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Strategies Formulation | Types Of Business Strategies & Objectives | Long Term Objectives |
This document discusses various corporate strategies including intensive, integrative, diversification, defensive, and Porter's five generic strategies. It provides guidelines for when different strategies may be applicable, such as pursuing market penetration when markets are not saturated. It also discusses potential benefits, risks and reasons for strategy selection.
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Strategies Formulation | Types Of Business Strategies & Objectives | Long Term Objectives |
- 3.
- 5. Varying Performance Measures byOrganizational Level
- 6. The Desired Characteristics ofObjectives
- 7. The Nature ofLong-Term Objectives • Objectives • provide direction • allow synergy • assist in evaluation • establish priorities • reduce uncertainty • minimize conflicts • aid in both the allocation of resources and the design of jobs
- 9. Not Managing byObjectives Managing by Extrapolation Managing by Crisis Managing by Subjectives Managing by Hope
- 11. Types of Strategies •Mostorganizations simultaneously pursue a combination of two or more strategies, but a combination strategy can be exceptionally risky if carried too far. •No organization can afford to pursue all the strategies that might benefit the firm. •Difficult decisions must be made and priorities must be established.
- 12. Alternative Strategies Defined andExemplified
- 13. Alternative Strategies Defined andExemplified
- 14. Levels of Strategieswith Persons Most Responsible
- 15. Integration Strategies • ForwardIntegration • involves gaining ownership or increased control over distributors or retailers • Backward Integration • strategy of seeking ownership or increased control of a firm's suppliers • Horizontal Integration • a strategy of seeking ownership of or increased control over a firm's competitors
- 16. Forward Integration Guidelines •When an organization's present distributors are especially expensive • When the availability of quality distributors is so limited as to offer a competitive advantage • When an organization competes in an industry that is growing • When the advantages of stable production are particularly high • When present distributors or retailers have high profit margins
- 17. Backward Integration Guidelines • Whenan organization's present suppliers are especially expensive or unreliable • When the number of suppliers is small and the number of competitors is large • When an organization has both capital and human resources • When the advantages of stable prices are particularly important • When an organization needs to quickly acquire a needed resource
- 18. Horizontal Integration Guidelines • Whenan organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government • When an organization competes in a growing industry • When increased economies of scale provide major competitive advantages • When competitors are faltering due to a lack of managerial expertise
- 19. Intensive Strategies •Market PenetrationStrategy • seeks to increase market share for present products or services in present markets through greater marketing efforts •Market Development • involves introducing present products or services into new geographic areas •Product Development Strategy • seeks increased sales by improving or modifying present products or services
- 20. Market Penetration Guidelines •When current markets are not saturated with a particular product or service • When the usage rate of present customers could be increased significantly • When the market shares of major competitors have been declining while total industry sales have been increasing • When increased economies of scale provide major competitive advantages
- 21. Market Development Guidelines • Whennew channels of distribution are available that are reliable, inexpensive, and of good quality • When an organization is very successful at what it does • When new untapped or unsaturated markets exist • When an organization has excess production capacity • When an organization's basic industry is rapidly becoming global in scope
- 22. Product Development Guidelines • Whenan organization has successful products that are in the maturity stage of the product life cycle • When an organization competes in an industry characterized by rapid technological developments • When major competitors offer better-quality products at comparable prices • When an organization competes in a high-growth industry • When an organization has strong research and development capabilities
- 23. Diversification Strategies • RelatedDiversification • value chains possess competitively valuable cross-business strategic fits alue chains are so dissimilar that no competitively valuable cross-business relationships exist
- 24. Synergies of Related Diversification •Transferring competitively valuable expertise, technological know-how, or other capabilities from one business to another • Combining the related activities of separate businesses into a single operation to achieve lower costs • Exploiting common use of a known brand name • Using cross-business collaboration to create strengths
- 25. Related Diversification Guidelines • Whenan organization competes in a no-growth or a slow-growth industry • When adding new, but related, products would significantly enhance the sales of current products • When new, but related, products could be offered at highly competitive prices • When an organization has a strong management team
- 26. Unrelated Diversification Guidelines• Whenrevenues derived from an organization's current products would increase significantly by adding the new, unrelated products • When an organization's present channels of distribution can be used to market the new products to current customers • When the new products have countercyclical sales patterns compared to present products • When an organization's basic industry is experiencing declining annual sales and profits
- 27. Unrelated Diversification Guidelines (cont.) •When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity • When existing markets for an organization's present products are saturated • When antitrust action could be charged against an organization that historically has concentrated on a single industry
- 28. Defensive Strategies • Divestiture •Selling a division or part of an organization ften used to raise capital for further strategic acquisitions or investments
- 29. Defensive Strategies • Retrenchment •occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits • also called a turnaround or reorganizational strategy • designed to fortify an organization’s basic distinctive competence
- 30. Retrenchment Guidelines • Whenan organization has a distinctive competence but has failed consistently to meet its goals • When an organization is one of the weaker competitors in a given industry • When an organization is plagued by inefficiency, low profitability, and poor employee morale • When an organization fails to capitalize on external opportunities and minimize external threats • When an organization has grown so large so quickly that major internal reorganization is needed
- 31. Divestiture Guidelines • Whenan organization has pursued a retrenchment strategy and failed to accomplish improvements • When a division needs more resources to be competitive than the company can provide • When a division is responsible for an organization's overall poor performance • When a division is a misfit with the rest of an organization • When government antitrust action threatens a firm
- 32. Defensive Strategies • Liquidation •selling all of a company s assets, in parts, for their tangible worth • can be an emotionally difficult strategy
- 33. Liquidation Guidelines • Whenan organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful • When an organization's only alternative is bankruptcy • When the stockholders of a firm can minimize their losses by selling the organization's assets
- 34.
- 35. Michael Porter's Five GenericStrategies • Type 1 • low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market • best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market
- 36. Michael Porter's Five GenericStrategies • Type 3 • Differentiation is a strategy aimed at producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive
- 37. Michael Porter's Five GenericStrategies • Type 4 • low-cost focus strategy that offers products or services to a niche group of customers at the lowest price available on the market
- 38. Means for Achieving Strategies •Cooperation Among Competitors • Joint Venture/Partnering • Merger/Acquisition • Private-Equity Acquisitions • First Mover Advantages • Outsourcing/Reshoring
- 39. Key Reasons WhyMany Mergers and Acquisitions Fail
- 40. Potential Benefits ofMerging With or Acquiring Another Firm
- 41. Benefits of aFirm Being the First Mover
Editor's Notes
- #3 After studying this chapter, you should be able to do the following: 5-1. Identify and discuss eight characteristics of objectives and ten benefits of having clear objectives. 5-2. Define and give an example of eleven types of strategies. 5-3. Identify and discuss the three types of “Integration Strategies.” 5-4. Give specific guidelines when market penetration, market development, and product development are especially effective strategies. 5-5. Explain when diversification is an effective business strategy. 5-6. List guidelines for when retrenchment, divestiture, and liquidation are especially effective strategies. 5-7. Identify and discuss Porter’s five generic strategies. 5-8. Compare (a) cooperation among competitors, (b) joint venture and partnering, and (c) merger/acquisition as key means for achieving strategies. 5-9. Discuss tactics to facilitate strategies, such as (a) being a first mover, (b) outsourcing, and (c) reshoring. 5-10. Explain how strategic planning differs in for-profit, not-for-profit, and small firms.
- #5 Without long-term objectives, an organization would drift aimlessly toward some unknown end.
- #6 Long-term objectives are needed at the corporate, divisional, and functional levels of an organization.
- #7 Objectives are commonly stated in terms such as growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree and nature of vertical integration, earnings per share, and social responsibility.
- #8 Objectives provide a basis for consistent decision making by managers whose values and attitudes differ. Objectives serve as standards by which individuals, groups, departments, divisions, and entire organizations can be evaluated.
- #9 Two types of objectives are especially common in organizations: financial and strategic objectives.
- #10 Mr. Derek Bok, former President of Harvard University, once said, “If you think education is expensive, try ignorance.” The idea behind this saying also applies to establishing objectives, because strategists should avoid the following ways of “not managing by objectives.”
- #12 Hansen and Smith explain that strategic planning involves “choices that risk resources and trade-offs that sacrifice opportunity.”
- #13 Defined and exemplified in Table 5-4, alternative strategies that an enterprise could pursue can be categorized into 11 actions.
- #15 Strategy making is not just a task for top executives. Middle- and lower-level managers also must be involved in the strategic-planning process to the extent possible. In large firms, there are actually four levels of strategies: corporate, divisional, functional, and operational.
- #16 Forward integration and backward integration are sometimes collectively referred to as vertical integration. Vertical integration strategies allow a firm to gain control over distributors and suppliers, whereas horizontal integration refers to gaining ownership and/or control over competitors.
- #17 Forward integration involves gaining ownership or increased control over distributors or retailers.
- #18 Backward integration is a strategy of seeking ownership or increased control of a firm’s suppliers.
- #19 Seeking ownership of or control over a firm’s competitors, horizontal integration is arguably the most common growth strategy.
- #20 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.
- #21 Market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts when current markets are not saturated with a particular product or service.
- #22 Market development involves introducing present products or services into new geographic areas.
- #23 Product development strategy seeks increased sales by improving or modifying present products or services.
- #24 The two general types of diversification strategies are related diversification and unrelated diversification.
- #25 Related diversification value chains possess competitively valuable cross-business strategic fits.
- #26 Related diversification should be considered when these circumstances exist.
- #27 Unrelated diversification is when value chains are so dissimilar that no competitively valuable cross-business relationships exist.
- #28 Note that a key difference between related and unrelated diversification is that the former should be based on some commonality in markets, products, or technology, whereas the latter is based more on profit considerations.
- #29 In addition to integrative, intensive, and diversification strategies, organizations also could pursue defensive strategies such as retrenchment, divestiture, or liquidation.
- #30 Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits.
- #31 Sometimes called a turnaround or reorganizational strategy, retrenchment is designed to fortify an organization’s basic distinctive competence.
- #32 Divestiture is selling a division or part of an organization and is often used to raise capital for further strategic acquisitions or investments.
- #33 Selling all of a company’s assets, in parts, for their tangible worth is called liquidation; it is associated with Chapter 7 bankruptcy. Liquidation is a recognition of defeat and consequently can be an emotionally difficult strategy.
- #34 Liquidation is pursued when bankruptcy is the only option available.
- #35 Probably the three most widely read books on competitive analysis in the 1980s were Michael Porter’s Competitive Strategy (1980), Competitive Advantage (1985), and Competitive Advantage of Nations (1989). According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation, and focus. Porter calls these bases generic strategies.
- #36 Cost leadership generally must be pursued in conjunction with differentiation. A number of cost elements affect the relative attractiveness of generic strategies, including economies or diseconomies of scale achieved, learning and experience curve effects, the percentage of capacity utilization achieved, and linkages with suppliers and distributors. Companies employing a low-cost (Type 1) or best-value (Type 2) cost leadership strategy must achieve their competitive advantage in ways that are difficult for competitors to copy or match.
- #37 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.
- #38 A successful focus strategy depends on an industry segment that is of sufficient size, has good growth potential, and is not crucial to the success of other major competitors.
- #39 For collaboration between competitors to succeed, both firms must contribute something distinctive, such as technology, distribution, basic research, or manufacturing capacity. Joint venture is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. 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. Private equity (PE) firms are acquiring and taking private a wide variety of companies almost daily in the business world. First mover advantages refer to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms. Outsourcing involves companies hiring other companies to take over various parts of their functional operations, such as human resources, information systems, payroll, accounting, customer service, and even marketing.
- #40 Some key reasons why many mergers and acquisitions fail are provided in Table 5-5.
- #41 Table 5-6 presents the potential benefits of merging with or acquiring another firm.
- #42 First mover advantages are analogous to taking the high ground first, which puts one in an excellent strategic position to launch aggressive campaigns and to defend territory.