Formulating Long Term Objectives and Grand Strategies
Long Term Objectives
There are seven areas in which long term objectives have to be
established
1. Profitability
The ability of any firm to operate in the long term depends on
attaining an acceptable level of profits. Strategically managed firms
have a long term objective, usually expressed in earnings per share or
return on equity.
2. Productivity
Commonly used productivity objectives are the number of items
produced or the number of services rendered per unit of input. They Objectives should be adaptable to unforeseen or extraordinary
are also, sometimes, defined in terms of desired cost decrease.
3. Competitive position
This is in terms of relative dominance in the marketplace. Companies is to allow for adjustments in the level, rather than in the
often use total sales or market share as a measure of competitive
position.
4. Employee Development
Employee development in terms of training which increases
productivity and decreases employee turnover.
5. Employee relations
Proactive steps in anticipating the employee needs and expectations
are characteristics of good strategic management.This builds
employee loyalty leading to increase in productivity.Such programs
include safety training, employee stock option and worker
representation on management committees.
6. Technological leadership
Firms have to adopt different strategies depending on its intention of
being a leader or a follower of technology leadership. e.g., Companies
like Intel and Microsoft have an advantage of being known as
technological leaders in their domains. e-commerce technology will
lead to emergence of new leaders who are better positioned to take
advantage of internet technology to improve productivity and
innovation.
7. Public responsibility
Corporates ensure that their responsibility go beyond providing good
products and services to include corporate social responsibility. They
donate to educational projects, nonprofit organizations, charities and
other socially relevant activities. e.g. MindTree is involved with
Spastics Society of Karnataka, Tata Steel in credited with
development of Jamshedpur
Qualities of long-term objectives
1. Acceptable
The long term objectives should be consistent with the
preferences of the employees.They may ignore or even
obstruct an objective that offend them or that they believe to
be inappropriate and unfair.The long term objectives should
also be designed to be acceptable to groups external to the
firm.
e.g. development of hybrid cars
2. Flexible
changes in the firm's competitive or environmental
forecasts.Such flexibility is at the expense of specificity.One
way of providing flexibility while minimizing its negative effects
nature, of objectives.e.g. there may be some flexibility in the
growth rate in terms of revenues in times of recession
3. Measurable
The objectives must clearly state what will be achieved and by
when it will be achieved.e.g. Adobe wants to increase its
revenues from India to 5% of their total revenue in the next five
years
4. Motivating
The objectives have to be set to a motivating level which is high
enough to challenge, but not so high enough as to frustrate,
and also it should not be so low as to be easily attained.Since
different group of people have different levels of motivation,
different long term objectives should be set to motivate the
groups.
5. Suitable
Long term objective must be suited to the broad aims of the
firm, which are expressed in its mission statement.Each of the
objectives should help the firm to move closer to achieving its
mission. e.g. companies with mission of global reputation
cannot do anything which is unethical
6. Understandable
All the people involved in the execution of the objectives must
be able to clearly understand the objectives.They should also
understand the major criteria by which their performance
would be evaluated.The objectives must be clear, meaningful
and unambiguous.
7. Achievable
Objectives must be possible to achieve.The objectives have be
set to be achievable under normal conditions, when extreme
changes in the external and internal environments are not expected. normally is prepared to introduce a dramatically new or
improved product.Intel, 3M

Grand Strategies

Grand strategies provide basic direction for strategic actions. They are
the basis for coordinated and sustained efforts directed towards
achieving long-term business objectives. They indicate a time period
over which long-term objectives are to be achieved. Firms involved
with multiple industries, businesses, product lines or customer groups
usually combine several grand strategies.

The fifteen grand principles are:

1. Concentrated growth e.g. e-bay in online auction

2. Horizontal integration
2. Market development e.g. J&J catering to the adults, using sachets
It is a strategy in which a firms long term strategy is based on
for market penetration
growth through acquisition of one or more similar firms
3. Product development e.g. personal care products from HUL, newer operating at the same stage of the production-marketing chain.
version of books, E.g. Acquisition of Arcrol by Mitta Steels Such acquisitions
eliminate competitors and provide the acquiring firm with
4. Innovation
access to new markets. The acquiring firm is able to greatly
5. Horizontal integration expand its operations, thereby achieving greater market share,
improving economics of scale, and increasing the efficiency of
6. Vertical integration capital use. e.g. acquisition of Arcerol by Mittal steels,
acquisition of VoiceStream Wireless by Deutsche Telekom The
7. Concentric diversification
risk associated with horizontal integration is the increased
8. Conglomerate diversification commitment to one type of business.

9. Turnaround 3. Vertical integration

10. Divestiture e.g. Sale of TOMCO by Tata, selling of cement division
by L&T
11. Liquidation
12. Bankruptcy
13. Joint ventures
14. Strategic alliances
15. Consortia e.g. Mitsubishi, LG
1. Innovation
Innovation is needed since both consumer and industrial markets
expect periodic changes and improvements in the products offered.
Firms seeking to making innovation as their grand strategy seek to
reap the initially high profits associated with customer acceptance of
a new or greatly improved product. As the products enters the
maturity stage these companies start looking for a new innovation.
The underlining rationale is to create a new product life cycle and
thereby make similar existing products obsolete. This strategy is
different from the product development strategy in which the
product life cycle of an existing product is extended. e.g. Polaroid
which heavily promotes each of its new cameras until competitors are acquiring firm in terms of technology, markets, or products.
able to match its technological innovation; by this time Polaroid
It is a process in which a firm's grand strategy is to acquire firms
that supply it with inputs (such as raw materials) or are
customers for its outputs (such as warehouses for finished
products). The acquiring of suppliers is called backward
integration. The main reason for backward integration is the
desire to increase the dependability of the supply or quality of
the raw materials used in the production inputs. This need is
particularly great when the number of suppliers are less and
the number of competitors is large. In these conditions a
vertically integrated firm can better control its costs and,
thereby, improve the profit margin. e.g. acquiring of textile
producer by a shirt manufacturer The acquiring of customers is
called forward integration. e.g. acquiring of clothing store by a
shirt manufacturer Forward integration is preferred if great
advantages accrue to stable production. It also helps in greater
predictability of demand for its outputs. Vertical integration
has a risk which results from the firm's expansion into areas
requiring strategic manager to broaden the base of their
competences and to assume additional responsibilities.
4. Concentric diversification
It involves the acquisition of businesses that are related to the
The selected new business must possess a very high degree of
compatibility with the firm's existing business.The ideal concentric
diversification occurs when the combined company profits increase
the strengths and opportunities and decreases the weaknesses and
exposure to risk. Thus, the acquiring firm searches for new businesses
whose products, markets, distribution channels, technologies and
resource requirements are similar to but not identical with its own,
whose acquisition results in synergies but not complete
interdependence. e.g. acquiring of Spice Telecom by Idea
5. Conglomerate Diversification
It is a grand strategy in which a very large firm plans to acquire a
business because it represents the most promising investment
opportunity available. The principal concern, and often the sole
concern, of the acquiring firm is the profit pattern of the venture. It
gives little concern to creating product-market synergy with existing
business. They may seek a balance in their portfolio between current
businesses with cyclical sales and acquired businesses with
countercyclical sales, between high-cash/low-opportunity and low-
cash/high-opportunity businesses or between debt-free and high
leveraged businesses. e.g. acquisition of Adlabs by Anil Dirubhai
Ambani Group
6. Turnaround
Sometimes the profit of a company decline due to various reasons
like economic recession, production inefficiencies and innovative
breakthrough by competitors. In many cases the management
believes that such a firm can survive and eventually recover if a
concerted effort is made over a period of a few years to fortify its
distinctive competences. This is known as turnaround strategy.
Turnaround typically is begun with one or both of the following
forms of retrenchment being employed either singly or in
combination.
A. Cost reduction
It is done by decreasing the workforce through employee attrition,
leasing rather than purchasing equipment, extending the life of
machinery, eliminating promotional activities, laying off employees,
dropping items from a production line and discontinuing low-margin
customers.
B. Asset reduction
This includes sale of land, buildings and equipment not essential to
the basic activity of the firm.Research have showed that turnaround
almost always was associated with changes in top management. New
managers are believed to introduce new perspectives, raise employee
morale and facilitate drastic actions like deep budgetary cuts in
established programs.
Turnaround situation
The model begins with the depiction of external and internal
factors as causes of a firm's performance downturn. When
these factors continue to detrimentally impact the firm, its
financial health is threatened. Unchecked decline places the
firm in a turnaround situation. A turnaround situation
represents absolute and relative to the industry declining
performance of a sufficient magnitude to warrant explicit
turnaround actions. Turnaround situations may be a result of
years of gradual slowdown or months of sharp decline. For a
declining firm, stabilizing operations and restoring profitability
almost always entail strict cost reduction followed by shrinking
back to those segments of the business that have been the best
prospects of attractive profit margins. The model begins with
the depiction of external and internal factors as causes of a
firm's performance downturn.When these factors continue to
detrimentally impact the firm, its financial health is threatened.
Unchecked decline places the firm in a turnaround situation. A
turnaround situation represents absolute and relative to the
industry declining performance of a sufficient magnitude to
warrant explicit turnaround actions. Turnaround situations may
be a result of years of gradual slowdown or months of sharp
decline. For a declining firm, stabilizing operations and
restoring profitability almost always entail strict cost reduction
followed by shrinking back to those segments of the business
that have been the best prospects of attractive profit margins.
Situation severity
The urgency of the resulting threat to company survival posed
by the turnaround situation is known as situation
severity.Severity is the governing factor in estimating the speed
with which the retrenchment response will be formulated and
activated.When severity is low stability can be achieved
through cost reduction alone.When severity is high cost
reduction must be supplemented with more drastic asset
reduction measures. Assets targeted for divestiture are those
determined to be underproductive. More productive resources
are protected and will become the core business in the future
plan of the company. E.g . strategy adopted by Citibank

Turnaround response
Turnaround response among successful firms typically include two
strategic activities:
Retrenchment phase
Recovery phase
Retrenchment phase
It consists of cost-cutting and asset-reducing activities. The primary
objective of this process is to stabilize the firm's financial condition.
Firms in danger of bankruptcy or failure attempt to halt decline
through cost and asset reductions. It is very important to control the
retrenchment process in a effective and efficient manner for any
turnaround to be successful. After the stability has been attained
through retrenchment, the next step of recovery phase begins.
Recovery phase
The primary causes of the turnaround situation will be associated
with the recovery phase. For firms that declined as a result of external service providers are using both GSM and CDMA technologies
problems, turnaround most often has been achieved through creative and they are not sure which technology will be the winner.
new entrepreneurial strategies. For firms that declined as a result of
internal problem, turnaround has been mostly achieved through
efficiency strategies.
Recovery is achieved when economic measures indicate that the firm or if its emergence their existing business. e.g. entry of large
has regained its predownturn levels of performance.
Tailoring strategy to fit specific industry and company situations
Strategies based on industry situation
Strategies for emerging industries
Strategies for competing in turbulent, high-velocity markets
Strategies for competing in maturing industries
Strategies for firms in stagnant or declining industries
Strategies for competing in fragmented industries
Strategies based on company situation
Strategies for sustaining rapid company growth
Strategy for industry leaders
Strategies for runner-up firms
Strategies for weak and crisis-ridden businesses
Strategies for emerging industries
An emerging industry is one which is in its formative stage.
The two critical strategic issues confronting firms in an emerging
industry are:
How to finance initial operations until sales and revenues take
off
What market segments and competitive advantages to go after
in trying to secure a front-runner position.
Challenges when competing in emerging industries
1. Because the market is new and unproven, there is
speculation about how it will function, how fast it will grow and
how big it will get.It is difficult to make sales and profit
projections.There will be guess work about how rapidly
customers would be attracted and how much they would be
willing to pay.
2. Much of the technological know-how for the products of
emerging industries is proprietary and closely guarded. Patents
and unique technical expertise are key factors in securing
competitive advantage.
3. Often, there is no consensus regarding which of the several
competing technologies will win or which product attributes
will prove decisive in winning buyer favor.e.g. The mobile
4. Entry barriers tend to be low, even for entrepreneurial
start-up companies.Large companies with ample resources will
enter the market if they find the promise for explosive growth
number of players to the mobile services market
5. Strong learning and experience curve effects may be
present, allowing significant price reductions as volume builds
and costs fall.
6. The marketing task is to induce initial purchases and to
overcome customer concerns about product features,
performance reliability and conflicting claims of rival firms.
8.Potential buyers expect first-generation products to be
rapidly improved, so they delay purchase till second or third
generation products are released.
8. It will take time for companies to secure ample raw
materials and components. Till suppliers gear up to meet the
industry's needs.
9. A lot of mergers and acquisitions happen as many small
companies not able to fund R&D will be willing to be acquired.
C.The Balanced Scorecard
1. The balanced scorecard is a set of measures that are
directly linked to the company’s strategy.
a) Developed by Robert S. Kaplan and David P. Norton, it
directs a company to link its own long-term strategy with
tangible goals and actions.
b) The scorecard allows managers to evaluate the company from
four perspectives: financial performance, customer knowledge,
internal business processes, and learning and growth.
2. The balanced scorecard, as shown in Exhibit 7.1, The Balanced
Scorecard, contains a concise definition of the company’s vision and
strategy.
a) Surrounding the vision and strategy are four additional boxes,
each box contains the objectives, measures, targets, and initiatives
for one of the four perspectives:
(1) The box at the top of Exhibit 7.1 represents the financial
perspective, and answers the question “To succeed financially, how
should we appear to our shareholders?”
(2) The box to the right represents the internal business process
perspective and addresses the question “To satisfy our shareholders
and customers, what business processes must we excel at?”
(3) The learning and growth box at the bottom of the exhibit answer capabilities to achieve and sustain their low-cost position.
the question “To achieve our vision, how will we sustain our ability to
change and improve?”
(4) The box at the left reflects the customer perspective, and
responds to the question, “To achieve our vision, how should we
appear to our customers?”
b) All of the boxes are connected by arrows to illustrate that the
objectives and measures of the four perspectives are linked by cause-
and-effect relationships that lead to the successful implementation of (3) The commonly accepted requirements for successful
the strategy.
c) Achieving one perspective’s targets should lead to desired
improvements in the next perspective, and so on, until the company’s
performance increases overall.
3. A properly constructed scorecard is balanced between short-and
long-term measures, financial and nonfinancial measures, and
internal and external performance perspectives.
4. The balanced scorecard is a management system that can be
used at the central organizing framework for key managerial
processes.
D. Generic Strategies
1. Many planning experts believe that the general philosophy of
doing business declared by the firm in the mission statement must be
translated into a holistic statement of the firm’s strategic orientation
before it can be further defined in terms of a specific long-term
strategy.
attempt to seek a competitive advantage based on one of
three generic strategies:
(1) Striving for overall low-cost leadership in the industry.
(2) Striving to create and market unique products for varied
customer groups through differentiation.
(3) Striving to have special appeal to one or more groups of
consumers or industrial buyers, focusing on their cost or
differentiation concerns.
d) Advocates of generic strategies believe that each of these
options can produce above average returns for a firm in an
industry. They are successful for very different reasons.
Requirement generic competitive strategies
1. overal Low-Cost Leadership
a) Low-cost leaders depend on some fairly unique
(1) Low-cost producers usually excel at cost reductions and
efficiencies.
(2) They maximize economies of scale, implement cost-
cutting technologies, stress reductions in overhead and in
administrative expenses, and use volume sales techniques to
propel themselves up the earning curve.
implementation of the low-cost and the other two generic
strategies are overviewed in Exhibit 7.2, Requirements for
Generic Competitive Strategies.
b) A low-cost leader is able to use its cost advantage to
charge lower prices or to enjoy higher profit margins.
(1) By doing so, the firm effectively can defend itself in price
wars, attack competitors on price to gain market share, or, if
already dominant in the industry, simply benefit from
exceptional returns
. c) In the wake of the tremendous successes of such low-cost
leaders as Wal-Mart and Target, only a rare few companies can
ignore the mandate to reduce cost.
(1) Yet, doing so without compromising the key attributes of
a company’s products or services is a difficult challenge.
(2) Home Depot’s Robert Nardelli is profiled in Exhibit 7.3,
Top Strategist.

a) In other words, a long-term or grand strategy must be based on

a core idea about how the firm can best compete in the marketplace.

b) The popular term for this core idea is generic strategy.

c) From a scheme developed by Michael Porter, many planners

believe that any long-term strategy should derive from a firm’s
2. Differentiation

a) Strategies dependent on differentiation are designed to appeal

to customers with a special sensitivity for a particular product
attribute.

(1) By stressing the attribute above other product qualities, the firm
attempts to build customer loyalty.

(2) Often such loyalty translates into a firm’s ability to charge a

premium price for its product.

b) The product attribute also can be the marketing channels

through which it is delivered, its image for excellence, the features it
includes, and the service network that supports it.

(1) As a result of the importance of these attributes, competitors

often face “perceptual” barriers to entry when customers of a
successfully differentiated firm fail to see largely identical products as
being interchangeable.

3. Focus

a) A focus strategy, whether anchored in a low-cost base or a

differentiation base, attempts to attend to the needs of a particular
market segment.

(1) Likely segments are those that are ignored by marketing appeals
to easily accessible markets, to the “typical” customer, or to
customers with common applications for the product.

(2) A firm pursuing a focus strategy is willing to service isolated

geographic areas; to satisfy the needs of customers with special
financing, inventory, or servicing problems; or to tailor the product to
the somewhat unique demands of the small- to medium-sized
customer.

(3) The focusing firms profit from their willingness to serve

otherwise ignored or underappreciated customer segments.

(4) The classic example is cable television. An entire industry was

born because of willingness of cable firms to serve isolated rural
locations that were ignored by traditional television services.

b) While each of the generic strategies enables a firm to maximize

certain competitive advantages, each one also exposes the firm to a
number of competitive risks.

(1) As Exhibit 7.4, Risks of the Generic Strategies, suggests, each

generic strategy presents the firm with a number of risks.