBA

Tasks of strategic management

Strategy formulation Strategy Implementation

Dr. Nbrdi Andrs DE-AVK

First stage of the strategic management

Strategy formulation (Strategic planning)

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Establishing long term objectives

Establishing long term objectives

Dr. Nbrdi Andrs DE-AVK

Varying performance Measures by organizational level

Dr. Nbrdi Andrs DE-AVK

Establishing long term objectives

Types of long term objectives Financial

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Forward integration effective when:

Backward integration effective when:

present suppliers have high profit margin

Horizontal integration effective when:

Dr. Nbrdi Andrs DE-AVK

MOL purchased a 10 % stake in Slovakoil

Dr. Nbrdi Andrs DE-AVK

Market penetration effective when:

present products in present market

Market development effective when:

Dr. Nbrdi Andrs DE-AVK

Product development effective when:

improving present products or developing new ones

Dr. Nbrdi Andrs DE-AVK

Product Life Cycle

Dr. Nbrdi Andrs DE-AVK

MOL purchased a 10 % stake in Slovakoil

Dr. Nbrdi Andrs DE-AVK

Related diversification effective when:

Adding new but related products

Dr. Nbrdi Andrs DE-AVK

Unrelated diversification effective when:

Adding new unrelated products

Dr. Nbrdi Andrs DE-AVK

Summary of the intensive strategies

Market development Market penetration Related diversification

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Retrenchment effective when:

Tools: reorganization bankruptcy regrouping asset reduction cost reduction

Dr. Nbrdi Andrs DE-AVK

Divestiture effective when:

Selling a division or part of an organization

Liquidation effective when:

Dr. Nbrdi Andrs DE-AVK

Michael Porters Five Generic strategies

Low cost Diff. Best value

Diff. Best value

Dr. Nbrdi Andrs DE-AVK

Dr. Nbrdi Andrs DE-AVK

Cost leadership effective when: