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What is Strategy?
Large-scale, future-oriented plan for
interacting with the competitive
environment to achieve objectives
Companys game plan
Framework for managerial decisions

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Dimensions of Strategic Decisions


Strategic issues

Require top-management decisions


Require large amounts of the firms resources
Often affect the firms long-term prosperity
Are future oriented
Usually have multifunctional or multibusiness
consequences
Require considering the firms external environment

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Three Levels of Strategy


1. Corporate level
2. Business level
3. Functional level

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Exhibit 1-2: Single-business Firms

C o rp o ra te /
b u s in e s s le v e l
P O M /R & D
s t r a te g ie s

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F i n a n c i a l/
a c c o u n t in g
s t r a te g ie s

M a r k e t in g
s t r a te g ie s

H um an
r e la t io n s
s t r a te g ie s

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Ex 1-2: Multiple business Firms


C o r p o r a te
s t r a te g ie s
B u s in e s s 1
T y p e t it le h e re
P O M /R & D
s t r a te g ie s

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B u s in e s s 2
T y p e t it le h e re

F i n a n c i a l/
a c c o u n t in g
s t r a te g ie s

B u s in e s s 3
T y p e t it le h e re

M a r k e t in g
s t r a te g ie s

H um an
r e la t io n s
s t r a te g ie s

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Characteristics of Strategic Management


Decisions
Greater risk,cost,
and profit potential
Corporate-level
decisions

Greater need for


flexibility
Longer time horizons

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Characteristics of Strategic Management


Decisions

Implement overall strategy


FunctionalFunctionallevel
level
decisions
decisions

Involve action-oriented
operational issues
Are relatively short range
and low risk
Incur only modest costs

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Characteristics of Strategic Management


Decisions
Bridge decisions at
corporate and functional
levels
Business-level
decisions

Are less costly, risky, and


potentially profitable than
corporate-level decisions
Are more costly, risky, and
potentially profitable than
functional-level decisions

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What is a Company Mission?

The fundamental purpose that sets a


firm apart from other firms of its
type and identifies the scope of its
operations in product and market
terms

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10

Characteristics of a Mission Statement


Embodies the business philosophy of the firms
strategic decision makers
Implies image firm seeks to project
Reflects firms self-concept
Indicates
firms principal product or service areas
primary customer needs the firm will attempt to
satisfy
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11

Questions Addressed By a Mission


Statement
Why is this firm in business?
What are our economic goals?
What is our operating philosophy in terms of quality,
company image, and self-concept?
What are our core competencies and competitive
advantages?
What customers do and can we serve?
How do we view our responsibilities to stockholders,
employees, communities, environment, social issues,
competitors?
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Components of a Mission Statement


Specifies basic type of product or service to be offered
Identifies primary market or customer groups to be served
Specifies the technology to be used in production or
delivery
Reflects the firms fundamental concern for survival
through growth and profitability
Reflects the firms managerial philosophy
Identifies the public image the firm seeks
Specifies the self-concept those affiliated with the firm
should have of it
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13

Ex 2-2: Practical Examples of Mission


Statement Components
Customer-market
To anticipate and meet market needs of farmers, ranchers,
and rural communities within North America (CENEX)
Product-service
AMAXs principal products are molybdenum, coal, iron
ore, copper, lead, zinc, petroleum and natural gas,. potash
phosphates, nickel, tungsten, silver, gold, and magnesium

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Ex 2-2 (contd.)
Geographic domain
We are dedicated to total success of Corning Glass Works as
a worldwide competitor
Technology
The common technology in these areas relates to discrete
particle coatings (NASHUA)
Concern for Survival
In this respect, the company will conduct its operations
prudently, and will provide the profits and growth which
will assure Hoovers ultimate success
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Ex 2-2 (contd.)
Philosophy
We are committed to improve health care throughout the world
(Baxter Travenol)
Self-concept
Hoover Universal is a diversified, multi-industry corporation
with strong manufacturing capabilities, entrepreneurial
policies, and individual business unit autonomy
Concern for Public Image
We are responsible to the communities in which we live and
work and to the world community as well (Johnson & Johnson)
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Newest Trends in Mission


Components
Sensitivity to customer wants
The customer is our top priority!
Emphasis on extensive product safety programs

Concern for quality


Quality is job one!
Emphasis on quality in manufacturing
New philosophy quality is the norm
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Newest Trends in Mission


Components
Statements of company vision
Developed to express the aspirations of the
executive leadership
Presents the firms strategic intent
A computer on every desk, and in every home,
running on Microsoft software

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18

Ex. 2-11: Inputs to Development of


Mission Statement
Inside Stakeholders

Outside Stakeholders

Executive officers
Board of directors
Stockholders
Employees

Customers
Suppliers
Creditors
Governments
Unions
Competitors
General
public

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Company
Mission

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Types of Long-Term Objectives

Profitability
Productivity
Competitive position
Employee development
Employee relations
Technological leadership
Public responsibility

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Qualities of Long-Term Objectives


Achievable
Understandable

Acceptable
Criteria used
in preparing
objectives

Flexible
Measurable

Suitable
Motivating

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21

Generic Strategies
Low-cost Leadership

Differentiation

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Focus

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Ex. 6-3: Requirements for Generic


Competitive Strategies
Generic
Strategy

Overall Cost
Leadership

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Commonly Required Skills and


Resources

Sustained capital investment


and access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease in
manufacture
Low-cost distribution system

Common Organizational
Requirements

Tight cost control


Frequent, detailed
control reports
Structured
organization and
responsibilities
Incentives based on
meeting strict
quantitative targets

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Ex. 6-3 (contd.)


Generic Strategy

Commonly Required Skills and


resources

Common Organizational
Requirements

Differentiation

Product engineering
Creative flare
Strong capability in basic research
Corporate reputation for quality or
technological leadership
Unique combination of skills
Strong cooperation from channels
Strong marketing abilities

Strong coordination
among functions in
R&D, product
development, and
marketing
Subjective measurement and
incentives instead of
quantitative measures
Amenities to attract highly
skilled labor, scientists, or
creative people

Focus

Combination of above policies directed at


the particular strategic target

Combination of above policies


directed at the particular
strategic target

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24

Ex. 6-4: Risks of the Generic Strategies


Risks of Cost Leadership

Risks of Differentiation

Cost leadership is not


sustained
Competitors imitate
Technology changes
Other bases for cost
leadership erode
Proximity in differentiation
is lost
Cost focusers achieve even
lower cost in segments

Differentiation is not
sustained
Competitors imitate
Bases for differentiation
become less important to
buyers
Cost proximity is lost
Differentiation focusers
achieve greater
differentiation in segments

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Risks of Focus
Focus strategy is imitated
Target segment becomes
unattractive
Structure erodes
Demand disappears
Broadly target competitors
overwhelm segments
Segments differences from
others narrow
Advantages of broad line
increase

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25

Types of Grand Strategies

Concentrated growth
Market development
Product development
Innovation
Horizontal integration
Vertical integration
Concentric
diversification

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Conglomerate
diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint ventures
Strategic alliances
Consortia
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26

Horizontal and Vertical Integration


Strategies
Horizontal Integration
Based on growth via acquisition of one or more similar
firms operating at the same stage of the productionmarketing chain
Vertical Integration
Involves acquiring firms
That supply acquiring firm with inputs (backward
integration) or
Are customers for firms outputs (forward integration)
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27

Ex. 6-8: Vertical and Horizontal


Integrations
Textile producer

Textile producer

Shirt manufacturer

Shirt manufacturer

Clothing store

Clothing store

Acquisitions or mergers of suppliers or customer businesses are vertical integration


Acquisitions or mergers of competing businesses are horizontal integrations
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Motivations for Diversification


Increase firms stock value
Increase growth rate of firm
Investment is better use of funds than using them for
internal growth
Improves stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Achieve tax savings
Increase efficiency and profitability
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