chapt5 types of strategies

7/18/2019 Chapt5 Types of Strategies

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Copyright 2009 Pearson Education, Inc.Publishing as Prentice Hall

Ch 5 -1

Chapter 5

Strategies in Action

Strategic Management:

Concepts & Cases

12thEdition

Fred David


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Ch 5 -2

Long-Term !"ectives

!"ectives

Quantifiable

Measurable

Realistic

Understandable

Challenging


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Ch 5 -3

Long-Term !"ectives

!"ectives #

HierarchicalObtainable

Congruent/go well together

Timeline


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Ch 5 -4

Objectives

Objectives are commonly stated in terms

such as growth in assets growth in sales

!rofitability mar"et share degree and nature

of diversification and so on#


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Ch 5 -5

$ar%ing er'ormance Meas(res

!% rgani)ationa* Leve*


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Ch 5 -6

Financia* vs+ Strategic

!"ectives

Financia* !"ectives

$rowth in revenues

$rowth in earnings

Higher dividends

Higher !rofit margins

Higher earnings !er share

%m!roved cash flow


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Ch 5 -7

Strategic objectives

such as&

'# larger mar"et share

(# )uic"er on*time delivery than rivals

+# )uic"er design*to*mar"et times than rivals

,# lower costs than rivals

-# higher !roduct )uality than rivals

.# wider geogra!hic coverage than rivals etc# +# There is fre)uently a tradeoff/echange

between financial and strategic objectives#


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Ch 5 -8

,ot Managing !% !"ective

0trategists should avoid the following alternative

ways of 1not managing by objectives#2

Managing by 3tra!olation 4 1%f it ain5t bro"e 6if you

don not have !roblem7 don5t fi it#2Managing by Crisis 4 The true measure of a good

strategist is the ability to fi !roblems

Managing by 0ubjectives 4 Do your on thing, the

best ay you !no ho."

Managing by Ho!e 4 The future is full of uncertainty

and if first you don5t succeed then you #ayon the

second or third try#


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Ch 5 -9

The a*anced Scorecard

.o!ert /ap*an & David ,orton #

The balanced scorecard is a strategy

evaluation and control techni)ue that

derives its name from the !erceived need

of firms to 1balance2 financial measures

which are oftentimes used eclusively in

strategy evaluation and control with non*

financial measures such as !roduct )ualityand customer service#


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Ch 5 -10

The Balanced Scorecard

8 balanced scorecard for a firm is sim!ly a

listing of all "ey objectives to wor" towards

along with an associated time dimension of

when each objective is to be accom!lishedas well as a !rimary res!onsibility or contact

!erson de!artment or division for each

objective#


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Ch 5 -11

BSC performance evaluationdepends on four consequential

stages '* 0!ecifying institutional objectives# (* Translating the institutional objectives to

analytical !erformance !lans#

+* 0!ecifying the res!onsibility centers#

,* 9evelo!ing the !erformance measurement

indicators which include& indicators of

effectiveness efficiency !roductivity and)uality


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Ch 5 -12

BSC analysis method constitutesfour perspectives as follows :inancial ;ers!ective# This is related to meet

the e!ectations of the shareholders#

Customer ;ers!ective# This is related to

achieve customer satisfaction#


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Ch 5 -13


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Ch 5 -14

T%pes o' Strategies

perationa* Leve*

F(nctiona* Leve*

Division Leve*

CorpLeve*A Large Compan%


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Ch 5 -15

T%pes o' Strategies

F(nctiona*

Leve*

perationa* Leve*

compan%A sma** Compan%


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Ch 5 -16

Strategies in ActionStrategies in Action

Vertical Integration StrategiesVertical Integration Strategies

Forward integration Backward integration

Horizontal integration


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Ch 5 -17


DefnedDefned

Gainingownership or

increasedcontrol overdistributors orretailers

!a"ple!a"ple

General #otors isac$uiring %&' o(its dealers)

ForwardForward

IntegrationIntegration


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Ch 5 -18


$uidelines for :orward %ntegration$uidelines for :orward %ntegration

;resent distributors are e!ensive unreliable or

inca!able of meeting firm5s needs

8vailability of )uality distributors is limited

=hen firm com!etes in an industry that is e!ected to

grow mar"edly

8dvantages of stable !roduction are high

;resent distributor have high !rofit margins


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Ch 5 -19


DefnedDefned

Seekingownership or

increasedcontrol o( afr"*ssuppliers

!a"ple!a"ple

#otel + ac$uired a(urniture"anu(acturer)

BackwardBackwardIntegrationIntegration


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Ch 5 -20


$uidelines for >ac"ward %ntegration$uidelines for >ac"ward %ntegration

=hen !resent su!!liers are e!ensive unreliable or

inca!able of meeting needs

?umber of su!!liers is small and number of com!etitorslarge

High growth in industry sector

:irm has both ca!ital and human resources to manage

new business8dvantages of stable !rices are im!ortant

;resent su!!lies have high !rofit margins


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Ch 5 -21


DefnedDefned

Seeking

ownership orincreasedcontrol overco"petitors

!a"ple!a"ple

Hilton recentl,ac$uired -ro"us)

HorizontalHorizontalIntegrationIntegration


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Ch 5 -22


$uidelines for Hori@ontal %ntegration$uidelines for Hori@ontal %ntegration

:irm can gain mono!olistic characteristics without being

challenged by federal government

Com!etes in growing industry

%ncreased economies of scale !rovide major com!etitive

advantages

:altering/losing due to lac" of managerial e!ertise or

need for !articular resources


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Ch 5 -23


Intensive StrategiesIntensive Strategies

#arket penetration #arket develop"ent -roduct develop"ent


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Ch 5 -24


DefnedDefned

Seekingincreased

"arket share (orpresentproducts orservices inpresent "arkets

through greater

!a"ple!a"ple

/"eritrade0 the on1line broker0 tripledits annualadvertisinge!penditures to23&& "illion toconvince peoplethe, can "ake their

own invest"ent

#arket#arket-enetration-enetration


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Ch 5 -25


$uidelines for Mar"et ;enetration$uidelines for Mar"et ;enetration

Current mar"ets not saturated

Usage rate of !resent customers can be increased

significantly

Mar"et shares of com!etitors declining while total

industry sales increasing

%ncreased economies of scale !rovide major com!etitive

advantages


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Ch 5 -26


DefnedDefned

Introducingpresent

products orservices intonew geographicarea

!a"ple!a"ple

4huzendar 5iles"aker introduce hisproduct to Gul(

"arkets)

#arket#arket

Develop"enDevelop"entt


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Ch 5 -27


$uidelines for Mar"et 9evelo!ment$uidelines for Mar"et 9evelo!ment

?ew channels of distribution that are reliable

ine!ensive and good )uality

:irm is very successful at what it does

Unta!!ed or unsaturated mar"ets

Ca!ital and human resources necessary to manage

e!anded o!erations

3cess !roduction ca!acity >asic industry ra!idly becoming global


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Ch 5 -28


DefnedDefned

Seekingincreased salesb, i"proving

presentproducts orservices ordeveloping newones

!a"ple!a"ple

/pple developedthe G6 chip thatruns at 7&&"egahertz)

4huzendar 5iles"aker introduce8era"ic as a newproduct)

-roduct-roduct

Develop"enDevelop"entt


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Ch 5 -29


$uidelines for ;roduct 9evelo!ment$uidelines for ;roduct 9evelo!ment

;roducts in maturity stage of life cycle

Com!etes in industry characteri@ed by ra!id

technological develo!ments

Major com!etitors offer better*)uality !roducts at

com!arable !rices

Com!ete in high*growth industry

0trong research and develo!ment ca!abilities


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Ch 5 -30


Diversifcation StrategiesDiversifcation Strategies

8oncentric diversifcation 8onglo"erate diversifcation Horizontal diversifcation


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Ch 5 -31


DefnedDefned

/dding new0 but

related0products orservices

!a"ple!a"ple

9ational:est"inister Bank-;8 in Britain

bought the leadingBritish insuranceco"pan,0 ;egal oth organi@ations and individuals

must choose among alternative strategies and

avoid ecess indebtedness#


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Ch 5 -42

Joint ventures may fail when

Managers who must collaborate regularly

are not involved in the venture#

The venture may benefit !artnering

com!anies but not the customers# >oth !artners may not su!!ort the venture

e)ually#

The venture com!etes with one of the!artners


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Ch 5 -43

Joint ventures are especiallye!ective when 8 !rivately owned organi@ation forms one with a

!ublic organi@ation# 8 domestic organi@ation wor"s with a foeign

com!any#

The distinct com!etencies of the firms com!lementeach other es!ecially well#

0ome !roject is !otentially !rofitable but re)uiresmuch ris"#

Two or more smaller firms wish to com!ete againsta larger firm# There is a need to introduce a new technology

)uic"ly#


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Ch 5 -44


$uidelines for Boint enture$uidelines for Boint enture

Combination of !rivately held and !ublicly held can besynergistically combined

9omestic forms joint venture with foreign firm can obtainlocal management to reduce certain ris"s

9istinctive com!etencies of two or more firms arecom!lementary

Overwhelming resources and ris"s where !roject is

!otentially very !rofitable 6e#g# 8las"a !i!eline7 Two or more smaller firms have trouble com!eting withlarger firm

8 need eists to introduce a new technology )uic"ly

i i iSt t i i A ti


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Ch 5 -45


DefnedDefned

>egrouping throughcost and assetreduction toreverse decliningsales and proft)So"eti"es it iscalled turnaroundor reorganizationalstrateg,)

!a"ple!a"ple

l1/wda sold o. aland and 6apart"ents to raise

cash needed) Itintroduce e!pensee.ective controls,ste")

>etrench"ent>etrench"ent?turnaround@?turnaround@

S i i A i


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Copyright 2009 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 5 -46


$uidelines for Retrenchment$uidelines for Retrenchment

:irm has failed to meet its objectives and goals consistently

over time but has distinctive com!etencies

:irm is one of the wea"er com!etitors

%nefficiency low !rofitability !oor em!loyee morale and

!ressure from stoc"holders to im!rove !erformance#

=hen an organi@ation5s strategic managers have failed

ery )uic" growth to large organi@ation where a majorinternal reorgani@ation is needed#

S i i A iSt t i i A ti


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Ch 5 -47


DefnedDefned

Selling a

division or parto( an

organization

!a"ple!a"ple

Harcourt General0the large AS

publisher0 is sellingits 9ei"an #arcusdivision)

DivestitureDivestiture

St t i i A ti


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Ch 5 -48


$uidelines for 9ivestiture$uidelines for 9ivestiture

=hen firm has !ursued retrenchment but failed to attain

needed im!rovements

=hen a division needs more resources than the firm can!rovide

=hen a division is res!onsible for the firm5s overall !oor

!erformance

=hen a division is a misfit with the organi@ation

=hen a large amount of cash is needed and cannot be

obtained from other sources#

St t i i A tiSt t i i A ti


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Ch 5 -49


DefnedDefned

Selling all o( aco"pan,*s

assets0 in parts0(or their

tangible worth

!a"ple!a"ple

l1/"eer Block(actor, sold all its

assets and ceasedbusiness)

;i$uidation;i$uidation

St t i i A ti


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Ch 5 -50


$uidelines for


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Ch 5 -51

"ergers and acquisitions

Mergers and ac)uisitions are two commonly

used ways to !ursue strategies#

8 merger occurs when two organi@ations of

about e)ual si@e unite to form one enter!rise# 8n ac)uisition occurs when a large

organi@ation !urchases 6ac)uires7 a smaller

firm or vice versa#


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Ch 5 -52

#easons for mergers andacquisitions'# a# To !rovide im!roved ca!acity utili@ation

(# b# To ma"e better use of an eisting sales force#

+# c# To reduce managerial staff#

,# d# To gain economies of scale#-# e# To smooth out seasonal trends in sales#

.# f# To gain access to new su!!liers distributors

customers !roducts and creditors#

D# g# To gain new technology#

E# h# To reduce ta obligations#


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Ch 5 -53

"ergers and acquisitionsmay fail due to the following reasons&

'# a# %ntegration difficulties

(# b# %nade)uate evaluation of target

+# c#


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Ch 5 -54

$everaged Buyouts %$BOs&

'# 8n O occurs when a cor!oration5s

shareholders are bought out 6hence buyout7 by the

com!any5s management and other !rivate investors

using borrowed funds 6hence le$eraged7#

(# >esides trying to avoid a hostile ta"eover other

reasons for the initiation of an O by senior

management are that !articular divisions do not fit

into an overall cor!orate strategy must be sold to

raise cash or receive an attractive offering !rice# 8

O ta"es a cor!oration !rivate

d


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Ch 5 -55

'irst "over Advantages

'# :irst mover advantages refers to thebenefits a firm may achieve by entering anew mar"et or develo!ing a new !roduct or

service !rior to rival firms# (# The advantages of being a first mover

include securing access to rare resourcesgaining new "nowledge of "ey factors and

issues and carving out mar"et share and a!osition that is easy to defend and costly forrival firms overta"e#

O


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Ch 5 -56

Outsourcing

>usiness*;rocess Outsourcing 6>;O7&

Com!anies ta"e over functional o!erations such

as human resources information systems and

mar"eting for other firms#

Outsourcing can be less e!ensive can allow

firms to focus on core businesses and enables

firms to !rovide better services#


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Ch 5 -57

Michael ;orter5s $eneric 0trategies

Cost Leadership Strategies

0Low-Cost & Best-Value)

Di''erentiationStrategies

Foc(s Strategies

(Low-Cost Focus &Best-Value Focus)


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Ch 5 -58

Mi h l ; t 5 $ i 0t t i


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Ch 5 -59

Michael ;orter5s $eneric 0trategies

Cost leadershi! em!hasi@es !roducing standardi@ed

!roducts at a very low !er*unit cost for consumers

who are !rice*sensitive#

There are two ty!es of cost leadershi! strategies#

a# 8 low*cost strategy offers !roducts to a wide

range of customers at the lowest !rice available on

the mar"et#

b# 8 best*value strategy offers !roducts to a widerange of customers at the best !rice*value available

on the mar"et#

C t l d hi


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Ch 5 -60

Cost leadership

0triving to be the low*cost !roducer in an

industry can be es!ecially effective when the

mar"et is com!osed of many !rice*sensitive

buyers when there are few ways to achieve!roduct differentiation when buyers do not

care much about differences from brand to

brand or when there are a large number of

buyers with significant bargaining !ower#

C t l d hi


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Ch 5 -61

Cost leadership

The basic idea behind a cost leadershi! strategy isto under!rice com!etitors or offer a better value andthereby gain mar"et share and sales driving somecom!etitors out of the mar"et entirely#

-# To successfully em!loy a cost leadershi!strategy firms must ensure that total costs acrossthe value chain are lower than that of thecom!etition# This can be accom!lished by&

a# !erforming value chain activities more

efficiently than com!etition and b# eliminating some cost*!roducing activities in

the value chain#

(i! ti ti


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Ch 5 -62

(i!erentiation

9ifferentiation is aimed at !roducing

!roducts that are considered uni)ue# This

strategy is most !owerful with the source of

differentiation is es!ecially relevant to thetarget mar"et

(i! ti ti


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Ch 5 -63

(i!erentiation

8 successful differentiation strategy allows

a firm to charge higher !rices for its !roducts

to gain customer loyalty because consumers

may become strongly attached to thedifferentiation features#

+# 8 ris" of !ursuing a differentiation strategy

is that the uni)ue !roduct may not be valuedhighly enough by customers to justify the

higher !rice#

(i! ti ti


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Ch 5 -64

(i!erentiation

Common organi@ational re)uirements for

a successful differentiation strategy include

strong coordination among the RA9 and

mar"eting functions and substantialamenities to attract scientists and creative

!eo!le#

'


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Ch 5 -65

'ocus

'# :ocus means !roducing !roducts and servicesthat fulfill the needs of small grou!s of consumers#

(# There are two ty!es of focus strategies# a# 8 low*cost focus strategy offers !roducts or

services to a small range 6niche7 of customers at thelowest !rice available on the mar"et#

b# 8 best*value focus strategy offers !roducts to asmall range of customers at the best !rice*valueavailable on the mar"et# This is sometimes calledfocused differentiation#

'


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Ch 5 -66

'ocus

:ocus strategies are most effective when the

niche is !rofitable and growing when industry

leaders are uninterested in the niche whenindustry leaders feel !ursuing the niche is too

costly or difficult when the industry offers

several niches and when there is littlecom!etition in the niche segment#


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Ch 5 -67


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Ch 5 -68

#e ie


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Ch 5 -69

#eview

o does strateg% 'orm(*ation di''er 'or a

sma** vers(s *arge organi)ation3 For a 'or-

pro'it vers(s a nonpro'it organi)ation3

0trategy formulation is conce!tually the same for

both small and large organi@ations# However for

large firms there are more variables to include in

both the eternal and internal audits# The !rocess

is usually more formal in a large firm#

#eview


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Ch 5 -70

#eview

4ive recent eamp*es o' 'orard integration6!ac7ard integration6 and hori)onta*integration+

:orward integration means !urchasing or

develo!ing a distributor for a !roduct# :or instance?i"e now has its own retail stores in variouslocations# >ac"ward integration means owning asu!!ly source for !roduction# :or instancerecently garment !roducers in 0ri


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Ch 5 -71

#eview

Do %o( thin7 hosti*e ta7eovers are (nethica*38h% or h% not3

%t can best be argued that hostile ta"eovers areethical# Usually only wea" com!anies face hostile

ta"eovers and ty!ically shareholders andcustomers of the com!any benefit from the neworgani@ation# Most em!loyees and managersbenefit too but some em!loyees and to!

managers usually lose their jobs when theta"eover is consummated# :rom this angle somestudents may argue that hostile ta"eovers areunethical#

#eview


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Ch 5 -72

#eview

8h% is it not advisa!*e to p(rs(e too man%strategies at once3

Organi@ational resources are s!read too thinwhen more than a few strategies are !ursued at

the same time# 8ll organi@ations have limitedresources# ?o organi@ation can !ursue all thestrategies that may benefit the firm# 0imilarly noindividual can ta"e on an unlimited amount of debtto obtain goods and services# ?o more than a few

strategies can be financed mar"eted andmanaged effectively at the same time# 0ome!ractitioners say only a single strategy should be!ursued at a given time by a single organi@ation#

#eview


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#eview

8hat strategies are !est 'or t(r!(*ent6 high-ve*ocit%mar7ets3

:irms in this ty!e of mar"et have a choice of whether to reactantici!ate or lead the mar"et in terms of its own strategies#These choices are reflected in :igure -*,# %f a firm !rimarily

res!onds to the turbulent mar"et by res!onding to changes inthe industry defensively# The react*to*change strategy wouldnot be as effective as the antici!ate change strategy whichentails devising and following through with !lans for dealingwith the e!ected changes# %deally a firm will strive to lead themar"et by !ioneering new and better technologies and!roducts#

chapt5 types of strategies

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