Chapter 5

Strategies in Action

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Long Term Objectives

◼ Quantitative ◼ Challenging

◼ Measurable ◼ Hierarchical

◼ Realistic ◼ Obtainable

◼ Understandable ◼ Congruent
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Financial vs. Strategic Objectives
Financial Objectives
◼Growth in revenues
◼Growth in earnings
◼Higher dividends
◼Larger profit margins
◼Greater ROI
◼Higher earnings per share
◼Rising stock price
◼Improved cash flow
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Financial vs. Strategic Objectives
Strategic Objectives
◼ 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
◼ Wider geographic coverage than rivals
◼ Achieving technological leadership
◼ Consistently getting new or improved
products to market ahead of rivals
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Not Managing by Objectives
◼Managing by Extrapolation – “If it ain’t
broke, don’t fix it”
◼Managing by Crisis – The true measure of a
good strategist is the ability to fix problems
◼Managing by Subjectives – “Do your own
thing, the best way you know how”
◼Managing by Hope – The future is full of
uncertainty and if at first you don’t succeed,
then you may on the second or third try
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The Balanced Scorecard

Robert Kaplan & David Norton –

◼Strategy evaluation & control technique

◼Balance financial measures with
nonfinancial measures
◼Balance shareholder objectives with
customer & operational objectives
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Levels of Strategies –
Large Company

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Levels of Strategies –
Small Company

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Types of Strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

Horizontal
Integration

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Vertical Integration Strategies
Forward Gaining ownership or increased
Integration control over distributors or retailers

Backward Seeking ownership or increased

Integration control of a firm’s suppliers

Horizontal Seeking ownership or increased

Integration control over competitors

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Types of Strategies

Market
Penetration

Intensive Market
Strategies Development

Product
Development

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Intensive Strategies
Seeking increased market share for
Market present products or services in
Penetration present markets through greater
marketing efforts

Market Introducing present products or

Development services into new geographic areas

Seeking increased sales by

Product
improving present products or
Development services or developing new ones

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Types of Strategies

Related
Diversification

Diversification
Strategies

Unrelated
Diversification

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Diversification Strategies

Related Adding new but related products or

Diversification services

Unrelated
Adding new, unrelated products or
Diversification services

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Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation

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Defensive Strategies
Regrouping through cost and asset
Retrenchment reduction to reverse declining sales
and profit

Divestiture Selling a division or part of an

organization

Selling all of a company’s assets, in

Liquidation parts, for their tangible worth

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Porter’s Five Generic Strategies

◼ Type 1 Cost Leadership – Low cost

◼ Type 2 Cost Leadership – Best value

◼ Type 3 Differentiation

◼ Type 4 Focus – Low cost

◼ Type 5 Focus – Best value

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Type 1 or 2 Cost Leadership Strategy
Conditions
◼ Vigorous price competition
◼ Plentiful supply of identical products
◼ Little product differentiation
◼ Products used in same ways
◼ Low cost to switch
◼ Large buyers with power
◼ Industry newcomers use low prices to attract
buyers
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Type 3 Differentiation Strategy
Conditions
◼ Many ways to differentiate and buyers
perceive the differences as having
value
◼ Diverse buyer needs and uses
◼ Few rival firms following similar
differentiation approach
◼ Fast paced technological change and
evolving product features
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Type 4 or 5 Focus Strategy
Conditions
◼ Large, profitable, and growing target market
niche
◼ Industry leaders do not consider the niche
crucial to their success
◼ Industry leaders consider it costly or difficult
to meet the needs of this niche
◼ Industry has many niches and segments
◼ Few rivals are specializing on this target
segment
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Means for Achieving Strategies

◼ Cooperation among competitors

◼ Joint venture / partnering

◼ Merger / acquisition

◼ First mover advantages

◼ Outsourcing

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Strategic Management in Nonprofit and
Governmental Organizations

◼Educational Institutions
◼Medical Organizations
◼Governmental Agencies and
Departments

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