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PRESENTATION DATE

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First of all thanks to Allah Almighty who gave us

the spirit to complete this task, which was given

by Honorable ‘Sir Prof.Ghulam Nabi,

Chairman Dept. of Business Administration’

and thanks to our parents who supported us a

lot for all of this.

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GROUP INTRODUCTIONName of Group Members:

Wajahat Ali Ghulam (Group Leader),

Zill-e-Subhani, Majid Mehmood, Kamran Rasheed, Safdar Hussain.

Roll Nos. 01, 15, 23, 48, 83

Group NO. 01

FACULTY OF ADMINISTRATIVE SCEICNES

UNIVERSITY OF AZAD JAMMU & KASHMIR

DEPARTMENT OF BUSINESS ADMINISTRATION.

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PRESENTATION ON

• Chapter Five• Strategic

Management CONCEPTS & CASES

• Thirteenth Edition• By FRED R. DAVID

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LONG TERM OBJECTIVES

Long – Term Objective

Long – Term objectives represent the results expected from perusing certain strategies.

Strategies represent the actions to be taken to accomplish long – term objectives.

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The Nature of Long – Term Objectives

Objectives should be: - Quantitative Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent

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1). Corporate Level

2). Divisional Level

3).Functional Level

They are important measure of managerial

Performance.

Long term Objectives are Needed:

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FINANCIAL VS. STRATEGIC OBJECTIVES

Two Types of objectives are especially

common in organizations: -

1) . Financial Objectives

2) . Strategic Objectives

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1). FINANCIAL OBJECTIVES

Financial objectives include those associated with

1) Growth in revenues

2) Growth in earning

3) Higher dividends

4) Larger profit margins

5) Greater return on investment

6) Higher earning per share

7) A rising stock price

8) Improved cash cow, and so on;

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2). STRATEGIC OBJECTIVES

Strategic objectives include those associated with 1) Larger market share

2) Quicker on – time delivery than rivals

3) Shorter design-to-market than rivals

4) Lower costs than rivals

5) Higher product quality than rivals

6) Wider geographic coverage than rivals

7) Achieving technological leadership

8) Consistently getting new or improved products to markets ahead of rivals, and so on

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NOT MANAGING BY OBJECTIVES

Strategists should avoid the following

alternatives ways to “ Not managing by

Objectives”.

1). Managing by Extrapolation

2). Managing by Crisis

3). Managing by Subjectives

4). Managing by Hope

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1).Managing by Extrapolation:- Adheres to the principle

“If it isn't broke, don’t fix it.” The idea is to keep on doing

about the same things in the same ways because things

are going well.

2).Managing by Crisis:- Based on the belief that the true

measure of really good strategist is the ability to solve

problems.

3). Managing by Subjectives:- Built on the idea that there

is no general plan for which way to go and what to do; just

do the best you can accomplish what you think should be

done.

4). Managing by Hope:- Based on the fact that the future is

laden with great uncertainty and that if we try and do not

succeed, then we hope our second (or third) attempt will.

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THE BALANCED SCORECARD It is a strategy evaluation and control technique.

An effective Balanced Scorecard contains a

carefully chosen combination of strategic and

financial objectives tailored to the company's business.

A Balanced Scorecard for a firm is simply a listing

of all key objectives to work toward, along with an

associated time dimension of when each objective is to be accomplished.

It is also a primary responsibility or contact person, department, or division for each objective.

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TYPES OF STRATEGIESTypes of strategies that a enterprise could peruse

can be categorized in to 11 action: -

1) Forward Integration

2) Backward Integration

3) Horizontal Integration

4) Market Penetration

5) Market Development

6) Product Development

7) Related Diversification

8) Unrelated Diversification

9) Retrenchment

10) Divestiture

11) Liquidation.

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INTEGRATION STRATEGIESForward Integration, Backward Integration & Horizontal

Integration are sometimes collectively referred to as

integration strategies.

Vertical integration strategies allow a firm to gain control

over distributors, suppliers, and/ or competitors.

Forward Integration: -It involves gaining ownership or increased control over

distributors or retailers.

Increasing numbers of manufacturers (suppliers) today are

pursuing a forward integration strategy by establishing

Websites to directly sell products to consumers.

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Six Guidelines indicate when forward integration maybe an effective strategy: -

1. When an organization’s present distributors are especially expensive, or unreliable, or incapable of meeting the firm’s distribution needs.

2. When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward.

3. When an organization competes in an industry that isgrowing and is expected to continue to grow markedly.

4. When an organization has both the capital and human resources needed to manage the new business of distributing its own products.

5. When the advantages of stable production are particularly high.

6. When present distributors or retailers have high profit margins.

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BACKWARD INTEGRATION Both manufacturers and retailers purchase

needed material from suppliers.

Backward integration is a strategy of seeking

ownership or increased control of a firm’s

suppliers.

This strategy can be especially appropriate when a firm’s current suppliers are unreliable, too costly, or cannot meet the firm’s needs.

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Seven Guidelines indicate when backward integration maybe an effective strategy: -

1. When an organization’s present suppliers are especially expensive, or unreliable, or incapable of meeting the firm’s distribution needs for parts, components, assemblies, or raw materials.

2. When the number of suppliers is small and the number of competitors is large.

3. When an organization competes in an industry that isgrowing rapidly.

4. When an organization has both the capital and human resources needed to manage the new business of supplying its own raw materials.

5. When the advantages of stable prices are particularly important.

6. When present supplies have high profit margins.7. When an organization needs to quickly acquire a

needed resources.

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HORIZENTAL INTEGRATION Horizontal Integration refers to a

strategy of seeking ownership of or

increased control over firm’s

competitors.

Horizontal Integration is now a

significant trend in Strategic

Management.

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Five Guidelines indicate when Horizontal integration maybe an effective strategy: -

1) When an organization can gain monopolistic characteristics in a particular area or region.

2) When an organization competes in a growing industry.When increased economies of scale provide major competitive advantages.

3) When an organization has both the capital and human competitive advantages.

4) When competitors are faltering due to a lack of managerialexpertise or a need for particular resources that an organization possesses.

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INTENSIVE STRATEGIES

“Market penetration, market development,

and product development are sometimes

referred to as intensive strategies because

they require intensive efforts if a firm’s

competitive position with existing products is

to improve”.

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MARKET PENETRATION

A Market penetration strategy seeks to increase market

share for present products or services in present

market through greater marketing efforts.

A Market penetration includes increasing the number

of salespersons, increasing advertising expenditures,

offering extensive sales promotion items, or increasing

publicity efforts.

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Five Guidelines indicate when Market Penetration maybe an effective strategy: -

1). When current markets are not saturated with aparticular product or service.

2). When the usage rate of present customers could beincreased significantly.

3). When the market share of major competitors have been declining while total industry sales have beenIncreasing.

4). When the correlation between dollar sales and dollarmarketing expenditures historically has been high.When increased economics of scale provide majorcompetitive advantages.

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MARKET DEVELOPEMENT“Market development involves introducing products or services

into new geographic area.”

1).When new channels of distribution are available that are

reliable, inexpensive, and of good quality.

2).When an organization is very successful at what it does.

3).When new untapped or unsaturated at what it does.

4).When an organization has the needed capital and human

resources to mange expanded operations.

5).When an organization has excess production capacity.

6).When an organization's basic industry is rapidly becoming

global in scope.

Six Guidelines indicate when Market Development maybe an effective strategy: -

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PRODUCT DEVELOPEMENT

Product Development is a strategy that seeks

increased sales by improving or modifying present

products or services.

Product Development usually entails large research

and development expenditures.

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Six Guidelines indicate when Product Development maybe an effective strategy: -

1). When an organization has successful products thatare in the maturity stage of the product life cycle.

2). When an organization competes in an industry that is characterized by rapid technological developments.

3). When major competitors offer better-quality products at comparable prices.

4). When an organization competes in an high – growth industry.

5). When an organization has especially strong research and development capabilities.

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There are two general types of diversification strategies: -

1). Related diversification strategies

2). Unrelated diversification strategies

DIVERSIFICATION STRATEGIES

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1). Businesses are said to be related when their value chains posses competitively valuable cross – business strategic fits;

2). Businesses are said to be unrelated when their value are so dissimilar

that no competitively valuable cross – business relationship exist.

1). Related Diversification & 2). Unrelated Diversification

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1).When an organization competes in a no – growth or a slow – growth industry.

2).When adding new, nut related, products would

significantly enhance the sales or current products.

3).When new, but related, products could be offered at highly competitive prices.

4).When new, but related, products have seasonal sales levels that counterbalance an organization's existing peaks and valleys.

5).When an organization’s products are currently in the declining stage of the product’s life cycle.

6). When an organization has a strong management team.

Six Guidelines indicate for when related diversification may be an effective strategy are as follows: -

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1). When revenues derived from an organization’s current products or services would increase significantly by adding the new, related products.

2). When an organization competes in an highly competitive and/or no – growth industry.

3). When an organization’s present channels of distribution can be used to market the new products.

4).When the new products have countercyclical sales patterns compared to an organization’s products.

5). When an organization’s basic industry is experiencing declining annual sales and profits

Ten Guidelines when un - related diversification may be an especially

effective strategy are: -

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Six Guidelines indicate for when related diversification may be an effective strategy are as follows: -

6). When an organization has the capital and managerial talent needed to compete successfully in a new industry.

7). When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity.

8). When there exists financial synergy between the acquired and acquiring firm.

9). When the existing markets for an organization's present products are saturated.

10). When antitrust action could be charged against an organization that historically has

concentrated on a single industry.

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In addition to integrative, intensive, and diversificationstrategies, organizations also could pursueretrenchment, divestiture, or liquidation.

Retrenchment: -Retrenchment occurs when an organization regroupsthrough cost and asset reduction to reverse decliningsales and profits.

Sometimes called a turn round or reorganizationstrategy, retrenchment is designed to fortify anorganization’s basic distinctive competence.

DEFENSIVE STRATEGIES

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1). When an organization's has a clearly distinctive competence but has failed consistently to meet its objectives and goals over time.

2). When an organization's is one of the weaker competitors in given industry.

3). When an organization’s is plagued by inefficiently, low profitability, poor employee morale, and pressure from stockholders to improve performance.

4). When an organization has failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses overtime.

5). When an organization has grown so large so quickly that major internal reorganization is needed.

Five Guidelines indicate for when retrenchment may be an especially effective strategy are as follows: -

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Selling a division or part of an organization is called

divestiture.

Divestiture is often used to raise capital for further

strategic acquisitions or investments. Divestiture can be part of an overall retrenchment

strategy to rid an organization of business that are

unprofitable, that require too much capital, or that do

not fit well with the firm’s other activities. Divestiture has also become a popular strategy for

firms to focus on their core businesses and become

less diversified.

DIVESTITURE

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1). When an organization has pursued a retrenchment strategy and failed to accomplish needed improvements.

2). When a division needs more resources to be competitive than the company can provide.

3). When a division is responsible for an organization’s overall poor performance.

4). When a division is misfit with the rest of an organization.

5). When a large amount of cash is need quickly and cannot be obtained reasonably from other

sources.6). When Government antitrust action threatens an

organization.

Six Guidelines indicate for when Divestiture may be an especially effective strategy are as follows: -

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“Selling all of company’s assets, in parts, for their tangible worth is called liquidation.

Liquidation is a recognition of defeat and

consequently can be an emotionally

difficult strategy”.

LIQUIDATION

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1). When an organization has pursued both a

retrenchment strategy and a divestiture

strategy, and neither has been successful.

2). When an organization’s only alternative is

bankruptcy.

3). When the stakeholders of a firm can

minimize their losses by selling the

organization's assets.

Three Guidelines indicate for when Liquidation may be an especially effective strategy are as follows: -

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According to porter, strategy allow organizationsTo gain competitive advantage from three differentbases:

1). Cost leadership2). Differentiation3). Focus

Porter called these bases “Generic Strategies”.

Michael Porter’s Five Generic Strategies

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Cost leadership emphasizes producingstandardized products at a very low per –unit cost for consumers who are price –sensitive.Two alternative types of cost leadershipstrategies can defined: -1). TYPE 1 2). TYPE 2

COST LEADERSHIP

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TYPE 1 & TYPE 2

Type 1 is low cost strategy that offersproducts or services to wide range ofcustomers at the lowest price available onthe market.

Type 2 is best – value available on theMarket; the best – value strategy aims to offer customers a range of products or

services at the lowest price available compared to rival’s products with similar attributes.

TYPE 1 & TYPE 2

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Porter’s Type 3 generic strategy is

differentiation, a strategy aimed at producing

products and services considered unique

industry wide and directed at consumers

who are relatively price – insensitive.

TYPE 3 (Differentiation)

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Focus means producing products and

services that fulfill the needs of small groups

of consumers. Two alternative types of focus

strategies are: -

1). TYPE 4

2). TYPE5

FOCUSFOCUS

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Type 4 is low – cost focus strategy that offers products or services to a small group niche group) of customers at the lowest price available on the market.

Type 5 is best – value available on the market. Sometimes called “Focused Differentiation”, the best – value focus strategy aims to offer a niche group of customers products or services that meet their tastes and requirements better than rivals’ products do.

TYPE 4 & TYPE 5

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PORTERS’ GENERIC STRATEGIES

LARGE

SMALL

TYPE 1TYPE 2

TYPE 3

TYPE 4TYPE 5

TYPE 3

Cost Leadership Differentiation Focus

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A primary reason for pursuing forward, backward and

horizontal integration strategies is to gain low – cost or

best – value cost leadership benefits. But cost leadership

generally must be pursued in conjunction with differentiation.

A number of cost elements affect the relative attractiveness of generic strategies, including economics or diseconomies of the scale achieved, learning experience curve effects, the

percentage of capacity utilization achieved, and linkages with suppliers and distributors.

COST LEADERSHIP STRATEGIES (TYPE 1 & TYPE 2)

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1). When price competition among rival sellers is especially vigorous.

2).When the products of rival sellers are essentially identical and suppliers are readily available from any of several eager sellers.

3). When there are few ways to achieve product differentiation that have value to buyers.

4). When most buyers use the product in the same ways.5). When buyers incur low costs in switching their

purchases from one seller to another.6). When buyers are large and have significant power to

bargain down prices.7). When industry newcomers use introductory low prices

to attract buyers and build a customer base.

Seven Guidelines indicate for when TYPE 1 & TYPE 2 may be an especially effective strategy are as follows:

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Different strategies offer different degrees of differentiation. Differentiation does not guarantee competitive advantage, especially if standard products sufficiently meet customer needs or if rapid imitation by competitors is possible.

Durable products protected by barriers to quick copying by competitors are best. Successful differentiation can mean greater product flexibility, greater compatibility, lower costs, improved service, less maintenance, greater convenience, or more features.

DIFFERENTIATION STRATEGIES (TYPE 3)

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1). When there are many ways to differentiate the product or service and many buyers perceive these differences as having value.

2). When buyers needs and uses are diverse.

3). When few rival firms are following a similar differentiation approach.

4). When technological change is fast paced and competition revolves around rapidly evolving product features.

Four Guidelines indicate for when TYPE 3 may be an especially effective strategy are as follows:

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“A successful focus strategy depends on an industry segment tat is of sufficient size, has good growth potential, and is not crucial to the success of to other major competitors. Strategies such as market penetration and market development offer substantial

focusing advantages”.

FOCUS STRATEGY (TYPE 4 & TYPE 5)

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1).When the target market niche is large, profitable, and growing.

2). When industry leaders do not consider the niche to be crucial to their own success.

3). When an industry leaders consider it too difficult to meet the specialized needs of target market niche while taking care of their mainstream customers.

4). When the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources.

5). When few, if any, other rivals are attempting to specialize in the same target segment.

Four Guidelines indicate for when TYPE 4 & TYPE 5 may be an especially effective strategy are as follows:

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The World is changing more and more rapidly, andconsequently industries and firms themselves are changingfaster than ever.

Some industries are changing so fast that researchers callthem turbulent, high – velocity markets, such astelecommunications, medical, biotechnology,pharmaceuticals, computer hardware, software, andvirtually all internet based industries.

Strategies for competing in Turbulent, High – Velocity Markets

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Strategy that stress cooperation among competitors are

being used more. 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.

Means For Achieving StrategiesCooperation Among Competitors

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Joint venture is 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.

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1). Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture.

2). The Venture may benefit the partnering companies but may not benefit customers, who then complain about poorer service or criticize that companies in other ways.

3). The venture may not be supported equally by both partners. If supported unequally, problem arise.

4). The venture may begin to compete more with one of the partners than the other.

A few common problems that cause joint ventures to fail are as follows:

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1).When a private owned organization is forming a joint

venture with a publicity owned organization; there are some advantages to being privately held, such as closed

ownership.

2). When a domestic organization is forming a joint venture with a foreign company.

3). When the distinct competencies of two or more firms complement each other especially well.

4). When the project is potentially very profitable but requires overwhelming resources and risks.

5). When two or more smaller firms have trouble competing with a large firm.

6). When there exists a need to quickly introduce a new technology.

Six Guidelines indicate for when Joint Venture may be an especially effective means for pursuing strategies:

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Merger and acquisition are two commonly used ways to

pursue strategies .A merger occurs when two 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.

MERGER/AQUISTION

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First mover advantage refer the benefits a firm may

achieve by entering a new market or developing a new

product or service prior to rival firms.

Strategic management research indicates that first mover

advantage tend to be greatest when competitors are

roughly than same size and possess similar resources.

FIRST MOVER ADVANTAGES

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Business – process outsourcing (BPO) is 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.

OUTSOURCING

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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.

Other advantages of outsourcing are that the strategy:

1). Allows the firm to align itself with “Best – in – World”.

Suppliers who focus on performing the special task.

2). Provides the firm flexibility should customer needs shift unexpectedly.

3). Allows the firm to concentrate on other internal value chain activities critical to sustaining competitive advantage.

Companies are choosing to outsource their functionaloperations more and more for several reasons: -

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