Chapter 5

STRATEGIES IN ACTION

Lecturer: Dr. Long Nguyen

Slides prepared by: My Pham (MSc)
Outlines

1 The Balanced Scorecard

2 Levels of Strategies

3 Types of Strategies
Long-term Objectives

❖ Long-term objectives are specific goals that an organization or

business aims to achieve over an extended period. Strategies
represent the actions to be taken to accomplish long-term
objectives.

❖ Characteristics:

❑ Specific ❑ Achievable

❑ Measurable ❑ Time-bound

❑ Alignment ❑ Flexible
Financial objectives and Strategic Objectives

❖ Financial objectives: growth in revenues, growth in earnings,

higher dividends, larger profit margins, greater return on
investment, higher earning per share…

❖ Strategic objectives: a larger market share, higher product

quality, lower costs than rivals, higher customer satisfaction…

-> How to balance and integrate Financial and Strategic

objectives?
1. The Balanced Scorecard

Robert Kaplan & David Norton

◼Strategy evaluation & control technique

◼Balance financial measures with nonfinancial
measures
◼Balance shareholder objectives with customer &
operational objectives
1. The Balanced Scorecard
2.1. Levels of Strategies – Large Company
2.2. Levels of Strategies – Small Company
3. Types of strategies

❖ A corporation’s strategy is composed of two general

orientations:
■ Growth strategies: expand the company’s activities.
■ Defensive strategies: reduce the company’s level of
activities.
❖ Growth strategies: A corporation can grow internally by
expanding its operations both globally and domestically, or
it can grow externally through mergers, acquisitions, and
strategic alliances.
❖ Defensive strategies: used to protect a corporation’s
market position, maintain competitive advantage, and
minimize risks.
3. Types of strategies

Growth
Strategies

Intensive Integration Diversification

Strategies Strategies Strategies

Market Market Product Vertical Horizontal

Related Unrelated
Penetration Development Development Integration Integration

Defensive
Strategies

Retrenchment Divestiture Liquidation

3.1. Intensive Strategies

❖ Characteristics: Focus on achieving concentrated growth

within a specific industry.
❖ Advantages:
❑ Resource concentration
❑ Enhanced competitive position
❖ Disadvantages: High risk, especially in industries with
uncertain growth.
3.1. Intensive Strategies

◼ Ansoff Matrix
Product
Current New
Current

Market Penetration Product Development

Market
New

Market Development Diversification

3.1. Intensive Strategies

Seeking increased market share for

Market present products or services in
Penetration present markets through greater
marketing efforts

Copyright © 2011 Ch 5 -13

Market Pearson Introducing present products or
Education, Inc.
Development
Publishing as
services into new geographic areas
Prentice Hall

Seeking increased sales by improving

Product
present products or services or
Development developing new ones
3.1.1. Market Penetration

When?
• The current markets are not saturated
• The usage rate of present customers could be increased
• The market shares of major competitors declines while total
industry sales increases.
• The correlation between dollar sales and dollar marketing
expenditures historically has been high.
How?
• Sales commission
• Advertising + Promotion
• Sales discounts
3.1.2. Market Development

When?
• New channels of distribution are available
• New untapped or unsaturated markets exist.
• An organization has the needed capital and human resources to
manage expanded operations.
• An organization has excess production capacity.
How?
• New market research
• Create and stimulate demand
• Enhance product awareness
3.1.3. Product Development

When?
• An organization has successful products that are in the maturity
stage of the product life cycle
• An organization competes in an industry that is charaterized by
rapid technological developments.
• Competitors offer better-quality products at comparable prices.
How?
• Understand customer’s needs
• Improve or design new products
• Introduce & promote new products
Group Discussion

If a company has 1 million

USD to implement a new
strategy and they are
considering between market
development and product
development, what
determining factors should be
considered?
3.2. Integration strategies

Vertical Integration - taking over the function previously

provided by a supplier or by a distributor
❖ Backward integration- assuming a function previously
provided by a supplier
❖ Forward integration- assuming a function previously
provided by a distributor
❖ Full integration- a firm internally makes 100% of its
key supplies and completely controls its distributors
3.2.1. Vertical Integration Strategies

Forward Integration
Pros:
▪Reduce the threats from customers
▪Increase marketing activities
Cons: Resources are spread.
When?
• The present distributors are expensive, or unreliable, or incapable
of meeting the firm’s distribution needs.
• The availability of quality distributors is so limited.
• Present distributors or retailers have high profit margins.
• An organization has both the capital and human resources to
manage a retailer company.
3.2.1 Vertical Integration Strategies

Backward Integration
Pros:
▪Coordinate input activities, better operation.
▪Reduce the pressure of suppliers, keep technological
secret.
Cons:
▪Loss the opportunity to choose good suppliers.
▪Resources are spread.
When?
• The current suppliers are expensive, or unreliable, or incapable
of meeting the company’s needs.
• Small number of suppliers and large number of competitors
• The current suppliers have high profit margins.
• The company has enough capital and human resources to
manage the suppliers company.
3.2.2. Horizontal Integration Strategies

Horizontal integration - involves acquiring, merging with, or

taking over competitors operating at the same level of the supply
chain.
Advantages:
❖ Consolidate market position
❖ Increase market share
❖ Reduce competition
❖ Economies of scales
❖ Market entry
 3.2.2. Horizontal Integration Strategies

• Merge & • Merge &

Acquisition Acquisition
Other Firms
•
(M&A) Your Firm (M&A) Other Firms
Joint • Joint
Ventures Ventures

Merge: Firm 1 + Firm 2 = Firm 3 (New Firm)

Acquisition: Firm 1 + Firm 2 = Firm 2 ( Sharks)
Joint Ventures: A part of Firm 1+ A part of Firm 2 = Firm 3
3.3. Diversification Strategies

Diversification strategies - essentially involve expanding

into new business areas or units with the aim of becoming
a corporation.

Related/Concentric
Copyright © 2011 Ch 5 -23 Adding new but related
Pearson
Diversification
Education, Inc. products or services
Publishing as
Prentice Hall

Unrelated/Conglomerate
Adding new, unrelated
Diversification
products or services
3.3.1. Related Diversification Strategies

Related Diversification
Pros:
▪Economics of Scale, Supportive products
▪Lower risks
Cons:
▪Scope of business sections is smaller compare to the
conglomerate diversification
▪Resources are spread.
When?
• Current industry shows no-growth or a slow-growth
• Adding newly related products -> enhance the sales of current
products
• The new, but related, products have seasonal sales levels that
counterbalance an organization’s existing peaks and valleys.
• An organization has a strong management team.
3.3.2. Unrelated Diversification Strategies

Unrelated Diversification
Pros:
▪can join to the new profitable business sections.
Cons:
▪Lack of management ability of the new industry ->
High risks
▪Resources are seriously spread.
When?
• An organization has the opportunity to purchase an attractive
unrelated business
• An organization has the capital and managerial talent needed to
compete successfully in a new industry
• An organization’s present channels of distribution can be utilized
for new products
3.4. Defensive strategies

❖ Defensive Strategies - used when the firm has a weak

competitive position in some or all of its product lines from
poor performance
❖ Main reasons for business downturn
❑ Poor management
❑ High competition
❑ Expanding business beyond control
❑ Economics Recession
3.4. Defensive strategies

Regrouping through cost and

Retrenchment asset reduction to reverse
declining sales and profit

Copyright © 2011 Ch 5 -27

Divestiture
Pearson Selling a division or part of an
Education, Inc.
Publishing as
organization
Prentice Hall

Selling all of a company’s assets,

Liquidation
in parts, for their tangible worth
3.5. Porter’s Five Generic Strategies

❖ Type 1 Cost Leadership – Low cost

❖ Type 2 Cost Leadership – Best value
❖ Type 3 Differentiation
❖ Type 4 Focus – Low cost
❖ Type 5 Focus – Best value
3.5. Porter’s Five Generic Strategies
3.5.1. Cost Leadership Strategy

❖ Characteristics: Create products and services with the

lowest cost in the industry.
❖ Advantages:
❑ Implement competitive strategy with better price.
❑ Withstand pressures from increase price of suppliers.
❖ Disadvantages:
❑ Opponents can copy the production methods.
❑ Do not meet the changes in customer demand.
3.5.2. Differentiation Strategy

❖ Characteristics: Create unique products and services that

competitors cannot have. Required a strong marketing and
advertising ability.
❖ Advantages:
❑ Create barriers against competitive forces (customers
and potential competitors ...).
❖ Disadvantages:
❑ Competitors are capable of copying designs and
packaging.
❑ High R&D costs to keep competitive advantage.
3.5.3 Cost/ Differentiation Focus Strategies

❖ Characteristics: focus on advantages of cost or

differentiation but only in a niche market segment.
❖ Advantages:
❑ Consistent with the limited resources of small
companies
❑ Capture demand and fulfil customer need better than
Differentiation strategies
❖ Disadvantages:
❑ High cost, low profit due to small segmentation.
3.5. Porter’s Generic Strategies