Strategic Management Concepts & Cases PDF

Strategies in Action  Chapter Objectives 1. Discuss the value of establishing long-term objectives. 2. Identify 16 types of business strategies. 3. Identify numerous examples of organizations pursuing different t...

Strategies in Action  Chapter Objectives 1. Discuss the value of establishing long-term objectives. 2. Identify 16 types of business strategies. 3. Identify numerous examples of organizations pursuing different types of strategies. 4. Discuss guidelines when particular strategies are most appropriate to pursue. 5. Discuss Porter’s five generic strategies. 5-2 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  The Nature of Long-Term Objectives  Objectives should be:  quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units 5-3 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  The Nature of Long-Term Objectives  Objectives  provide direction  aid in evaluation  establish priorities  reduce uncertainty  minimize conflicts  aid in both the allocation of resources and the design of jobs 5-4 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Varying Performance Measures by Organizational Level 5-5 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  The Desired Characteristics of Objectives 5-6 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  A Comprehensive Strategic- Management Model 5-7 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Types of Strategies  Most organizations simultaneously pursue a combination of two or more strategies, but a combination strategy can be exceptionally risky if carried too far.  No organization can afford to pursue all the strategies that might benefit the firm.  Difficult decisions must be made and priorities must be established. 5-8 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Levels of Strategies With Persons Most Responsible 5-9 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Broad Groupings of Strategies Integration Strategies Intensive Strategies Defensive Strategies 5-10 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Integration Strategies  Forward integration  involves gaining ownership or increased control over distributors or retailers  Backward integration  strategy of seeking ownership or increased control of a firm’s suppliers  Horizontal integration  a strategy of seeking ownership of or increased control over a firm’s competitors 5-11 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Forward Integration Guidelines  When an organization’s present distributors are especially expensive  When the availability of quality distributors is so limited as to offer a competitive advantage  When an organization competes in an industry that is growing  When present distributors or retailers have high profit margins 5-12 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Backward Integration Guidelines  When an organization’s present suppliers are especially expensive or unreliable  When the number of suppliers is small and the number of competitors is large  When the advantages of stable prices are particularly important  When an organization needs to quickly acquire a needed resource 5-13 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Horizontal Integration Guidelines  When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government  When an organization competes in a growing industry  When increased economies of scale provide major competitive advantages  When competitors are faltering due to a lack of managerial expertise 5-14 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Intensive Strategies  Market penetration strategy  seeks to increase market share for present products or services in present markets through greater marketing efforts  Market development  involves introducing present products or services into new geographic areas  Product development strategy  seeks increased sales by improving or modifying present products or services 5-15 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Market Penetration Guidelines  When current markets are not saturated with a particular product or service  When the usage rate of present customers could be increased significantly  When the market shares of major competitors have been declining while total industry sales have been increasing  When increased economies of scale provide major competitive advantages 5-16 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Market Development Guidelines  When new channels of distribution are available that are reliable, inexpensive, and of good quality  When an organization is very successful at what it does  When new untapped or unsaturated markets exist  When an organization has excess production capacity 5-17 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Product Development Guidelines  When an organization has successful products that are in the maturity stage of the product life cycle  When an organization competes in an industry that is characterized by rapid technological developments  When major competitors offer better-quality products at comparable prices  When an organization competes in a high- growth industry 5-18 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Diversification Strategies  Related  Unrelated diversification diversification  value chains  value chains are possess so dissimilar that competitively no competitively valuable cross- valuable cross- business strategic business fits relationships exist 5-19 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Synergies of Related Diversification  Transferring competitively valuable expertise, technological know-how, or other capabilities from one business to another  Combining the related activities of separate businesses into a single operation to achieve lower costs  Exploiting common use of a well-known brand name 5-20 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Related Diversification Guidelines  When an organization competes in a no- growth or a slow-growth industry  When adding new, but related, products would significantly enhance the sales of current products  When new, but related, products could be offered at highly competitive prices  When an organization has a strong management team 5-21 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Unrelated Diversification Guidelines  When revenues derived from an organization’s current products would increase significantly by adding the new, unrelated products  When an organization’s present channels of distribution can be used to market the new products to current customers  When an organization’s basic industry is experiencing declining annual sales and profits 5-22 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Unrelated Diversification Guidelines (cont.)  When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity  When existing markets for an organization’s present products are saturated  When antitrust action could be charged against an organization that historically has concentrated on a single industry 5-23 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Defensive Strategies  Retrenchment  occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits  also called a turnaround or reorganizational strategy  designed to fortify an organization’s basic distinctive competence 5-24 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Retrenchment Guidelines  When an organization is one of the weaker competitors in a given industry  When an organization is plagued by inefficiency, low profitability, and poor employee morale  When an organization has grown so large so quickly that major internal reorganization is needed 5-25 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Defensive Strategies  Divestiture  Selling a division or part of an organization  often used to raise capital for further strategic acquisitions or investments 5-26 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Divestiture Guidelines  When an organization has pursued a retrenchment strategy and failed to accomplish needed improvements  When a division needs more resources to be competitive than the company can provide  When a division is responsible for an organization’s overall poor performance  When a division is a misfit with the rest of an organization 5-27 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Defensive Strategies  Liquidation  selling all of a company’s assets, in parts, for their tangible worth  can be an emotionally difficult strategy 5-28 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Liquidation Guidelines  When an organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful  When an organization’s only alternative is bankruptcy  When the stockholders of a firm can minimize their losses by selling the organization’s assets 5-29 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Alternative Strategies Defined and Exemplified 5-30 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Alternative Strategies Defined and Exemplified 5-31 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Porter’s Five Generic Strategies 5-32 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Michael Porter’s Five Generic Strategies  Cost leadership  emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive 5-33 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Michael Porter’s Five Generic Strategies  Type 1  Type 2  low-cost strategy  best-value that offers strategy that offers products or products or services to a wide services to a wide range of range of customers at the customers at the lowest price best price-value available on the available on the market market 5-34 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Michael Porter’s Five Generic Strategies  Differentiation  strategy aimed at producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive 5-35 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Michael Porter’s Five Generic Strategies  Type 4  Type 5  low-cost focus  best-value focus strategy that offers strategy that offers products or products or services to a niche services to a small group of range of customers at the customers at the lowest price best price-value available on the available on the market market 5-36 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Cost Leadership Strategies  To employ a cost leadership strategy successfully, a firm must ensure that its total costs across its overall value chain are lower than competitors’ total costs 5-37 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Cost Leadership Strategies Two ways: 1.Perform value chain activities more efficiently than rivals and control the factors that drive the costs of value chain activities 2.Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities 5-38 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Cost Leadership Guidelines  When price competition among rival sellers is especially vigorous  When there are few ways to achieve product differentiation that have value to buyers  When most buyers use the product in the same ways  When buyers incur low costs in switching their purchases from one seller to another 5-39 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Differentiation Strategies  Differentiation strategy should be pursued only after a careful study of buyers’ needs and preferences to determine the feasibility of incorporating one or more differentiating features into a unique product that features the desired attributes 5-40 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Differentiation  When there are many ways to differentiate the product  When buyer needs and uses are diverse  When few rival firms are following a similar differentiation approach  When technological change is fast paced 5-41 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Focus Strategies  Successful focus strategy depends on an industry segment that is of sufficient size, has good growth potential, and is not crucial to the success of other major competitors  Most effective when consumers have distinctive preferences 5-42 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Focus Strategy Guidelines  When the target market niche is large, profitable, and growing  When industry leaders do not consider the niche to be crucial to their own success  When the industry has many different niches and segments  When few, if any, other rivals are attempting to specialize in the same target segment 5-43 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Means for Achieving Strategies  Cooperation Among Competitors  Joint Venture/Partnering  Merger/Acquisition  First Mover Advantages  Outsourcing 5-44 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Means for Achieving Strategies  Cooperation Among Competitors For collaboration between competitors to succeed, both firms must contribute something distinctive, such as technology, distribution, basic research, or manufacturing capacity. But a major risk is that unintended transfers of important skills or technology may occur at organizational levels below where the deal was signed. Information not covered in the formal agreement often gets traded in the day-to-day interactions and dealings of engineers, marketers, and product developers. Firms often give away too much information to rival firms when operating under cooperative agreements! Tighter formal agreements are needed. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 5-45  Means for Achieving Strategies  Joint Venture/Partnering Joint venture is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. Often, the two or more sponsoring firms form a separate organization and have shared equity ownership in the new entity. Other types of cooperative arrangements include research and development partnerships, cross- distribution agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-bidding consortia. 5-46 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Means for Achieving Strategies  Merger/Acquisition  Merger and acquisition are two commonly used ways to pursue strategies.  A merger occurs when two o organizations of about equal size unite to form one enterprise.  An acquisition occurs when a large organization purchases (acquires) a smaller firm, or vice versa.  When a merger or acquisition is not desired by both parties, it can be called a takeover or hostile takeover. In contrast, if the acquisition is desired by both firms, it is termed a friendly merger. Most mergers are friendly. 5-47 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Means for Achieving Strategies  First Mover Advantages First mover advantages refer to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms. Some advantages of being a first mover include securing access to rare resources, gaining new knowledge of key factors and issues, and carving out market share and a position that is easy to defend and costly for rival firms to overtake. First mover advantages are analogous to taking the high ground first, which puts one in an excellent strategic position to launch aggressive campaigns and to defend territory. 5-48 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Means for Achieving Strategies  Outsourcing Business-process outsourcing (BPO) is a rapidly growing new business that involves companies taking over the functional operations, such as human resources, information systems, payroll, accounting, customer service, and even marketing of other firms. 5-49 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Means for Achieving Strategies  Advantages of Outsourcing (1) it is less expensive, (2)it allows the firm to focus on its core businesses, (3) it enables the firm to provide better services. (4) allows the firm to align itself with “best-in-world” suppliers who focus on performing the special task, (5)provides the firm flexibility should customer needs shift unexpectedly, (6) allows the firm to concentrate on other internal value chain activities critical to sustaining competitive advantage. 5-50 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall  Means for Achieving Strategies  Cooperation Among Competitors  Joint Venture/Partnering  Merger/Acquisition  Private-Equity Acquisitions  First Mover Advantages  Outsourcing 5-51 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall