Establishing Long Term Strategies

Study Notes

Long-term objectives represent the desired results of implementing specific strategies.
Strategies are the actions taken to achieve these objectives.
Both objectives and strategies should have a consistent timeframe, typically between two to five years.

Long-term objectives are crucial at the corporate, divisional, and functional levels of an organization.
These objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent across organizational units.
They should be associated with a timeline and expressed in measurable terms like growth in assets, sales, profitability, market share, diversification, vertical integration, earnings per share, and social responsibility.
Objectives provide direction, foster synergy, aid in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and assist in resource allocation and job design.

Financial objectives: Focus on areas like revenue growth, earnings growth, higher dividends, profit margins, return on investment, earnings per share, stock price, and improved cash flow.
Strategic objectives: Emphasize aspects like market share, on-time delivery, design-to-market times, cost reduction, product quality, geographic coverage, and achieving technological leadership.

Defines the business's overall competitive theme, positioning in the marketplace, and how it seeks a competitive advantage.
Involves selecting strategies for different industry settings.
Two primary ways businesses compete: lowering costs or differentiating products.
Broad Low-Cost Strategy: Focuses on lowering costs to offer lower prices while maintaining profitability.
Broad Differentiation Strategy: Differentiates products from rivals by creating more value through features, quality, or other factors.
Focus Low-Cost Strategy: Targets a specific segment or niche and aims to be the low-cost provider within that niche.
Focus Differentiation Strategy: Targets a specific segment or niche and customizes its offering by adding tailored features or functions to meet the segment's needs.

Fragmented industry: Comprises numerous small and medium-sized companies, making it challenging for any one firm to dominate.
Oftentimes, trade-offs exist between these competitive strategies, requiring careful consideration of the company's strengths, weaknesses, and the industry landscape.

Long-term objectives and strategies are implemented at corporate, divisional, and functional levels.

Quantitative, Measurable, Realistic, Understandable, Challenging, Hierarchical, Obtainable, and Congruent (SMART)
Aligned with a specific timeline.
Stated in terms of growth in assets, sales, profitability, market share, diversification, vertical integration, earnings per share, and social responsibility.
Provide direction, facilitate synergy, aid in evaluation, establish priorities, minimize uncertainty, reduce conflicts, stimulate exertion, and support resource allocation and job design.

Financial
- Examples include revenue growth, earnings growth, increased dividends, higher profit margins, improved return on investment, higher earnings per share, rising stock price, and enhanced cash flow.
Strategic
- Examples include increased market share, faster on-time delivery compared to rivals, shorter design-to-market times, lower costs than competitors, higher product quality than rivals, wider geographic coverage, and achieving technological leadership.

Defines the business's competitive theme, its market positioning for competitive advantage, and various positioning strategies for different industry settings
Two core ways companies compete:
- Cost reduction
- Product differentiation from rivals to create greater value.

Broad Low-Cost Strategy: Lowering costs to enable lower pricing while maintaining profitability.
Broad Differentiation Strategy: Distinguishing products through unique features, segments, or offerings.
Focus Low-Cost Strategy: Targeting a specific niche and aiming to be the lowest-cost player.
Focus Differentiation Strategy: Targeting a specific niche and customizing product offerings to meet its unique needs, adding features and functionality.