Chapter 5 Strategies in Action

Companies Embrace Strategic Planning

-- Quest for higher revenues -- Quest for higher profits

1

CORPORATE STRATEGY
MISSION & VISION Strategists Should Avoid -OBJECTIVES STRATEGY
Managing by Extrapolation Managing by Crisis Managing by Subjectives Managing by Hope

Ch 5 -2

Chapter Outline
A. Long-Term Objectives B. Types of Strategies 1. Integration Strategies 2. Intensive Strategies 3. Diversification Strategies 4. Defensive Strategies 5. Michael Porters Generic Strategies 6. Means for Achieving Strategies 7. First Mover Advantages 8. Outsourcing
Ch 5 -3

Long-Term Objectives

Results expected from pursuing certain strategies. Strategies represent actions to accomplish long-term objectives.

Ch 5 -4

Long-Term Objectives Objectives -Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line

Ch 5 -5

Long-Term Objectives Objectives Necessary -Corporate Level Divisional Level Functional Level

Ch 5 -6

Long-Term Objectives
Varying Performance Measures by Organizational Level
Organizational Level Basis for Annual Bonus/Merit Pay

Corporate Division Function

75% on long-term objectives 25% on annual objectives 50% on long-term objectives 50% on annual objectives 25% on long-term objectives 75% on annual objectives
Ch 5 -7

Financial vs. Strategic Objectives Financial Objectives

Growth in revenues Growth in earnings Higher dividends Higher profit margins Higher Earnings per share Improved cash flow Larger market share Quicker on-time delivery than rivals Quicker design-to-market times than rivals Lower costs than rivals Higher product quality than rivals Wider geographic coverage than rivals
Ch 5 -8

Financial vs. Strategic Objectives Trade-Off

Maximize short-term financial objectives harm long-term strategic objectives Pursue increased market share at the expense of short-term profitability Tradeoffs related to risk of actions; concern for business ethics; need to preserve natural environment; social responsibility issues
Ch 5 -9

Strategy in Action
A. Long-Term Objectives B. Types of Strategies
1. 2. 3. 4. 5. 6. 7. 8. Integration Strategies Intensive Strategies Diversification Strategies Defensive Strategies Michael Porters Generic Strategies Means for Achieving Strategies First Mover Advantages Outsourcing
Ch 5 -10

Strategy in Action

Ch 5 -11

Types of Strategies
A Large Company
Corp Level

Division Level

Functional Level

Operational Level

Ch 5 -12

Types of Strategies
A Small Company
Company Level

Functional Level

Operational Level

Ch 5 -13

The Balanced Scorecard Robert Kaplan & David Norton -Strategy evaluation & control technique Balance financial measures with non-financial measures Balance shareholder objectives with customer & operational objectives

Ch 5 -14

Types of Strategies
Forward Integration

Integration Strategies

Backward Integration

Horizontal Integration

Ch 5 -15

Vertical Integration Strategies

Gain Control Over

Forward Integration Strategies

Gain Control Over

Distributors Suppliers Competitors Backward Integration Strategies

Ownership or Control

Distributors Retailers Horizontal Integration Strategies

Ownership or Control

Firms suppliers

Firms competitors
Ch 5 -16

Types of Strategies
Market Penetration

Intensive Strategies

Market Development

Product Development

Ch 5 -17

Intensive Strategies
Intensive Efforts

Market Penetration Strategies

New Markets

Improve competitive position with existing products

Present products/services to new geographic areas

Market Development Strategies

Increased Market Share

Product Development Strategies

Increased Sales

Present products/services Present markets Greater marketing efforts

Improving present products/services Developing new products/services

Ch 5 -18

Types of Strategies
Concentric Diversification

Diversification Strategies

Conglomerate Diversification

Horizontal Diversification

Ch 5 -19

Diversification Strategies

Concentric Diversification Strategies

More difficult to manage diverse business activities

Conglomerate Diversification Strategies

New & related products/services

Horizontal Diversification Strategies

New & unrelated products/services

New & unrelated products/services for current customers

Ch 5 -20

Types of Strategies
Retrenchment

Defensive Strategies

Divestiture

Liquidation

Ch 5 -21

Retrenchment Strategies
Regrouping

Divestiture Strategies
Selling a division or part of an organization.

Cost & asset reduction to reverse declining sales & profit

Liquidation Strategies
Selling

Companys assets, in parts, for their tangible worth

Ch 5 -22

Michael Porters Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies

Ch 5 -23

Generic Strategies
Cost Leadership Low Cost Producer Advantage

In conjunction with differentiation Economies or diseconomies of scale Capacity utilization achieved Linkages w/ suppliers & distributors

Many price-sensitive buyers Few ways of achieving differentiation Buyers not sensitive to brand differences Large # of buyers w/bargaining power
Ch 5 -24

Generic Strategies
Differentiation Focus

Greater product flexibility Greater compatibility Lower costs Improved service Greater convenience More features

Industry segment of sufficient size Good growth potential Not crucial to success of major competitors

Ch 5 -25

Means for Achieving Strategies

Joint Venture/Partnering

Cooperative Arrangements

Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.

R&D partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia

Mergers & Acquisitions

Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Ch 5 -26 Access to new suppliers, distributors, customers, products, creditors

Means for Achieving Strategies

Why Joint Ventures Fail

Managers who must collaborate daily; not involved in developing the venture Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the partners
Ch 5 -27

First Mover Advantages

Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.

Ch 5 -28

First Mover Advantages

Potential Advantages

Securing access to rare resources Gaining new knowledge of key factors & issues Carving out market share Easy to defend position & costly for rival firms to overtake
Ch 5 -29

Outsourcing
Business-process outsourcing (BPO) Companies taking over the functional operations of other firms

Ch 5 -30

Outsourcing
Benefits

Less expensive Allows firm to focus on core business Enables firm to provide better services

Ch 5 -31