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Chapter 5:
Strategies in Action
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Comprehensive Strategic Management Model
Vision &
MissionStatements
Chapter 2
ExternalAudit
Chapter 3
InternalAudit
Chapter 4
Strategies In
Action
Chapter 5
Generate,Evaluate,
SelectStrategies
Chapter 6
ImplementStrategies:
Mgmt Issues
Chapter 7
ImplementStrategies:Marketing,Fin/Acct,R&D, CISChapter 8
Measure &Evaluate
Performance
Chapter 9
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Strategies in Action
“Planning. Doing things today to make us better tomorrow. Because the future belongs to those who make the hard decisions today.”
—Eaton Corporation—
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Strategies in Action
“If you don’t invest for the long term, there is no short term.”
—George David—
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Strategies in Action
“Innovate or evaporate. Particularly in technology-driven businesses, nothing quite recedes like success.”
—Bill Saporito—
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Strategies in Action
LongLong--Term Objectives:Term Objectives:
Results expected from pursuing certain strategies
Time frame —2 to 5 years
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Strategies in Action
Nature of LongNature of Long--Term ObjectivesTerm Objectives
QuantitativeMeasurableRealisticUnderstandableChallengingHierarchicalObtainableCongruent among organizational units
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Strategies in Action
Nature of LongNature of Long--Term Objectives Term Objectives (Cont(Cont’’d)d)
Objectives are associated with a time line and stated in terms:• Growth in assets• Growth in sales• Profitability• Market share• Diversification• Integration• EPS• Social responsibility
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Strategies in Action
Nature of LongNature of Long--Term Objectives Term Objectives (Cont(Cont’’d)d)
Objectives are the basis for:
• Designing jobs• Organizing activities• Providing direction• Organizational synergy• Standards for evaluation
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Strategies in Action
Nature of LongNature of Long--Term Objectives (ContTerm Objectives (Cont’’d)d)
Strategists should avoid:
• Managing by extrapolation“If it ain’t broke, don’t fix it.”
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Strategies in Action
Nature of LongNature of Long--Term Objectives (ContTerm Objectives (Cont’’d)d)
Strategists should avoid:
• Managing by crisis:Reactive vs. proactive
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Strategies in Action
Nature of LongNature of Long--Term Objectives (ContTerm Objectives (Cont’’d)d)
Strategists should avoid:
• Managing by subjectives:Mystery approach to decision making
Subordinates are left to figure out what is happening and why
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Strategies in Action
Nature of LongNature of Long--Term Objectives (ContTerm Objectives (Cont’’d)d)
Strategists should avoid:
• Managing by hope:Good times are just around the corner
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Strategies in ActionStrategies in Action
Vertical Integration StrategiesVertical Integration Strategies
• Forward integration• Backward integration• Horizontal integration
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Strategies in ActionStrategies in Action
DefinedDefined
• Gaining ownership or increased control over distributors or retailers
ExampleExample
• General Motors is acquiring 10% of its dealers.
Forward Forward IntegrationIntegration
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Strategies in Action
Guidelines for Forward IntegrationGuidelines for Forward Integration
Present distributors are expensive, unreliable, or incapable of meeting firm’s needsAvailability of quality distributors is limitedWhen firm competes in an industry that is expected to grow markedlyAdvantages of stable production are highPresent distributor have high profit margins
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Strategies in ActionStrategies in Action
DefinedDefined
• Seeking ownership or increased control of a firm’s suppliers
ExampleExample
• Motel 8 acquired a furniture manufacturer.
Backward Backward IntegrationIntegration
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Strategies in Action
Guidelines for Backward IntegrationGuidelines for Backward Integration
When present suppliers are expensive, unreliable, or incapable of meeting needsNumber of suppliers is small and number of competitors largeHigh growth in industry sectorFirm has both capital and human resources to manage new businessAdvantages of stable prices are importantPresent supplies have high profit margins
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Strategies in ActionStrategies in Action
Horizontal Horizontal IntegrationIntegration
ExampleExample
• Hilton recently acquired Promus.
DefinedDefined
• Seeking ownership or increased control over competitors
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Strategies in Action
Guidelines for Horizontal IntegrationGuidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by federal governmentCompetes in growing industryIncreased economies of scale provide major competitive advantagesFaltering due to lack of managerial expertise or need for particular resources
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Strategies in ActionStrategies in Action
Intensive StrategiesIntensive Strategies
• Market penetration• Market development• Product development
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Strategies in ActionStrategies in Action
DefinedDefined
• Seeking increased market share for present products or services in present markets through greater marketing efforts
ExampleExample
• Ameritrade, the on-line broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions.
Market Market PenetrationPenetration
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Strategies in Action
Guidelines for Market PenetrationGuidelines for Market Penetration
Current markets not saturatedUsage rate of present customers can be increased significantlyMarket shares of competitors declining while total industry sales increasingIncreased economies of scale provide major competitive advantages
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Strategies in ActionStrategies in Action
DefinedDefined
• Introducing present products or services into new geographic area
ExampleExample
• Britain’s leading supplier of buses, Henlys PLC, acquires Blue Bird Corp. North America’s leading school bus maker.
Market Market DevelopmentDevelopment
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Strategies in Action
Guidelines for Market DevelopmentGuidelines for Market Development
New channels of distribution that are reliable, inexpensive, and good qualityFirm is very successful at what it doesUntapped or unsaturated marketsCapital and human resources necessary to manage expanded operationsExcess production capacityBasic industry rapidly becoming global
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Strategies in ActionStrategies in Action
DefinedDefined
• Seeking increased sales by improving present products or services or developing new ones
ExampleExample
• Apple developed the G4 chip that runs at 500 megahertz.
Product Product DevelopmentDevelopment
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Strategies in Action
Guidelines for Product DevelopmentGuidelines for Product Development
Products in maturity stage of life cycleCompetes in industry characterized by rapid technological developmentsMajor competitors offer better-quality products at comparable pricesCompete in high-growth industryStrong research and development capabilities
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Strategies in ActionStrategies in Action
Diversification StrategiesDiversification Strategies
• Concentric diversification• Conglomerate diversification• Horizontal diversification
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Strategies in ActionStrategies in Action
DefinedDefined
• Adding new, but related, products or services
ExampleExample
• National WestministerBank PLC in Britain bought the leading British insurance company, Legal & General Group PLC.
Concentric Concentric DiversificationDiversification
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Strategies in Action
Guidelines for Concentric DiversificationGuidelines for Concentric Diversification
Competes in no- or slow-growth industryAdding new & related products increases sales of current productsNew & related products offered at competitive pricesCurrent products are in decline stage of the product life cycleStrong management team
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Strategies in ActionStrategies in Action
DefinedDefined
• Adding new, unrelated products or services
ExampleExample
• H&R Block, the top tax preparation agency, said it will buy discount stock brokerage OldeFinancial for $850 million in cash.
Conglomerate Conglomerate DiversificationDiversification
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Strategies in Action
Guidelines for Conglomerate DiversificationGuidelines for Conglomerate Diversification
Declining annual sales and profitsCapital and managerial talent to compete successfully in a new industryFinancial synergy between the acquired and acquiring firmsExiting markets for present products are saturated
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Strategies in ActionStrategies in Action
DefinedDefined
• Adding new, unrelated products or services for present customers
ExampleExample
• The New York Yankees baseball team are merging with the New Jersey Nets basketball team.
Horizontal Horizontal DiversificationDiversification
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Strategies in Action
Guidelines for Horizontal DiversificationGuidelines for Horizontal Diversification
Revenues from current products/services would increase significantly by adding the new unrelated productsHighly competitive and/or no-growth industry w/low margins and returnsPresent distribution channels can be used to market new products to current customersNew products have counter cyclical sales patterns compared to existing products
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Strategies in ActionStrategies in Action
Defensive StrategiesDefensive Strategies
• Joint venture• Retrenchment• Divestiture• Liquidation
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Strategies in ActionStrategies in Action
DefinedDefined
• Two or more sponsoring firms forming a separate organization for cooperative purposes
ExampleExample
• Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones.
Joint VentureJoint Venture
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Strategies in Action
Guidelines for Joint VentureGuidelines for Joint Venture
Combination of privately held and publicly held can be synergistically combinedDomestic forms joint venture with foreign firm, can obtain local management to reduce certain risksDistinctive competencies of two or more firms are complementaryOverwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline)Two or more smaller firms have trouble competing with larger firmA need exists to introduce a new technology quickly
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Strategies in ActionStrategies in Action
DefinedDefined
• Regrouping through cost and asset reduction to reverse declining sales and profit
ExampleExample
• Singer, the sewing machine company, declared bankruptcy.
RetrenchmentRetrenchment
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Strategies in Action
Guidelines for RetrenchmentGuidelines for Retrenchment
Firm has failed to meet its objectives and goals consistently over time but has distinctive competenciesFirm is one of the weaker competitorsInefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.When an organization’s strategic managers have failedVery quick growth to large organization where a major internal reorganization is needed.
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Strategies in ActionStrategies in Action
DefinedDefined
• Selling a division or part of an organization
ExampleExample
• Harcourt General, the large US publisher, is selling its Neiman Marcus division.
DivestitureDivestiture
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Strategies in Action
Guidelines for DivestitureGuidelines for Divestiture
When firm has pursued retrenchment but failed to attain needed improvementsWhen a division needs more resources than the firm can provideWhen a division is responsible for the firm’s overall poor performanceWhen a division is a misfit with the organizationWhen a large amount of cash is needed and cannot be obtained from other sources.
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Strategies in ActionStrategies in Action
DefinedDefined
• Selling all of a company’s assets, in parts, for their tangible worth
ExampleExample
• Ribol sold all its assets and ceased business.
LiquidationLiquidation
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Strategies in Action
Guidelines for LiquidationGuidelines for Liquidation
When both retrenchment and divestiture have been pursued unsuccessfullyIf the only alternative is bankruptcy, liquidation is an orderly alternativeWhen stockholders can minimize their losses by selling the firm’s assets
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Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies