Chapter Outline. Chapter 5 Strategies in Action. Long-Term Objectives. Types of Strategies. Integration Strategies

Transcription

1 Chapter 5 Strategies in Action Strategic Management: Concepts & Cases 13 th Edition Fred David Ch 5-1 Chapter Outline Long-Term Objectives Types of Strategies Integration Strategies Ch 5-2 1

2 Chapter Outline (cont d) Intensive Strategies Diversification Strategies Defensive Strategies Ch 5-3 Chapter Outline (cont d) Michael Porter s Generic Strategies Means for Achieving Strategies First Mover Advantages Ch 5-4 2

3 Strategies in Action Strategies for taking the hill won t necessarily hold it. Amar Bhide The early bird may get the worm, but the second mouse gets the cheese. Unknown Ch 5-5 Strategies in Action Companies Embrace Strategic Planning -- Quest for higher revenues -- Quest for higher profits Ch 5-6 3

4 Long-Term Objectives Results expected from pursuing certain strategies Strategies represent actions to accomplish long-term objectives Ch 5-7 Long-Term Objectives Objectives -- Quantifiable Measurable Realistic Understandable Challenging Ch 5-8 4

5 Long-Term Objectives Objectives -- Hierarchical Obtainable Congruent (go well together) Time-line Ch 5-9 Long-Term Objectives Strategists Should Avoid -- Managing by Extrapolation Managing by Crisis Managing by Subjectives Managing by Hope Ch

6 Varying Performance Measures by Organizational Level Ch 5-11 Financial vs. Strategic Objectives Financial Objectives Growth in revenues Growth in earnings Higher dividends Higher profit margins Higher earnings per share Improved cash flow Ch

7 Financial vs. Strategic Objectives Strategic Objectives Larger market share Quicker on-time delivery than rivals Quicker design-to-market times than rivals Lower costs than rivals Higher product quality than rivals Wider geographic coverage than rivals Ch 5-13 Financial vs. Strategic Objectives Trade-Off Maximize short-term financial objectives harm long-term strategic objectives Pursue increased market share at the expense of short-term profitability Tradeoffs related to risk of actions; concern for business ethics; need to preserve natural environment; social responsibility issues Ch

8 The Balanced Scorecard Robert Kaplan & David Norton -- Strategy evaluation & control technique Balance financial measures with non-financial measures Balance shareholder objectives with customer & operational objectives Ch 5-15 Types of Strategies A Large Company Corp Level Division Level Functional Level Operational Level Ch

9 Types of Strategies A Small Company Company Level Functional Level Operational Level Ch 5-17 Types of Strategies (التكامل) INTEGRATION STRATEGIES (التكثیف والتشدید) INTENSIVE STRATEGIES (التنوع DIVERSIFICATION STRATEGIES والتشكیل) (الدفاع) STRATEGIES DEFENSIVE Ch

10 Types of Strategies Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration Ch 5-19 Vertical Integration Strategies Gain Control Over -- Distributors Suppliers Competitors Ch

11 Forward Integration Strategies Gain Control Over -- Distributors Retailers Customers Ch 5-21 Forward Integration Strategies Guidelines -- 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 of distribution Current distributors have high profit margins Ch

12 Backward Integration Strategies Ownership or Control -- Firm s suppliers Ch 5-23 Backward Integration Strategies Guidelines -- 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

13 Horizontal Integration Strategies Ownership or Control -- Firm s competitors Ch 5-25 Horizontal Integration Strategies Guidelines -- Gain monopolistic characteristics w/o federal government challenge Competes in growing industry Increased economies of scale major competitive advantages Faltering due to lack of managerial expertise or need for particular resource Ch

14 Types of Strategies Market Penetration Intensive Strategies Market Development Product Development Ch 5-27 Intensive Strategies Intensive Efforts -- Improve competitive position with existing products Ch

15 Market Penetration Strategies Increased Market Share -- Present products/services Present markets Greater marketing efforts Ch 5-29 Market Penetration Strategies Guidelines -- Current markets not saturated Usage rate of present customers can be increased significantly Shares of competitors declining; industry sales increasing Increased economies of scale provide major competitive advantage Ch

16 Market Development Strategies New Markets -- Present products/services to new geographic areas Ch 5-31 Market Development Strategies Guidelines -- 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 Ch

17 Product Development Strategies Increased Sales -- Improving present products/services Developing new products/services Ch 5-33 Product Development Strategies Guidelines -- Products in maturity stage of life cycle Industry characterized by rapid technological development Competitors offer better-quality comparable prices Compete in high-growth industry Strong R&D capabilities Ch

18 Types of Strategies Related Diversification Diversification Strategies Unrelated Diversification Ch 5-35 Diversification Related When their value chains posses competitively valuable cross-business strategic fits Unrelated When their value chains are so dissimilar that no competitively valuable cross-business relationships exist Ch

19 Related Diversification Preferred To Capitalize on: Transferring competitively valuable expertise Combining the related activities of separate businesses 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 Ch 5-37 Diversification Strategies Less Popular -- More difficult to manage diverse business activities However -- The greatest risk of being in a single industry is having all your eggs in one basket Ch

20 Related Diversification May be Effective When: An organization competes in a no-growth or a slow growth industry Adding new, but related, products would significantly enhance the sales of current products New, but related products could be offered at highly competitive prices Ch 5-39 Related Diversification May be Effective When: New, but related, products have seasonal sales levels that counterbalance an organization s existing peaks and valleys An organization s products are currently in the declining stage of the product s life cycle An organization has a strong management team Ch

21 Conglomerate Diversification Strategies Guidelines -- Declining annual sales & profits Capital & managerial ability to compete in new industry Financial synergy between acquired and acquiring firms Current markets for present products - saturated Ch 5-41 Unrelated Diversification Favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance Entails hunting to acquire companies: Whose assets are undervalued That are financially distressed With high growth potential but are short on investment capital Ch

22 Unrelated Diversification May be Effective When: Revenues derived from an organization s current products or services would increase by adding new unrelated products An organization competes in a highly competitive or a no growth industry An organization s current distribution channels can be used to market new products to existing customers Ch 5-43 Unrelated Diversification May be Effective When: New products have countercyclical sales patterns An organization s basic industry is experiencing declining annual sales and profits An organization has the capital and managerial talent to compete successfully in a new industry Ch

23 Unrelated Diversification May be Effective When: An organization has the opportunity to purchase an unrelated business as an attractive investment opportunity There exists financial synergy between the acquired and acquiring firm Existing markets for the present products are saturated Ch 5-45 Types of Strategies Retrenchment Defensive Strategies Divestiture Liquidation Ch

24 Retrenchment Strategies Regrouping -- Cost & asset reduction to reverse declining sales & profit Ch 5-47 Retrenchment Strategies Guidelines -- Failed to meet objectives & goals consistency; has distinctive 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 reorganization necessary Ch

25 Divestiture Strategies Selling a division or part of an organization Ch 5-49 Divestiture Strategies Guidelines -- Retrenchment failed to attain improvements Division needs more resources than are available Division responsible for firm s overall poor performance Division is a mis-fit with organization Large amount of cash is needed and cannot be raised through other sources Ch

26 Liquidation Strategies Selling Company s assets, in parts, for their tangible worth Ch 5-51 Liquidation Strategies Guidelines -- Retrenchment & divestiture failed Only alternative is bankruptcy Minimize stockholder loss by selling firm s assets Ch

27 Michael Porter s Generic Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies Ch 5-53 Ch

28 Generic Strategies Cost Leadership (Type 1 and Type 2) In conjunction with differentiation Economies or diseconomies of scale Capacity utilization achieved Linkages w/ suppliers & distributors Ch 5-55 Cost Leadership Ways of ensuring total costs across value chain are lower than competitors total costs 1. Perform value chain activities more efficiently than rivals and control factors that drive costs 2. Revamp the firm s overall value chain to eliminate or bypass some cost-producing activities Ch

29 Cost Leadership Can be especially effective when: 1. Price competition among rivals is vigorous 2. Rival s products are identical and supplies are readily available 3. There are few ways to achieve differentiation 4. Most buyers use the product in the same way 5. Buyers have low switching costs 6. Buyers are large and have significant power 7. Industry newcomers use low prices to attract buyers Ch 5-57 Generic Strategies Low Cost Producer Advantage Many price-sensitive buyers Few ways of achieving differentiation Buyers not sensitive to brand differences Large # of buyers w/bargaining power Ch

30 Generic Strategies Differentiation (Type 3) Greater product flexibility Greater compatibility Lower costs Improved service Greater convenience More features Ch 5-59 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 and competition revolves around evolving product features Ch

31 Generic Strategies Focused Strategies (Type 4 & 5) Industry segment of sufficient size Good growth potential Not crucial to success of major competitors Ch 5-61 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 crucial 3. Industry leaders consider the niche too costly or difficult to meet 4. The industry has many different niches and segments 5. Few, if any, other rivals are attempting to specialize in the same target segment Ch

32 Ch 5-63 Means for Achieving Strategies Joint Venture/Partnering - Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity Ch

33 Reasons why Mergers and Acquisitions Fail Integration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy Ch 5-65 Means for Achieving Strategies Cooperative Arrangements - R&D partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia Ch

34 Means for Achieving Strategies Why Joint Ventures Fail - Managers who must collaborate daily; not involved in developing the venture Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the partners Ch 5-67 Joint Ventures Guidelines -- Synergies between private and publicly held Domestic with foreign firm, local management can reduce risk Complementary distinctive competencies Resources & risks where project is highly profitable Two or more smaller firms competing w/larger firm Need to introduce new technology quickly Ch

35 Reasons why Mergers and Acquisitions Fail Too much diversification Managers overly focused on acquisition Too large an acquisition Difficult to integrate different organizational cultures Reduced employee moral due to layoffs and relocations Ch 5-69 Means for Achieving Strategies Mergers & Acquisitions Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers, products, creditors Ch

36 Recent Mergers Acquiring Firm IBM Philip Morris U.S. Steel Oracle OSIM International Ltd Adobe Systems US Airways United Parcel Service Acquired Firm Ascential Software PT Hanjaya Mandala Samp National Steel Corp PeopleSoft Brookstone Macromedia American West Overnight Corp. Ch 5-71 First Mover Advantages Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms Ch

37 First Mover Advantages Potential Advantages Securing access to rare resources Gaining new knowledge of key factors & issues Carving out market share Easy to defend position & costly for rival firms to overtake Ch