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Strategic Management chap05
The document discusses various long-term strategic objectives and measurable goals for organizations, highlighting the importance of financial and strategic objectives related to growth, market share, and profitability. It presents different integration strategies such as forward, backward, and horizontal integration, along with guidelines for market penetration, product development, and diversification. Additionally, the document outlines different competitive strategies, including cost leadership, differentiation, and focus strategies, along with the conditions under which each strategy is most effective.
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Strategic Management chap05
- 1.
- 2. Results expected frompursuing certain strategies Time frame — 2 to 5 years Nature of Long-Term Objectives • Quantitative • Measurable • Realistic • Understandable • Challenging • Hierarchical • Obtainable • Congruent among organizational units
- 3. Objectives are associatedwith a time line and stated in terms: • Growth in assets • Growth in sales • Profitability • Market share • Diversification • Integration • EPS • Social responsibility
- 4. Financial Objectives • Growthin revenues • Growth in earnings • Higher dividends • Higher profit margins • Higher earnings per share • Improved cash flow 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
- 5. Trade-Off • Maximize short-termfinancial 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
- 6. 1. Managing byextrapolation “If it ain’t broke, don’t fix it.” 2. Managing by crisis: Reactive vs. proactive 3. Managing by subjective: Mystery approach to decision making • Subordinates are left to figure out what is happening and why 4. Managing by hope: Good times are just around the corner
- 7. Companies Embrace StrategicPlanning • Quest for higher revenues • Quest for higher profits
- 8. Company Level Functional Level Operational Level ASmall Company
- 9. Corp Level Division Level Functional Level OperationalLevel A Large Company
- 12. Defined Gaining ownership orincreased control over distributors or retailers Example General Motors is acquiring 10% of its dealers. Guidelines for Forward Integration • Present distributors are expensive, unreliable, or incapable of meeting firm’s needs • Availability of quality distributors is limited • When firm competes in an industry that is expected to grow markedly • Present distributor have high profit margins
- 13. Defined Seeking ownership orincreased control of a firm’s suppliers Example Motel 8 acquired a furniture manufacturer. Guidelines for Backward Integration • When present suppliers are expensive, unreliable, or incapable of meeting needs • Number of suppliers is small and number of competitors large • High growth in industry sector • Firm has both capital and human resources to manage new business • Present supplies have high profit margins
- 14. Defined Seeking ownership orincreased control over competitors Example Hilton recently acquired Promus. Guidelines for Horizontal Integration • Firm can gain monopolistic characteristics without being challenged by federal government • Competes in growing industry • Increased economies of scale provide major competitive advantages • Faltering due to lack of managerial expertise or need for particular resources
- 15. Defined Seeking increased marketshare for present products or services in present markets through greater marketing efforts Example Ameritrade, the on-line broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions. Guidelines for Market Penetration • Current markets not saturated • Usage rate of present customers can be increased significantly • Market shares of competitors declining while total industry sales increasing • Increased economies of scale provide major competitive advantages
- 16. Defined Introducing present productsor services into new geographic area Example Britain’s leading supplier of buses, Henlys PLC, acquires Blue Bird Corp. North America’s leading school bus maker. Guidelines for Market Development • New channels of distribution that are reliable, inexpensive, and good quality • Firm is very successful at what it does • Untapped or unsaturated markets • Capital and human resources necessary to manage expanded operations • Excess production capacity • Basic industry rapidly becoming global
- 17. Defined Seeking increased salesby improving present products or services or developing new ones Example Apple developed the G4 chip that runs at 500 megahertz. Guidelines for Product Development • Products in maturity stage of life cycle • Competes in industry characterized by rapid technological developments • Major competitors offer better-quality products at comparable prices • Compete in high-growth industry • Strong research and development capabilities
- 18. Defined Adding new, butrelated, products or services Example National Westminister Bank PLC in Britain bought the leading British insurance company, Legal & General Group PLC. Guidelines for Concentric Diversification • Competes in no- or slow-growth industry • Adding new & related products increases sales of current products • New & related products offered at competitive prices • Current products are in decline stage of the product life cycle • Strong management team
- 19. Defined Adding new, unrelatedproducts or services Example H&R Block, the top tax preparation agency, said it will buy discount stock brokerage Olde Financial for $850 million in cash. Guidelines for Conglomerate Diversification • Declining annual sales and profits • Capital and managerial talent to compete successfully in a new industry • Financial synergy between the acquired and acquiring firms • Exiting markets for present products are saturated
- 20. Defined Adding new, unrelatedproducts or services for present customers Example The New York Yankees baseball team are merging with the New Jersey Nets basketball team. Guidelines for Horizontal Diversification • Revenues from current products/services would increase significantly by adding the new unrelated products • Highly competitive and/or no-growth industry w/low margins and returns • Present distribution channels can be used to market new products to current customers • New products have counter cyclical sales patterns compared to existing products
- 21. Defined Two or moresponsoring firms forming a separate organization for cooperative purposes Example Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones. Guidelines for Joint Venture • Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks • Distinctive competencies of two or more firms are complementary • Overwhelming resources and risks where project is potentially very profitable • Two or more smaller firms have trouble competing with larger firm • A need exists to introduce a new technology quickly
- 22. Defined Regrouping through costand asset reduction to reverse declining sales and profit Example Singer, the sewing machine company, declared bankruptcy. Guidelines for Retrenchment • Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies • Firm is one of the weaker competitors • Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. • When an organization’s strategic managers have failed • Very quick growth to large organization where a major internal reorganization is needed.
- 23. Defined Selling a divisionor part of an organization Example Harcourt General, the large US publisher, is selling its Neiman Marcus division. Guidelines for Divesture • When firm has pursued retrenchment but failed to attain needed improvements • When a division needs more resources than the firm can provide • When a division is responsible for the firm’s overall poor performance • When a division is a misfit with the organization • When a large amount of cash is needed & cannot be obtained from other sources.
- 24. Defined Selling all ofa company’s assets, in parts, for their tangible worth Example Ribol sold all its assets and ceased business. Guidelines for Liquidation • When both retrenchment and divestiture have been pursued unsuccessfully • If the only alternative is bankruptcy, liquidation is an orderly alternative • When stockholders can minimize their losses by selling the firm’s assets
- 27. 1. Economies ofscale. 2. Learning and experience curve effects. 3. High percentage of capacity utilization. 4. Vertical integration with suppliers or buyers. 5. Timing considerations associated with first-mover advantages or disadvantages. 6. Location factors such as differences in wage levels, tax rates, energy costs, and shipping costs. Some of the major drivers of cost
- 28. Can be especiallyeffective when: • Price competition among rivals is vigorous • Rival’s products are identical and supplies are readily available • There are few ways to achieve differentiation • Most buyers use the product in the same way • Buyers have low switching costs • Buyers are large and have significant power • Industry newcomers use low prices to attract buyers
- 29. Characteristics of costleadership strategy • Production emphasis: ―Nobody does it cheaper.” • Marketing emphasis: ―Budget Prices and Good Value.‖ • Standardized products – few models, limited optional features. • No Frills operating culture – lean and mean reputation. • Lower prices leads to higher volume and greater market share which leads to lower costs due to experience effects. • Higher productivity per employee. • Cost-cutting innovations. • Accept low profit margins in return for high volume.
- 31. • Greater productflexibility • Greater compatibility • Lower costs • Improved service • Greater convenience • More features
- 32. The firm selectsone or more attributes that many buyers in an industry perceive as important & uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price. Differentiation strategies work best in situations where • There are many ways to differentiate the product or service & these differences are perceived by some buyers to have value. • Buyers needs and uses of the item are diverse • Not many rival firms are following a differentiation strategy.
- 33. Can be especiallyeffective when: • There are many ways to differentiate and many buyers perceive the value of the differences • Buyer needs and uses are diverse • Few rival firms are following a similar differentiation approach • Technology change is fast paced and competition revolves around evolving product features
- 34. Characteristics of DifferentiationStrategy • Production emphasis: “Nobody makes it better.” • Marketing emphasis: “Ours is better than theirs.” • Many frills – different models, options, features, and services. • One or more points of difference. • Frequent innovation. • Premium pricing to cover cost of differentiation. • Intensive advertising and sales efforts.
- 36. The firm selectsa segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. The focus strategy uses differences between a target segment and other segments in the industry. cost focus strategy • The production and delivery system that best serves the targeted customers differs from that of other industry segments. • The cost focus strategy exploits the cost differences. differentiation focus strategy • The targeted customers must have unusual needs. • The differentiation focus strategy exploits those special needs.
- 37. A focused strategymay be appropriate when • There are distinctly different groups of buyers who either have different needs or else utilize the product in different ways. • No other rival is attempting to specialize in the target segment. • The firm’s resources do not permit it to go after a wide segment of the total market. • Industry segments differ widely in size, growth rate, profitability, and intensity of the five competitive forces, such that some segments are much more attractive than others.
- 38. Characteristics of FocusStrategies • Production emphasis: “Made especially for you.” • Marketing emphasis: “Ours meets your needs better.” • Specialization for buyer segments, geographic areas or end-use applications. • Competitive advantage depends on being the low-cost leader in the target segment, or doing something particularly appealing to the targeted customers.