topic-05 (long term strategies)

8/10/2019 Topic-05 (Long Term Strategies)

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Topic 5

Formulating Long-TermObjectives and Grand

Strategies

Prof. Niki Lukviarman, SE, MBA, DBA, Akuntan


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Topic Outline

Long-Term Objectives

Generic Strategies Grand Strategies

Corporate Combinations

Selection of Long-Term Objectives & GrandStrategy Sets

Sequence of Objectives & Strategy Selection


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Types of Long-Term Objectives

Profitability

Productivity

Competitive position

Employee development

Employee relations

Technological leadership

Public responsibility


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Qualities of Long-Term Objectives

Criteria used

in preparing

objectives

Acceptable

Flexible

MeasurableMotivating

Suitable

Understandable

Achievable


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What is the Balanced Scorecard?

The Balanced Scorecard is a set of measures that

are directly linked to the companys strategy.

It directs a company to link its own long-term

strategy with tangible goals and actions.


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The Four Perspectives in a

Balanced Scorecard

Financial performance

Customer knowledge

Internal business processes

Learning and growth


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The Balanced Scorecard

Vision

and

Strategy

Financial

To succeed financially,how should we appear to

our shareholders?

CustomerTo achieve

our vision,

how should

we appear to

our

customers?

Internal

BusinessProcess

To satisfy our

shareholders

and customers,

what business

processes mustwe excel at?Learning and Growth

To achieve our vision,

how will we sustain our

ability to change and

improve?


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Copyright 2007 Prentice Hall Ch 5 -8

Michael Porters Generic Strategies

Cost Leadership Strategies

DifferentiationStrategies

Focus Strategies


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Generic Strategies

In conjunction with differentiation

Economies or diseconomies of scale

Capacity utilization achieved

Linkages w/ suppliers & distributors

Cost Leadership(Type 1 and Type 2)


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Generic Strategies

Many price-sensitive buyers

Few ways of achieving differentiation

Buyers not sensitive to brand differences

Large # of buyers w/bargaining power

Low Cost Producer Advantage


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Generic Strategies

Greater product flexibility

Greater compatibility

Lower costs

Improved service

Greater convenience

More features

Differentiation (Type 3)


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Differentiation

Can be especially effective when:1. There are many ways to differentiate and

many buyers perceive the value of the

differences

2. Buyer needs and uses are diverse

3. Few rival firms are following a similar

differentiation approach

4. Technology change is fast paced andcompetition revolves around evolving product

features


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Focused Strategy Can be especially effective when:

1. The target market niche is large, profitable,

and growing

2. Industry leaders do not consider the niche

crucial3. Industry leaders consider the niche too costly

or difficult to meet

4. The industry has many different niches andsegments

5. Few, if any, other rivals are attempting to

specialize in the same target segment


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Requirements for Generic

Competitive Strategies

Generic

Strategy

Commonly Required Skills

and Resources

Common

Organizational

Requirements

Overall Cost

Leadership

Sustained capital investment

and access to capital

Process engineering skills

Intense supervision of labor

Products designed for ease in

manufacture

Low-cost distribution system

Tight cost control

Frequent, detailed

control reports

Structured

organization and

responsibilities

Incentives based on

meeting strict

quantitative targets


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Risks of the Generic Strategies

Risks of Cost

Leadership

Risks of

Differentiation

Risks of Focus

Cost leadership is not

sustained

Competitors imitateTechnology changes

Other bases for cost

leadership erode

Proximity in

differentiation is lost

Cost focusers achieve

even lower cost in

segments

Differentiation is not

sustained

Competitors imitateBases for differentiation

become less important to

buyers

Cost proximity is lost

Differentiation focusers

achieve greater

differentiation in segments

Focus strategy is

imitated

Target segment becomesunattractive

Structure erodes

Demand disappears

Broadly target

competitors overwhelm

segments

Segments differences

from others narrow

Advantages of broad

line increase


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Types of Grand Strategies

Concentrated growth

Market development

Product development Innovation

Horizontal integration

Vertical integration Concentric

diversification

Conglomeratediversification

Turnaround Divestiture

Liquidation

Bankruptcy

Joint ventures

Strategic alliances

Consortia


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Characteristics of a Concentrated

Growth Strategy

Involves focusing resou rceson the profitable growth of

a single product, in a single market, with a single

dominant technology

RationaleFirm develops and exploits its expertise in adelimited competitive arena

Determinantsof competitive market success

Ability to assess market needs

Knowledge of buyer behavior Customer price sensitivity

Effectiveness of promotion


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Conditions Favoring a

Concentrated Growth Strategy

Firms industry is resistant to major technological

advancements

Firms target markets are not product saturated

Firms markets are sufficiently distinctive to dissuadecompetitors in adjacent markets from entering firms segment

Firms inputs are stable in price and quantity and available in

the amounts and at the times needed

Firms industry is stable

Firms competitive advantages are based on efficient

production or distribution channels

Success of market generalists


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Strategies of Market and

Product Development

Market development

Consists of marketing present products, often with only cosmeticmodifications to customers in related market areas by

Adding channels of distribution or

Changing content of advertising or promotion

Produc t developm ent

Involves substantial modification of existing products or creationof new but related products

Based on penetrating existing market by

Incorporating product modifications into existing items or

Developing new products connected to existing products


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Specific Options for Selected

Grand Strategies

Product Development

(Developing new produc ts for present markets)

1. Developing new product features

a. Adapt (to other ideas, developments)b. Modify (change color, motion, sound, odor, form, shape)

c. Magnify (stronger, longer, thicker, extra value)

d. Minify (smaller, shorter, lighter)

e. Substitute (other ingredients, process, power)

f. Rearrange (other patterns, layout, sequence, components)g. Reverse (inside out)

h. Combine (blend, alloy, assortment, ensemble, combine units, etc.)

2. Developing quali ty vari ations

3. Developing additional models and sizes (product prol i feration)


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Innovation Strategy

Involves creating a new product lifecycle, thereby making similar existing

products obsolete


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Horizontal and Vertical

Integration Strategies

Horizontal Integrat ion

Based on growthvia acquis i t ionof one or more similar

firms operating at the same stage of the production-

marketing chain

Vertical Integration

Involves acquiring firms

That supply acquiring firm with inputs (backwardintegration) or

Are customers for firms outputs (forward integration)


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Example:

Vertical and Horizontal Integrations

Textile producer Textile producer

Shirt manufacturer Shirt manufacturer

Clothing store Clothing store

Acquisitions or mergers of suppliers or customer businesses are vertical integration

Acquisitions or mergers of competing businesses arehorizontal integrations


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Motivations for Diversification

Increase firms stock value

Increase growth rate of firm

Investment is better use of funds than using them for

internal growth Improves stability of earnings and sales

Balance or fill out product line

Diversify product line

Acquire a needed resource quickly Achieve tax savings

Increase efficiency and profitability


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Diversification Strategies

Concentr ic Diversi f icat ion

Involves acquisition of businesses related to acquiringfirm in terms of technology, markets, or products

Cong lomerate Diversi f icat ion

Involves acquisition of a business because it representsa promising investment opportunity (primary motivationis profit pattern of venture)

Difference between the approaches

Concentric diversification emphasizes commonalitywhereas conglomerate diversification emphasizes profits

for each individual unit


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Turnaround Strategy

Involves a concerted effort over a periodof time to fortify a firms distinctive

competencies, returning it to profitability


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Turnaround Strategy

A turnaround strategy is done

through

Cost reduction Asset reduction


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Terms Used in Turnaround Strategy

A turnaround si tuat ionrepresents absoluteand relative-to-industry declining performance ofa sufficient magnitude to warrant explicitturnaround actions

The immediacy of the resulting threat tocompany survival posed by the turnaroundsituation is known as si tuat ion sever i ty

Turnaround responsestypically include twostages of strategic activities Retrenchment

Recovery response


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Divestiture and Liquidation Strategies

Divest i ture Strategy

Involves selling a firm or a major component of a firm

Reasons for divestiture Partial mismatches between acquired firm and parent firm

Corporate financial needs

Government antitrust action

Liqu idation Strategy

Involves selling parts of a firm, usually for its tangible

asset value and not as a going concern


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The Strategy of Bankruptcy

Two approaches

Liquidat ionInvolves complete distribution of a firms assets to

creditors, most of whom receive a small fraction of amount owed

ReorganizationInvolves creditors temporarily freezing their

claims while a firm reorganizes and rebuilds its operations more

profitably

Advantageof a reorganizat ion bankruptcy

Proact ive op t ionoffering maximum repayment of a firms debt

in the future if a recovery strategy is successful


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Corporate Combination Strategies

Joint Ventures

Involves establishing a third company (child), operated

for the benefit of the co-owners (parents)

Strategic A l l iance

Involves creating a partnership between two or more

companies that contribute skills and expertise to acooperative project

Exists for a defined period

Does not involve the exchange of equity


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Corporate Combination Strategies

Consort iaare defined as large interlocking relationshipsbetween businesses of an industry. In Japan suchconsortia are known as keiretsus, in South Korea aschaebols

A Japanese keiretsuis an undertaking involving up to50 different firms that are joined around a large tradingcompany or bank and are coordinated throughinterlocking directories and stock exchanges

Chaebols are typically financed through governmentbanking groups and largely are run by professionalmanagers trained by participating firms expressly for the

job


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The Top Five

Strategic Reasons for Outsourcing

1. Improve business focus

2. Access to world-class capabilities3. Accelerated reengineering benefits

4. Shared risks

5. Free resources for other purposes

topic-05 (long term strategies)

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