Strategies in ActionNature of Long-Term Objectives

QuantitativeMeasurableRealisticUnderstandableChallengingHierarchicalObtainableCongruent among organizational units

Strategies in ActionNature of Long-Term Objectives (Contd)

Objectives are associated with a time line and stated in terms:Growth in assetsGrowth in salesProfitabilityMarket shareDiversificationIntegrationEPSSocial responsibility

Strategies in ActionVertical Integration Strategies

Forward integrationBackward integrationHorizontal integration

Strategies in ActionDefined

Gaining ownership or increased control over distributors or retailersExample

General Motors is acquiring 10% of its dealers.

Forward Integration

Strategies in ActionGuidelines for Forward Integration

Present distributors are expensive, unreliable, or incapable of meeting firms needsAvailability of quality distributors is limitedWhen firm competes in an industry that is expected to grow markedlyAdvantages of stable production are highPresent distributor have high profit margins

Strategies in ActionDefined

Seeking ownership or increased control of a firms suppliersExample

Motel 8 acquired a furniture manufacturer.

Backward Integration

Strategies in ActionGuidelines for Backward Integration

When present suppliers are expensive, unreliable, or incapable of meeting needsNumber of suppliers is small and number of competitors largeHigh growth in industry sectorFirm has both capital and human resources to manage new businessAdvantages of stable prices are importantPresent supplies have high profit margins

Strategies in ActionDefined

Seeking ownership or increased control over competitorsExample

Hilton recently acquired Promus.

Horizontal Integration

Strategies in ActionGuidelines for Horizontal Integration

Firm can gain monopolistic characteristics without being challenged by federal governmentCompetes in growing industryIncreased economies of scale provide major competitive advantagesFaltering due to lack of managerial expertise or need for particular resources

Strategies in ActionIntensive Strategies

Market penetrationMarket developmentProduct development

Strategies in ActionDefined

Seeking increased market share for present products or services in present markets through greater marketing efforts

Example

Ameritrade, the on-line broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions.

Market Penetration

Strategies in ActionGuidelines for Market Penetration

Current markets not saturatedUsage rate of present customers can be increased significantlyMarket shares of competitors declining while total industry sales increasingIncreased economies of scale provide major competitive advantages

Strategies in ActionDefined

Introducing present products or services into new geographic area

Example

Britains leading supplier of buses, Henlys PLC, acquires Blue Bird Corp. North Americas leading school bus maker.

Market Development

Strategies in ActionGuidelines for Market Development

New channels of distribution that are reliable, inexpensive, and good qualityFirm is very successful at what it doesUntapped or unsaturated marketsCapital and human resources necessary to manage expanded operationsExcess production capacityBasic industry rapidly becoming global

Strategies in ActionDefined

Seeking increased sales by improving present products or services or developing new ones

Example

Apple developed the G4 chip that runs at 500 megahertz.

Product Development

Strategies in ActionGuidelines for Product Development

Products in maturity stage of life cycleCompetes in industry characterized by rapid technological developmentsMajor competitors offer better-quality products at comparable pricesCompete in high-growth industryStrong research and development capabilities

Strategies in ActionDiversification Strategies

Concentric diversificationConglomerate diversificationHorizontal diversification

Strategies in ActionDefined

Adding new, but related, products or services

Example

National Westminister Bank PLC in Britain bought the leading British insurance company, Legal & General Group PLC.Concentric Diversification

Strategies in ActionGuidelines for Concentric Diversification

Competes in no- or slow-growth industryAdding new & related products increases sales of current productsNew & related products offered at competitive pricesCurrent products are in decline stage of the product life cycleStrong management team

Strategies in ActionDefined

Adding new, unrelated products or services

Example

H&R Block, the top tax preparation agency, said it will buy discount stock brokerage Olde Financial for $850 million in cash.Conglomerate Diversification

Strategies in ActionGuidelines for Conglomerate Diversification

Declining annual sales and profitsCapital and managerial talent to compete successfully in a new industryFinancial synergy between the acquired and acquiring firmsExiting markets for present products are saturated

Strategies in ActionDefined

Adding new, unrelated products or services for present customers

Example

The New York Yankees baseball team are merging with the New Jersey Nets basketball team.Horizontal Diversification

Strategies in ActionGuidelines for Horizontal Diversification

Revenues from current products/services would increase significantly by adding the new unrelated productsHighly competitive and/or no-growth industry w/low margins and returnsPresent distribution channels can be used to market new products to current customersNew products have counter cyclical sales patterns compared to existing products

Strategies in ActionDefensive Strategies

Joint ventureRetrenchmentDivestitureLiquidation

Strategies in ActionDefined

Two or more sponsoring firms forming a separate organization for cooperative purposes

Example

Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones.Joint Venture

Strategies in ActionGuidelines for Joint Venture

Combination of privately held and publicly held can be synergistically combinedDomestic forms joint venture with foreign firm, can obtain local management to reduce certain risksDistinctive competencies of two or more firms are complementaryOverwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline)Two or more smaller firms have trouble competing with larger firmA need exists to introduce a new technology quickly

Strategies in ActionDefined

Regrouping through cost and asset reduction to reverse declining sales and profit

Example

Singer, the sewing machine company, declared bankruptcy.Retrenchment

Strategies in ActionGuidelines for Retrenchment

Firm has failed to meet its objectives and goals consistently over time but has distinctive competenciesFirm is one of the weaker competitorsInefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.When an organizations strategic managers have failedVery quick growth to large organization where a major internal reorganization is needed.

Strategies in ActionDefined

Selling a division or part of an organization

Example

Harcourt General, the large US publisher, is selling its Neiman Marcus division.Divestiture

Strategies in ActionGuidelines for Divestiture

When firm has pursued retrenchment but failed to attain needed improvementsWhen a division needs more resources than the firm can provideWhen a division is responsible for the firms overall poor performanceWhen a division is a misfit with the organizationWhen a large amount of cash is needed and cannot be obtained from other sources.

Strategies in ActionDefined

Selling all of a companys assets, in parts, for their tangible worth

Example

Ribol sold all its assets and ceased business.Liquidation

Strategies in ActionGuidelines for Liquidation

When both retrenchment and divestiture have been pursued unsuccessfullyIf the only alternative is bankruptcy, liquidation is an orderly alternativeWhen stockholders can minimize their losses by selling the firms assets

Michael Porters Generic StrategiesCost Leadership StrategiesDifferentiation StrategiesFocus Strategies

Key Terms & ConceptsAcquisitionBackward integrationBankruptcyCombination strategyConcentric diversificationConglomerate diversificationCooperative arrangementsCost leadership

DifferentiationDiversification strategiesDivestitureFocusForward integrationFranchisingGeneric strategiesHorizontal diversificationHorizontal integrationIntegration strategies

Key Terms & Concepts (Contd)Intensive strategiesJoint ventureLeveraged buyoutLiquidationMerchant bankingMarket developmentMarket penetration

MergerOutsourcingProduct developmentRetrenchmentTakeoverVertical integration

Key Terms & Concepts (Contd)Product and service planningProduction/operations functionsProfitability ratiosResearch and development

SellingSocial responsibilityStaffingSynergyTest marketing

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