Chapter 5

Strategic in action

Ch 5-1
Strategic Mgmt
Three levels of strategy in organizations—corporate,
business, and functional strategies.

Strategic Mgmt
 Corporate strategies
• Top level management formulate for
overall organization
• The question at the corporate level we
should answer when design strategies:
In what industry should we be
operating?
• It depends on the outcome of SWOT
analysis.
Strategic Mgmt
Types of Corporate strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

Horizontal
Integration

Ch 5 -4
Strategic Mgmt
  Gaining ownership or increased
Vertical
Forward Integration Strategies
control over distributors or
retailers
Integration  It also refers to the transactions
between the customers and firm.
 Seeking ownership or increased
control of a firm’s suppliers
Backward  This strategy can be especially
appropriate when a firm's current
Integration suppliers are unreliable, too
costly, or cannot meet the firm's
needs.
Horizontal Seeking ownership or increased
Integration control over competitors

Strategic Mgmt
Types of Strategies

Market
Penetration

Market
Intensive
Development
Strategies

Product
Development

Ch 5 -6
Strategic Mgmt
  Seeking increased market share for present
Intensive Strategies
products or services in present markets
through greater marketing efforts
Market  Market penetration includes increasing the
Penetration number of salespersons, increasing
advertising expenditures, offering
extensive sales promotion items, or
increasing publicity efforts.
Market Introducing present products or services
Development into new geographic areas
 Seeking increased sales by
improving present products or
Product services or developing new ones
Development  it usually entails large research
and development expenditures.

Ch 6-7
Strategic Mgmt
CONT....

Ch 5-8
Strategic Mgmt
Types of Corporate Strategies

Related
Diversification

Diversification
Strategies

Unrelated
Diversification

Ch 5 -9
Strategic Mgmt
 Diversification Strategies

Related Adding new but related products or

Diversification services

Unrelated
Adding new, unrelated products or
Diversification services

Ch 5-10
Strategic Mgmt
Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation

Ch 5 -11
Strategic Mgmt
  Regrouping through cost and
Defensive Strategies
asset reduction to reverse
Retrenchment declining sales and profit
 Sometimes called a turnaround
or reorganization strategy,
 Selling a division or part of an
organization
Divestiture  Divestiture often is used to raise
capital for further strategic
acquisitions or investments.

Selling all of a company’s assets,

Liquidation in parts, for their tangible worth

Ch 5 -12
Strategic Mgmt
 Business-Level Strategy
• it is an integrated and coordinated set of
commitments and actions the firm uses to gain a
competitive advantage by exploiting core
competencies in specific product markets
• to gain a competitive advantage that enables
them to outperform rivals and achieve above-
average returns.
• it also called Michael Porter’s generic strategies

Ch 5-13
Strategic Mgmt
 Business Strategy

Business Strategy--
 Focuses on improving competitive
position of company’s products or
services within the specific industry or
market segment
 Business-level strategies are intended to
create differences between the firm’s
position relative to those of its rivals

6-14
Strategic Mgmt
Key Issues of Business-Level
Strategy
• What good or service to offer customers
• How to manufacture or create the good
or service

• How to distribute the good or service in

the marketplace

Ch 6-15
Strategic Mgmt
 Ch 6-16
Strategic Mgmt
Porter’s Competitive Strategies

1. Cost Leadership --
 is to outperform competitors by doing
everything the company can to produce goods
or services at a cost lower than those of
competitors.

 Relatively standardized products

 features acceptable to many customers
 lowest competitive price

17-6
Strategic Mgmt
 Cost saving actions required
by this strategy
• An integrated set of actions designed to produce or
deliver goods or services at the lowest cost, relative to
competitors with features that are acceptable to
customers.
– Building efficient scale facilities ,
– Tightly controlling production costs and overhead,
– Minimizing costs of sales, R&D and service,
– building efficient manufacturing facilities,
– monitoring costs of activities provided by outsiders
– simplifying production processes
Ch 5-18
Strategic Mgmt
Porter’s Competitive Strategies

2. Differentiation –

–Broad mass market

–Unique product/service
–Premiums charged
–Less price sensitivity

19-6
Strategic Mgmt
 Differentiation
• Differentiation is aimed at producing
products that are considered unique.
• This strategy is most powerful with the
source of differentiation is especially
relevant to the target market

20- Ch 5
Strategic Mgmt
 Differentiation
• A successful differentiation strategy allows a
firm to charge higher prices for its products to
gain customer loyalty because consumers
may become strongly attached to the
differentiation features.
• .

21- Ch 5
Strategic Mgmt
 Differentiation
• Price for product can exceed what the firm’s target
customers are willing to pay
• Non standardized products
• customers value differentiated features more than they
value low cost
• Value provided by unique features and value
characteristics
• Command premium price
• High customer service
• Superior quality
• Prestige or exclusivity
• Rapid innovation
22- Ch 5
Strategic Mgmt
 Focus
 Focus means producing products and services that fulfill
the needs of small groups of consumers.
 There are two types of focus strategies.
• a. A low-cost focus strategy offers products or services
to a small range (niche) of customers at the lowest price
available on the market.
• b. A best-value focus strategy offers products to a small
range of customers at the best price-value available on
the market. This is sometimes called focused
differentiation.

23- Ch 5
Strategic Mgmt
Porter’s Competitive Strategies

Cost-Focus –

–Low-cost competitive strategy

–Focus on market segment
–Niche focused
–Cost advantage in market segment

24-5
Strategic Mgmt
Porter’s Competitive Strategies

Differentiation Focus –

–Specific group or geographic market

focus
–Differentiation in target market
–Special needs of narrow target market

25-6
Strategic Mgmt
Porter’s Competitive Strategies

Stuck in the middle –

–No competitive advantage

–Below-average performance

26-6
Strategic Mgmt
Risks of Generic Strategies

Risks of Cost Risks

RisksofofDifferentiation
Differentiation Risks of Focus
Risks of Cost Leadership
Leadership Risks of Focus
Differentiation
Differentiationis is
notnot The focus strategy is
Cost
Cost leadership
leadership is not
is not sustained: The focus strategy is
imitated:
sustained: sustained: imitated:
sustained: • •Competitors imitate. The target segment
Competitors imitate. The target segment
• •Competitors
Competitors imitate.
imitate. • •Bases forfor
differentiation becomes structurally
Bases differentiation becomes structurally
• •Technology
Technology changes.
changes. unattractive:
unattractive:
• •Other
Other bases
bases forfor cost
cost become
becomeless important
less important • Structure erodes.
leadership erode. to to • Structure erodes.
leadership erode. • Demand disappears.
Proximity buyers. • Demand disappears.
Proximity in in buyers. Broadly targeted
differentiation
differentiation is lost.
is lost. Cost proximity is is
lost. Broadly targeted
competitors overwhelm
Cost proximity lost.
Cost
Cost focusers
focusers achieve
achieve Differentiation focusers
Differentiation focusers the segment: overwhelm
competitors
even lower cost the segment:
even lower cost in in achieve
achieveeven
evengreater
greater • The segment’s
segments.
segments. differentiation in • The segment’s
differences from other
differentiation in
segments. differences
segments narrow. from other
segments.
segments narrow.
• The advantages of a
• The line
broad advantages
increase.of a
broad line increase.
New focusers subsegment
theNew focusers subsegment
industry.
the industry.

27-6
Strategic Mgmt
 Functional Level of Strategy
Functional/operational Strategies:
Concern with org. internal resources and
processes which effectively deliver the
corporate and business strategic direction.
Functional strategies are interrelated to
: purchasing & materials management,
production, finance, R&D, HR, IT, and
marketing.

Strategic Mgmt