Essentials of Strategic Management, 3/e

Charles W.L. Hill | Gareth

R. Jones

Chapter 8

Strategic Change:
Implementing
Strategies to Build
and Develop a
Company

© 2012 South-Western, a part of Cengage Learning

Strategic Change
 The movement of a company away from its
present state toward some desired future
state to increase its competitive advantage
and profitability

© 2012 South-Western, a part of Cengage Learning

The Change Process
 Distinct steps of the change process:
– Determining the need for change
– Determining the obstacles to change
– Managing and evaluating change

© 2012 South-Western, a part of Cengage Learning

Portfolio of Core Competencies
 A core competence is a core skill of a
company
 Identifying these central value-creating
capabilities tells a company which business
opportunity to pursue

© 2012 South-Western, a part of Cengage Learning

Strategy Implementation
 Strategies implemented through:
 Internal new ventures
 Acquisitions
 Strategic alliances

© 2012 South-Western, a part of Cengage Learning

Internal New Ventures
 Involve creating the value-chain functions
necessary to start a new business from
scratch
 Typically used to leverage or recombine
valuable competencies to enter a new
business area
 Generally science-based companies tend to
favor internal new ventures as a strategy
implementation

© 2012 South-Western, a part of Cengage Learning

Internal New Ventures (cont’d)
 Although these can be profitable, the reported
failure rate is very high
 Three reasons for failure:
 Market entry occurs on too small a scale
 Poor commercialization of the new product
 Poor corporate management of the venture

© 2012 South-Western, a part of Cengage Learning

Internal New Ventures (cont’d)
 Ways to limit risk:
 Adopt a structured approach to managing the
venture
 Foster close links between R&D and
marketing
 Set up project teams
 Choose ventures with greatest probability of
commercial success
 Monitor projects closely

© 2012 South-Western, a part of Cengage Learning

Acquisitions
 Involve one company purchasing another
company
 Usually done by a company that:
 wants to move fast
 is in a well established industry and has
barriers of entry
 Used in two ways:
 To strengthen competitive positioning by
purchasing a competitor
 To enter a new business or industry
© 2012 South-Western, a part of Cengage Learning
 Acquisitions (cont’d)
Advantages Disadvantages
 Faster than building a  Often end up
new business dissipating value
 Less risk than internal  Often fail to realize
new ventures anticipated benefits
 Ability to circumvent  Tend to be expensive
most entry barriers  Difficult to integrate
various corporate
cultures

© 2012 South-Western, a part of Cengage Learning

Acquisitions (cont’d)
 Ways to limit risk:
 Target identification and pre-acquisition
screening
 Bidding strategy (this works best when the
stock market undervalues a company)
 Integration

© 2012 South-Western, a part of Cengage Learning

Strategic Alliances
 Cooperative agreements between companies
to work together and share resources to
achieve a common goal
 Can be informal or short-term agreements
 Can be joint ventures- a formal type of
strategic alliance where two companies
create a new separate company

© 2012 South-Western, a part of Cengage Learning

Strategic Alliances (cont’d)
Advantages Disadvantages
 Facilitate entry into  May provide
a market competitors with
 Share the fixed access to valuable
costs and risks that knowledge
arise
 Bring together
complementary
skills and assets

© 2012 South-Western, a part of Cengage Learning

Strategic Alliances (cont’d)
 Ways to limit risk:
 Careful partner selection
 Alliance structure
 Alliance management

© 2012 South-Western, a part of Cengage Learning