Strategic Ch5

8/3/2019 Strategic Ch5

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Strategies in Action

Ch 5 -1


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Strategy importance as managers see:

Because were making bigger bets in investments in

technology, we cant afford to spend a whole lot ofmoney in one direction and then find out five

years later it was the a wrong direction

Ch 5 -2


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Ch 5 -3

Long-Term Objectives

Strategies: represent the actions to be taken to accomplish long- term

objectives.

Long term objective: represent the results expected from

pursuing certain strategies.

Objective must be:

Quantifiable Measurable

Realistic Understandable

Challenging Hierarchical

Obtainable Congruent

Timeline


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Ch 5 -4

Varying Performance Measures byOrganizational Level


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Ch 5 -5

Importance of clear and well communicated objective:

1. Help stakeholders understand their role in an organization future

2. Provide a basis for consistent decision making by managers

whose values and attitudes differ

3. Minimize potential conflicts

4. Set organizational priorities

5. Standards by which individuals, groups, departments, and entire

organization can be evaluated.

6. Provide direction and allow organizational synergy.


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Ch 5 -6

Financial vs. Strategic Objectives

Financial Objectives: include those associated with growth

in:

Growth in revenues Growth in earnings

Higher dividends Higher profit margins

Higher earnings per share Improved cash flow


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Strategic objectives includes things such as:

Ch 5 -7

Larger Market Share Quicker on time delivery than rivals

Achieving technological leadership Lower cost than rivals

Higher product quality than rivals Wider geographic coverage than rivals


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Ch 5 -8

Not Managing by Objective

Managing by Extrapolation If it isn't broke, dont fix it.

Managing by Crisis The true measure of a good

strategist is the ability to fix problems

Managing by Subjective Do your own thing, the best

way you know how.

Managing by Hope The future is full of uncertainty and

if first you dont succeed, then you mayon the second or

third try.


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Ch 5 -9

The Balanced Scorecard

Robert Kaplan & David Norton , 1993

Strategy evaluation & control technique

Balance financial measures with nonfinancial measures

Balance shareholder objectives with customer &

operational objectives

Contains a carefully chosen combination of strategic and

financial objectives tailored to the org. .

It consistent with TQM and CIM


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Ch 5 -10


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Ch 5 -11


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Ch 5 -12

Types of Strategies

Operational Level

Functional Level

Division Level

CorpLevelA Large Company


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Ch 5 -13

Strategy making is not a task for top executives,middle and lower- level managers too must beinvolved in the strategic planning process to theextent possible.

Many if not most organizations simultaneouslypursue a combination of two or more strategies,but not combination strategy can be

exceptionally risky is carried too far.


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Ch 5 -14


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Ch 5 -15

Types of Strategies

VerticalIntegration

Strategies

Forward

Integration

BackwardIntegration

Horizontal

Integration


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Forward Integration

Involve gaining ownership or increased control overdistributors or retailers. Increasing numbers ofmanufacturers. (Suppliers) are pursuing a forwardintegration strategy by establishing web sites todirectly sell products to customers.

An effective means of forward integration isFranchising, which is a form of business organization

in which a firm already has a successful product orservice (the franchisor) enters into a continuingcontractual relationship with other businesses(franchisees) operating under the franchisor's trade

name and usually with the franchisor's guidance, inexchan e for a fee.Ch 5 -16


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When implementing forward integrationmay be effective?!

Current distributors expensive or unreliable

Availability of quality distributors limited

Firm competing in industry expected to grow markedly

Firm has both capital & HR to manage new business ofdistribution

Current distributors have high profit margins

Ch 5 -17


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Backward Integration

Refers to a strategy of seeking ownership orincreased control of a firms suppliers.

This strategy can be especially appropriate when a

firms current suppliers are unreliable, too costly, orcannot meet the firms need.

Ch 5 -18


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When implementing backward integrationmay be effective?!

Current suppliers expensive or unreliable

# of suppliers is small; # of competitors is large

High growth in industry sector Firm has both capital & HR to manage new business

Stable prices are important

Current suppliers have high profit margins

Ch 5 -19


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Horizontal integration

Refers to a strategy of seeking ownership of orincreased control over a firms competitors.

One of the most significant trends in strategic

management today is the increased use of horizontalintegration as a strategy.

Mergers, acquisitions, and takeovers.

Ch 5 -20


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When implementing horizontal integrationmay be effective?!

Gain monopolistic characteristics w/o federal governmentchallenge

Competes in growing industry Increased economies of scale major competitive

advantages

Faltering due to lack of managerial expertise or need for

particular resource

Ch 5 -21


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Ch 5 -22

Types of Strategies

IntensiveStrategies

Market

Penetration

MarketDevelopment

Product

Development

It require intensive from theorganization


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Ch 5 -23


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Market Penetration

It seek to increase market share for present productsor services in present market through greatermarketing effort.

It includes increasing number of salespersons,increasing in advertising, offering sales promotions,and increasing publicity.

Ch 5 -24


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When to use market penetration?!

Current markets not saturated

Usage rate of present customers can beincreased significantly

Shares of competitors declining; industry salesincreasing

Increased economies of scale providemajor competitive advantage

Ch 5 -25


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Market Development

Involves introducing present products or servicesinto new geographic areas

When implementing market development?

New channels of distribution reliable, inexpensive,good quality

Firm is successful at what it does

Untapped/unsaturated markets

Excess production capacity

Basic industry rapidly becoming global

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Product Development

It is the strategy that seeks increased sales byimproving or modifying present products or services.Its entails large R&D expenditures.

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When implementing market development?

Products in maturity stage of life cycle

Industry characterized by rapid technologicaldevelopment

Competitors offer better-quality products atcomparable prices

Compete in high-growth industry

Strong R&D capabilities

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Ch 5 -29

Types of Strategies

DiversificationStrategies

RelatedDiversification

UnrelatedDiversification


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Diversification Strategies:

A collection of businesses under one corporateumbrella

Related When their value chains possescompetitively valuable cross-business strategic fits

Unrelated When their value chains are so dissimilarthat no competitively valuable cross-business

relationships exist

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Related Diversification Preferred ToCapitalize on:

Transferring competitively valuable expertise

Combining the related activities of separatebusinesses into a single operation to lower costs

Exploiting common use of a well-known brand name Cross-business collaboration to create competitively

valuable resource strengths and capabilities

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Related Diversification May be EffectiveWhen:

An organization competes in a no-growth or aslow growth industry

Adding new, but related, products would

significantly enhance the sales of currentproducts

New, but related products could be offered athighly competitive prices

New, but related, products have seasonal saleslevels that counterbalance an organizations

existing peaks and valleys

An organizations products are currently in the

declining stage of the products life cycle Ch 5 -32


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Diversification Strategies Less Popular --

More difficult to manage divers business activities

However; the greatest risk of being in a single industryis having all your eggs in one basket

When Diversification can be effective?

Declining annual sales & profits

Capital & managerial ability to compete in newindustry

Financial synergy between acquired and acquiringfirms

Current markets for present products - saturated

Ch 5 -33


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Unrelated Diversification

Business tend to be unrelated when their valuechains are so dissimilar that no competitive valuablecross- business relationships exist.

Ch 5 -34


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Ch 5 -35

Types of Strategies

DefensiveStrategies

Retrenchment

Divestiture

Liquidation


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Retrenchment

Occurs when an organizations regroups through costand asset reduction to reverse declining sales andprofits.

Ch 5 -36


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Retrenchment Strategies Guidelines --

Failed to meet objectives & goals consistency; hasdistinctive competencies

Firm is one of weaker competitors

Inefficiency, low profitability, poor employee morale

,pressure for stockholders Strategic managers have failed

Rapid growth in size; major internal reorganizationnecessary

Ch 5 -37


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Divestiture Strategies

Selling a division or part of an organization

Divestiture Strategies Guidelines --

Retrenchment failed to attain improvements

Division needs more resources than are

available Division responsible for firms overall

poor performance

Division is a miss -fit with organization

Large amount of cash is needed and cannotbe raised through other sources

Ch 5 -38


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Liquidation Strategies

Companys assets, in parts, fortheirtangible worth Selling

Liquidation Strategies Guidelines -- Retrenchment & divestiture failed

Only alternative is bankruptcy

Minimize stockholder loss by selling firms

assets

Ch 5 -39


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Ch 5 -40

Michael Porters Generic Strategies

Cost Leadership Strategies

(Low-Cost & Best-Value)

DifferentiationStrategies

Focus Strategies

(Low-Cost Focus &Best-Value Focus)


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Generic Strategies

Cost Leadership Strategies: focuses on producing

standardized product or services at very low price per unit for

consumer who are price sensitive.

2 alternative type:-

Type (1): Low cost strategy: offer product/service at the

lowest the price available on the market to a wide range of

customer.

Type(2): Best value strategy: offer product/ service to a wideCh5-41


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Cost leader ship must be Pursued inconjunction with differentiation.

A number of cost elements affect the

relative attractiveness of genericstrategies:

Economies or diseconomies of scale

Capacity utilization achieved

Linkages with suppliers

Learning & experience curve effect

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Low Cost Producer Advantages:

Market of many price-sensitive buyers

Few ways of achieving product differentiation

Buyers not sensitive to brand name

differences Large number of buyers with bargaining

power

It must gain a competitive advantage which it should bedifficult to imitate, rare, not easily substitutable

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Risk of pursuing cost leader ship:

1.may rivals imitate the strategy

2.technological breakthrough in the industry may

make the strategy ineffective.

3.buyer interest may swing to other

differentiating features besides price.

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Differentiation Strategies type (3) : produce product/service considered unique industry wide directed toconsumer who are price insensitive .

It can mean:

Greater product flexibility

Greater compatibility

Lower costs

Improved service

Greater convenience

More featuresCh5-45

Generic Strategies


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Differentiation Strategies

It should be after a careful study of buyers needs and

preferences.

Allow firm to charge higher price.

Gain customer loyalty.

It must be a strong coordination between the R&D and

the marketing function.

The most effective differentiation bases is when it is

hard or expensive for rivals to imitate. Ch5-46


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Differentiation Strategies

Can be effective under these condition:

1) When there are many ways to differentiate the

product/service, and many buyers perceive thesedifferences as having value.

2) When buyers need and uses are diverse.

3) When few rivals firm are following the similar

differentiation .4) When technological change is growing fast and

the competion revolves around rapidly.

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Generic Strategies

Focus Strategies: producing product or services thatfulfill needs a small group of customer (niche)

depend on: Industry segment of sufficient size

Good growth potential

Not crucial to success of major competitors

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Focus strategy

2 Alternative type:

1) type (4): Low cost focus.

2) type (5): Best value focus.

Ch 5 -49


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Generic Strategies

Focus Strategies

Consumers have distinctive preferences

Rival firms not attempting to specialize in the sametarget segment

Fred R. DavidPrentice Hall

Ch5-50


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Focus strategy Can be attractive under these condition:

1) When the target niche is large, profitable and

growing.

2) When rivals do not consider the niche to be

crucial to their successes. Or consider it too

costly or difficult to specialized in to meet the

need of niche

3) Many Different niche and segment.

Ch 5 -51


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Ch 5 -52


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Ch 5 -53


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Means for achieving strategies:

Joint venture/partnering: Occurs when two company or more form a

temporary partnership for the purpose ofcapitalizing on some oppurtunity.

cooperative arrangement such as:

1.Shared equity ownership in the new

entity2.Cross distribution agreement

3.R&D partnership

4.Cross manufacturing agreementCh 5 -54


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Joint venturing and partnering are being used

increasingly because they allow companies to improve

communication and networking

reasons that cause joint venture to fail:

1) Managers are not involved in operating venture.2) Venture may benefit the partnering companies but

may not benefit the customers.

3) May not be supported equally by both partner the

problem will arise.4) The venture may begin to compete more with one of

the partner than the other.

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Guidelines for joint venture:-

1.When a privately owned org. is forming a joint

venture with a publicly owned org. there aresome adv. Of being held such as access tostock issuance as a resource of capital.

2.When two or more smaller firm have trouble

competing with a large firm.3.When there is a need to quickly introduce a new

technology.

4.When the distinct competences of 2 or more

firm complement each other.

5.When some project is potentially very profitablebut require over whelming resource and risk.

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Merger / acquisition:

merger : when two org. of about equal size unite

to form one enterprise.

Acquisition : when a large org. purchases asmaller firm.

When merger or acquisition are not desired byboth parties it is called hostile takeover

If the acquisition is desired it is called friendly

mergeCh 5 -57


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Factors encouraging companies to merge:

Deregulation

Technological change

Excess capacity

Inability to boost profit through increasing price

Depressed stock market

The need to gain economies of scale.

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Factors encouraging companies to acquisition:

Increased market power

Reduce entry barriers

Reduced cost of new product development

Increased spread of products to market

Increased diversification

Avoiding of excessive competition

Opportunity to learn and develop new

capabilitiesCh 5 -59


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reasons that cause Merger &acquisition tofail:

1. Integration difficulties

2. Inadequate evaluation of target

3. Large or extraordinary dept

4. Inability to achieve synergy5. Too much diversification

6. Mangers overly focus on acquisition

7. Different to integrate different organizationalcultures

8. Reduced employee moral due to layoff and

relocation

Ch 5 -60


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reasons for Merger &acquisition:

1. To provide improved capacity utilization

2. To make better use of the existing sales force

3. To reduce managerial staff

4. To gain economies of scale5. To smooth out seasonal trend in sales

6. To gain access to new supplier, distributer,customer , products, and creditors

7. To gain new technology

8. To reduce tax obligation

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Ch 5 -62

First Mover Advantages

Benefits a firm may achieve by entering a newmarket or developing a new product or service priorto rival firms

Some advantage of being first mover:

Securing access to rare resource

gaining new knowledge of key factors and issues

Carving out market share and position that is easily

to defend and costly for rivals.


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When being first mover you must awareabout:

1.Build firm image and reputation with buyers

2.Produce cost adv. Over rivals

3.Create strongly loyal customer

4.Make imitation by rival unlikely

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Ch 5 -64

Outsourcing

is a rabidly growing new business

Companies taking over the functional operations

of other firms

Such as: HR, Information System, accounting,customer service, and marketing.

Business-Process Outsourcing(BPO)


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Companies choose to outsource their function forseveral reasons:

1. Less expensive2. Allow the firm to focus on its corebusinesses

3. Enables firm to provide better services

4. The strategy allow firms to align it self withbest in world suppliers who focus on

performing special tasks

5. Provide firm flexibility should customerneeds shift unexpectedly

6. Allow firm to focus on other internal valuechain activities critical to sustaining competitive

adv.Ch 5 -65


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Strategic Management in Nonprofit andGovernmental Organizations

Educational Institutions

Medical OrganizationsGovernmental Agencies and Departments

Strategic Ch5

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