Strategic ManagementModule 2 – MG University

Prepared By

Kindly restrict the use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations.

Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Contents

• Business level strategies.– Cost leadership, Differentiation, Focus.

• Corporate level strategies.– Stability strategies.– Expansion strategies – Intensification, Integration,

International expansion.– Diversification stratégies, Merger, Acquisitions,

Strategic alliance.– Turnaround strategies

Corporate Level Strategies

Intensification strategies

Market penetration

• Market penetration involves trying to gain additional share of a firm’s existing markets using existing products. Often firms will rely on advertising to attract new customers with existing markets.

Examples of Market penetration

• Nike features famous athletes in print and television ads designed to take market share within the athletic shoes business from Adidas and other rivals.

Examples of Market penetration• McDonald’s has pursued

market penetration in recent years by using Latino themes within some of its advertising. The firm also maintains a Spanish-language website at http://www.meencanta.com; the website’s name is the Spanish translation of McDonald’s slogan “I’m lovin’ it.” McDonald’s hopes to gain more Latino customers through initiatives such as this website.

Market Development

• Market development

involves taking existing

products and trying to

sell them within new

markets.

Examples of Market Development

• One way to reach a new market is

to enter a new retail channel.

Starbucks has stepped beyond

selling coffee beans only in its stores

and now sells beans in grocery

stores. This enables Starbucks to

reach consumers that do not visit its

coffeehouses.

Examples of Market Development

• Entering new geographic areas is another

way to pursue market development.

Philadelphia-based Tasty Baking Company

has sold its Tastykake snack cakes since

1914 within Pennsylvania and adjoining

states. Now it is extensively distributing

Tastykake’s products within the

southeastern United States. Displaced

Pennsylvanians in the south rejoiced.

Product Development

• Product development

involves creating new

products to serve

existing markets.

Examples of Product Development

• In the 1940s, for example,

Disney expanded its offerings

within the film business by

going beyond cartoons and

creating movie featuring real

actors.

Examples of Product Development

• Coca-Cola and Pepsi regularly

introduce new varieties—such

as Coke Zero and Pepsi Cherry

Vanilla—in an attempt to take

market share from each other

and from their smaller rivals.

Integration strategies

Vertical Integration

• When pursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.

Examples of Vertical Integration

• Oil companies like ConocoPhillips can be involved in all stages of the value chain, including crude oil exploration, drilling for oil, shipping oil to refineries, refining crude oil into products such as gasoline, distributing fuel to gas stations, and operating gas stations.

Forward Integration

• When pursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.

Examples of Forward Integration

• Disney has pursued forward vertical integration by operating more than three hundred retail stores that sell merchandise based on Disney’s characters and movies. This allows Disney to capture profits that would otherwise be enjoyed by another store.

Backward Integration

• When pursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. This approach can be very attractive when a firm’s suppliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expense.

Examples of Backward Integration

• Ford Motor Company created subsidiaries that provided key inputs to vehicles such as rubber, glass, and metal. This approach ensured that Ford would not be hurt by suppliers holding out for higher prices or providing materials of inferior quality.

Horizontal Integration

• It is a type of integration strategies pursued by a company in order to strengthen its position in the industry. A corporate that implements this type of strategy usually mergers or acquires another company that is in the same production stage.

Example of Horizontal Integration

• One example of horizontal integration is what happened between the infamous Daimler Benz and Chrysler merger (car developing, manufacturing and retailing).

Acquisition

• An acquisition takes place when one company purchases another company. Generally, the acquired company is smaller than the firm that purchases it.

Examples of Acquisition

• Disney was much bigger than Miramax and Pixar when it joined with these firms in 1993 and 2006, respectively, thus these two horizontal integration moves are considered to be acquisitions.

Merger• A merger is a combination

of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash or both the organization are dissolved and the assets and liabilities are combined and new stock is issued.

Examples of Merger• Big oil got even bigger in

1999, when Exxon and Mobil signed a $81 billion agreement to merge and form Exxon Mobil. ExxonMobil remains the strongest leader in the oil market, with a huge hold on the international market and dramatic earnings.

Strategic Alliance

• A strategic alliance is a

cooperative arrangement

between two or more

organizations that does

not involve the creation

of a new entity.

Examples of Strategic Alliance

• In June 2011,Twitter

announced the formation of

a strategic alliance with

Yahoo! Japan. The alliance

involves relevant Tweets

appearing within various

functions offered by Yahoo!

Japan.

Diversification strategies

• Firms using diversification

strategies enter entirely new

industries. While vertical

integration involves a firm

moving into a new part of a

value chain that it is already is

within, diversification requires

moving into new value chains.

Examples of Diversification strategies

• Avon's move to market

jewellery through its

door-to-door sales force

involved marketing new

products through

existing channels of

distribution.

Diversification strategies

Concentric Diversification• When an organization takes up

an activity in such a manner

that is related to the existing

business definition of one or

more of firms businesses, either

in terms of customer groups,

customer’s functions or

alternative technologies, it is

called concentric diversification.

Example of Concentric Diversification

• The addition of tomato

ketchup and sauce to the

existing "Maggi" brand

processed items of Food

Specialities Ltd. is an

example of technological-

related concentric

diversification

Conglomerate Diversification• When an organization adopts a

strategy which requires taking of

those activities which are unrelated

to the existing businesses definition

of one or more of its businesses

either in terms of their respective

customer groups, customer functions

or alternative technologies, it is called

conglomerate diversification.

Examples of Conglomerate Diversification

• Example of Indian company which have adopted apart of growth and expansion through conglomerate diversification the classic examples is of ITC, a cigarette company diversifying into the hotel industry.

International Expansion

Export

• Exporting is an effective entry strategy for companies that are just beginning to enter a new foreign market. It’s a low-cost, low-risk option compared to the other strategies.

Imports

• Importing is the flipside of exporting. Importing refers to buying goods and services from foreign sources and bringing them back into the home country.

LicensingLicensing is another way to enter a foreign market with a limited degree of risk. Under international Licensing, a firm in one country permits a firm in another country to use its intellectual property( Patents, trade marks etc).

Example of Licensing

• Examples of licenses

include a company using

the design of a popular

character, e.g. Mickey

Mouse, on their

products.

FranchisingFranchising is a business model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues.

Example of Franchise

• Examples of franchises

include McDonalds,

Subway, 7-11 and Dunkin

Donuts.

Joint Ventures

An equity joint venture is

a contractual, strategic

partnership between two

or more separate

business entities to

pursue a business

opportunity together.

Example of Joint Ventures

Sony-Ericsson is a joint

venture by the Japanese

consumer electronics

company Sony Corporation

and the Swedish

telecommunications

company Ericsson to make

mobile phones.

Stability strategies

Stability strategies

Stability strategy is a

strategy in which the

organization retains its

present strategy at the

corporate level and

continues focusing on its

present products and

markets.

Examples of Stability strategiesSteel Authority of India has

adopted stability strategy

because of over capacity in steel

sector. Instead it has

concentrated on increasing

operational efficiency of its

various plants rather than going

for expansion. Others industries

are ‘heavy commercial vehicle’,

‘coal industry’.

Examples of Stability strategiesCigarette, liquor industries

fall in this category because

of strict control over

capacity expansion. Both

these industries require

license under the provisions

of Industries (Development

and regulations) Act, 1951.

Pause/ Proceed with Caution Strategy

It is employed by the firm

that wish to test the ground

before moving ahead with a

full fledged grand strategy,

or by firms that have an

intense pace of expansion

and wish to rest for a while

before moving ahead

Example• In the India shoe market

dominated by Bata and Liberty, Hindustan Levers better known for soaps and detergents, produces substantial quantity of shoes and shoe uppers for the export market. In late 2000, it started selling a few thousand pairs in the cities to find out the market reaction. This is a pause proceed with caution strategy before it goes full steam into another FMCG sector that has a lot of potential

No-Change StrategyIt is a conscious decision to

do nothing new. The firm

will continue with its

present business definition.

When a firm has a stable

internal and external

environment the firm will

continue with its present

strategy.

Profit Strategy• A profit strategy is one that

capitalizes on a situation in which old

and obsolete product or technology

is being replaced by a new one. This

type of strategy does not require

new investment, so it is not a growth

strategy. Firms adopting this strategy

decide to follow the same

technology, at least partially, while

transiting into new technological

domains.

Examples of Profit Strategy

• Sylvania, RCA, and GE are

among the firms that

followed this strategy. They

decided to stay in the

vacuum tube market until

the “end of the game.”

Retrenchment Strategies

Retrenchment strategy• A retrenchment grand strategy is

followed when an organization

aims at a contraction of its activities

through substantial reduction or

the elimination of the scope of one

or more of its businesses in terms

of their respective customer

groups, customer functions, or

alternative technologies either

singly or jointly in order to improve

its overall performance.

Examples of Retrenchment strategy• General Motors of the

United States stopped

producing a number of

"makes" of automobile. GM

decided that it needed to

retrench by concentrating on

just a few "makes." It hoped

this would help it return to

profitability.

Turnaround strategies• Turn around strategies derives

their name from the action

involved that is reversing a

negative trend. There are certain

conditions or indicators which

point out that a turnaround is

needed for an organization to

survive. An organization which

faces one or more of these issues

is referred to as a ‘sick’ company.

Turnaround strategies• There are three ways in which

turnarounds can be managed– The existing chief executive and

management team handles the entire turnaround strategy with the advisory support of a external consultant.

– In another case the existing team withdraws temporarily and an executive consultant or turnaround specialist is employed to do the job.

– The last method involves the replacement of the existing team specially the chief executive, or merging the sick organization with a healthy one.

Examples of Turnaround strategies• Xerox revealed a Turnaround

Programme in December 2000, which included cutting $1 billion in costs, and raising up to $4 billion through the sale of assets, exiting non-core businesses and lay-offs. Subsequently, in August 2001, Mulcahy was made CEO. Xerox continued to report losses in 2001, but it returned to profit in 2002 and continued to report profits in 2003.

Divestment strategy

• A divestment strategy

involves the sale or

liquidation of a portion of

business, or a major

division.

Divestment strategy

• TATA group is a highly diversified entity

with a range of businesses under its

fold. They identified their non – core

businesses for divestment. TOMCO was

divested and sold to Hindustan Levers as

soaps and a detergent was not

considered a core business for the Tatas.

Liquidation Strategy• A retrenchment strategy which

is considered the most extreme and unattractive is the liquidation strategy, which involves closing down a firm and selling its assets. It is considered as the last resort because it leads to serious consequences such as loss of employment for workers and other employees, termination of opportunities where a firm could pursue any future activities and the stigma of failure.

Examples of Liquidation Strategy

• JC Penney recently sold its

Eckerd chain of drugstores to

focus on the corporation’s core

business of department stores

and Internet and catalog sales.

Studies show that between 33

per cent and 50 per cent of all

acquisitions are later divested.

Business Level Strategies

Business Level Strategies

• Business-level strategy

addresses the question of

how a firm will compete

in a particular industry.

• It is a general way of

positioning a firm within

an industry.

Business Level Strategies

Competitive dimensions• According to Porter, two

competitive dimensions are the keys to business-level strategy.

• The first dimension is a firm’s source of competitive advantage.

• The second dimension is firms’ scope of operations.

Cost Leadership• Perhaps the most famous

cost leader is Walmart, which has used a cost leadership strategy to become the largest company in the world.

• The firm’s advertising slogans such as “Always Low Prices” and “Save Money. Live Better” communicate Walmart’s emphasis on price slashing to potential customers.

Common characteristics

• The ability to charge low prices and still make a profit is challenging.

• Cost leaders manage to do so by emphasizing efficiency.

• As part of the effort to be efficient, most cost leaders spend little on advertising, market research, or research and development.

• Many cost leaders rely on economies of scale to achieve efficiency. Economies of scale are created by selling more items.

Examples of Cost leadership

• McDonald's - McDonald's has been extremely successful with this strategy by offering basic fast-food meals at low prices. They are able to keep prices low through a division of labor that allows it to hire and train inexperienced employees rather than trained cooks.

Examples of Cost leadership

• Ikea -The Swedish furniture retailer Ikea revolutionized the furniture industry by offering cheap but stylish furniture. Ikea is able to keep its prices low by sourcing its products in low-wage countries and by offering a very basic level of service.

Examples of Cost leadership

• Southwest Airlines - Southwest attempts to offer the lowest prices possible by being more efficient than traditional airlines. They minimize the time that their planes spend on the tarmac in order to keep them flying and to keep profits up.

Differentiation

• A firm following a

differentiation strategy

attempts to convince

customers to pay a premium

price for its good or services

by providing unique and

desirable features.

Examples of Differentiation

• Apple - Steve Jobs said this about the difference between Dell and Apple: Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart. We make it by innovation.

Examples of Differentiation

Examples of Differentiation

Examples of Differentiation

Focused cost leadership strategy• A focused cost leadership strategy

requires competing based on

price to target a narrow market.

• A firm that follows this strategy

does not necessarily charge the

lowest prices in the industry.

Instead, it charges low prices

relative to other firms that

compete within the target market.

Examples of Focused cost leadership

Redbox uses vending machines placed outside grocery stores and other retail outlets to rent DVDs of movies for $1.

Focused Differentiation strategy• A focused differentiation

strategy requires offering

unique features that fulfill the

demands of a narrow market.

• Some firms using a focused

differentiation strategy

concentrate their efforts on a

particular sales channel, such as

selling over the Internet only.

Examples of Focused Differentiation

The dedication of Mercedes-Benz to cutting-edge technology, styling, and safety innovations has made the firm’s vehicles prized by those who are rich

enough to afford them.