Strategies in Action

Even if youre on the right track, youll get

run over if you just sit there.

-- Will Rogers

Ch5-1
Fred R. David
Prentice Hall
 Long-Term Objectives

The results expected from pursuing

certain strategies

Ch5-2
Fred R. David
Prentice Hall
 Long-Term Objectives
Objectives

Quantifiable
Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent
Time-line

Ch5-3
Fred R. David
Prentice Hall
 Long-Term Objectives

Long-term objectives are necessary

Corporate
Divisional
Functional levels

Ch5-4
Fred R. David
Prentice Hall
 Integration Strategies

Forward Integration
Integration
Backward Integration
Strategies
Horizontal Integration

Ch5-5
Fred R. David
Prentice Hall
 Integration Strategies

Integration strategies

Allow a firm to gain control over:

Distributors
Suppliers
competitors

Ch5-6
Fred R. David
Prentice Hall
 Integration Strategies

Forward Integration

Gaining ownership or increased control

over distributors or retailers

Ch5-7
Fred R. David
Prentice Hall
 Integration Strategies
Guidelines for Forward Integration

Present distributors are expensive, unreliable, or

incapable of meeting firms needs
Availability of quality distributors is limited
When firm competes in an industry that is expected
to grow markedly
Organization has both capital and human resources
needed to manage new business of distribution
Advantages of stable production are high
Present distributors have high profit margins
Ch5-8
Fred R. David
Prentice Hall
 Integration Strategies

Backward Integration

Seeking ownership or increased

control of a firms suppliers

Ch5-9
Fred R. David
Prentice Hall
 Integration Strategies
Guidelines for Backward Integration

When present suppliers are expensive, unreliable,

or incapable of meeting needs
Number of suppliers is small and number of
competitors large
High growth in industry sector
Firm has both capital and human resources to
manage new business
Advantages of stable prices are important
Present supplies have high profit margins
Ch5-10
Fred R. David
Prentice Hall
 Integration Strategies

Horizontal Integration

Seeking ownership or increased

control over competitors

Ch5-11
Fred R. David
Prentice Hall
 Integration Strategies
Guidelines for Horizontal Integration

Firm can gain monopolistic characteristics without

being challenged by federal government
Competes in growing industry
Increased economies of scale provide major
competitive advantages
Faltering due to lack of managerial expertise or
need for particular resources

Ch5-12
Fred R. David
Prentice Hall
 Intensive Strategies

Market Penetration
Intensive
Market Development
Strategies
Product Development

Ch5-13
Fred R. David
Prentice Hall
 Intensive Strategies

Intensive strategies

Require intensive efforts to improve a

firms competitive position with existing
products

Ch5-14
Fred R. David
Prentice Hall
 Intensive Strategies

Market Penetration

Seeking increased market share for

present products or services in present
markets through greater marketing
efforts

Ch5-15
Fred R. David
Prentice Hall
 Intensive Strategies
Guidelines for Market Penetration

Current markets not saturated

Usage rate of present customers can be increased
significantly
Market shares of competitors declining while total
industry sales increasing
Increased economies of scale provide major
competitive advantages

Ch5-16
Fred R. David
Prentice Hall
 Intensive Strategies

Market Development

Introducing present products or

services into new geographic area

Ch5-17
Fred R. David
Prentice Hall
 Intensive Strategies
Guidelines for Market Development

New channels of distribution that are reliable,

inexpensive, and good quality
Firm is very successful at what it does
Untapped or unsaturated markets
Capital and human resources necessary to manage
expanded operations
Excess production capacity
Basic industry rapidly becoming global

Ch5-18
Fred R. David
Prentice Hall
 Intensive Strategies

Product Development

Seeking increased sales by improving

present products or services or
developing new ones

Ch5-19
Fred R. David
Prentice Hall
 Intensive Strategies
Guidelines for Product Development

Products in maturity stage of life cycle

Competes in industry characterized by rapid
technological developments
Major competitors offer better-quality products at
comparable prices
Compete in high-growth industry
Strong research and development capabilities

Ch5-20
Fred R. David
Prentice Hall
 Diversification Strategies

Concentric
Diversification

Diversification Conglomerate
Strategies Diversification

Horizontal
Diversification

Ch5-21
Fred R. David
Prentice Hall
 Diversification Strategies

Diversification strategies

Becoming less popular as

organizations are finding it more
difficult to manage diverse business
activities

Ch5-22
Fred R. David
Prentice Hall
 Diversification Strategies

Concentric Diversification

Adding new, but related, products or

services

Ch5-23
Fred R. David
Prentice Hall
 Diversification Strategies
Guidelines for Concentric Diversification

Competes in no- or slow-growth industry

Adding new & related products increases sales of
current products
New & related products offered at competitive prices
Current products are in decline stage of the product
life cycle
Strong management team

Ch5-24
Fred R. David
Prentice Hall
 Diversification Strategies

Conglomerate Diversification

Adding new, unrelated products or

services

Ch5-25
Fred R. David
Prentice Hall
 Diversification Strategies
Guidelines for Conglomerate Diversification

Declining annual sales and profits

Capital and managerial talent to compete
successfully in a new industry
Financial synergy between the acquired and
acquiring firms
Exiting markets for present products are saturated

Ch5-26
Fred R. David
Prentice Hall
 Diversification Strategies

Horizontal Diversification

Adding new, unrelated products or

services for present customers

Ch5-27
Fred R. David
Prentice Hall
 Diversification Strategies
Guidelines for Horizontal Diversification

Revenues from current products/services would

increase significantly by adding the new unrelated
products
Highly competitive and/or no-growth industry w/low
margins and returns
Present distribution channels can be used to market
new products to current customers
New products have counter cyclical sales patterns
compared to existing products
Ch5-28
Fred R. David
Prentice Hall
 Defensive Strategies

Retrenchment
Defensive
Divestiture
Strategies
Liquidation

Ch5-29
Fred R. David
Prentice Hall
 Defensive Strategies

Retrenchment

Regrouping through cost and asset

reduction to reverse declining sales
and profit
Chapter 11 Bankruptcy (worst case)
[Chapter 13 for Small businesses]
Ch5-30
Fred R. David
Prentice Hall
 Defensive Strategies
Guidelines for Retrenchment

Firm has failed to meet its objectives and goals

consistently over time but has distinctive
competencies
Firm is one of the weaker competitors
Inefficiency, low profitability, poor employee morale,
and pressure from stockholders to improve
performance.
When an organizations strategic managers have
failed
Very quick growth to large organization where a
major internal reorganization is needed
Ch5-31
Fred R. David
Prentice Hall
 Defensive Strategies

Divestiture

Selling a division or part of an

organization

Ch5-32
Fred R. David
Prentice Hall
 Defensive Strategies
Guidelines for Divestiture

When firm has pursued retrenchment but failed to

attain needed improvements
When a division needs more resources than the firm
can provide
When a division is responsible for the firms overall
poor performance
When a division is a misfit with the organization
When a large amount of cash is needed and cannot
be obtained from other sources.
Ch5-33
Fred R. David
Prentice Hall
 Defensive Strategies

Liquidation

Selling all of a companys assets, in

parts, for their tangible worth

Chapter 7 Bankruptcy (entire firm sold)

Ch5-34
Fred R. David
Prentice Hall
 Defensive Strategies
Guidelines for Liquidation

When both retrenchment and divestiture have been

pursued unsuccessfully
If the only alternative is bankruptcy, liquidation is an
orderly alternative
When stockholders can minimize their losses by
selling the firms assets

Ch5-35
Fred R. David
Prentice Hall
Michael Porters Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies

Ch5-36
Fred R. David
Prentice Hall
 Joint Venture/Partnering

Two or more companies form a temporary

partnership or consortium for purpose of
capitalizing on some opportunity.

Ch5-37
Fred R. David
Prentice Hall
 Joint Venture/Partnering

Cooperative Arrangements

Research and development partnerships

Cross-distribution agreements
Cross-licensing agreements
Cross-manufacturing agreements
Joint-bidding consortia

Ch5-38
Fred R. David
Prentice Hall
 Joint Venture/Partnering

Problems Causing Joint Ventures to Fail

Managers who must collaborate daily not involved

in forming or shaping the venture
Venture may benefit the companies but not the
customers
Venture not supported equally by both partners
Venture may begin to compete with one of the
partners more so than the other

Ch5-39
Fred R. David
Prentice Hall
 Joint Venture/Partnering
Guidelines for Joint Ventures

Combination of privately held and publicly held can be

synergistically combined
Domestic forms joint venture with foreign firm, can obtain local
management to reduce certain risks
Distinctive competencies of two or more firms are
complementary
Overwhelming resources and risks where project is potentially
very profitable (e.g., Alaska pipeline)
Two or more smaller firms have trouble competing with larger
firm
A need exists to introduce a new technology quickly

Ch5-40
Fred R. David
Prentice Hall
 Merger/Acquisition

Merger - two organizations of about equal

size unite to form one enterprise

Acquisition - large organization purchases a

smaller firm, or vice versa

Takeover or Hostile Takeover - M or A is not

desired by both parties

Ch5-41
Fred R. David
Prentice Hall
 Leveraged Buyout (LBO)

Corporations shares are bought by the

companys management or other private
investors using borrowed funds

Organization becomes private or closely-held

Ch5-42
Fred R. David
Prentice Hall