Strategies in Action

Hundreds of companies today

Embrace strategic planning

Quest for higher revenues Quest for higher profits

Long-Term Objectives

The results expected from pursuing certain strategies

Long-Term Objectives
Objectives
Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line

Long-Term Objectives
Long-term objectives are necessary
Corporate Divisional Functional levels

Long-Term Objectives
Strategists should avoid
Managing by Extrapolation Managing by Crisis Managing by Subjectives Managing by Hope

Integration Strategies

Forward Integration

Vertical Integration Strategies

Backward Integration Horizontal Integration

Integration Strategies
Vertical Integration strategies
Allow a firm to gain control over:
Distributors Suppliers competitors

Integration Strategies
Forward Integration
Gaining ownership or increased control over distributors or retailers

Integration Strategies
Guidelines for Forward Integration

Present distributors are expensive, unreliable, or incapable of meeting firms needs Availability of quality distributors is limited When firm competes in an industry that is expected to grow markedly Organization has both capital and human resources needed to manage new business of distribution Advantages of stable production are high Present distributors have high profit margins

Integration Strategies
Backward Integration
Seeking ownership or increased control of a firms suppliers

Integration Strategies
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 Advantages of stable prices are important Present supplies have high profit margins

Integration Strategies
Horizontal Integration
Seeking ownership or increased control over competitors

Integration Strategies
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

Intensive Strategies

Market Penetration

Intensive Strategies

Market Development Product Development

Intensive Strategies
Intensive strategies
Require intensive efforts to improve a firms competitive position with existing products

Intensive Strategies
Market Penetration
Seeking increased market share for present products or services in present markets through greater marketing efforts

Intensive Strategies
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

Intensive Strategies
Market Development
Introducing present products or services into new geographic area

Intensive Strategies
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

Intensive Strategies
Product Development
Seeking increased sales by improving present products or services or developing new ones

Intensive Strategies
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

Diversification Strategies

Concentric Diversification

Diversification Strategies

Conglomerate Diversification
Horizontal Diversification

Diversification Strategies
Diversification strategies
Becoming less popular as organizations are finding it more difficult to manage diverse business activities

Diversification Strategies
Concentric Diversification
Adding new, but related, products or services

Diversification Strategies
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

Diversification Strategies
Conglomerate Diversification
Adding new, unrelated products or services

Diversification Strategies
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

Diversification Strategies
Horizontal Diversification
Adding new, unrelated products or services for present customers

Diversification Strategies
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

Defensive Strategies

Retrenchment

Defensive Strategies

Divestiture Liquidation

Defensive Strategies
Retrenchment
Regrouping through cost and asset reduction to reverse declining sales and profit

Defensive Strategies
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 organizations strategic managers have failed Very quick growth to large organization where a major internal reorganization is needed

Defensive Strategies
Divestiture
Selling a division or part of an organization

Defensive Strategies
Guidelines for Divestiture

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 firms overall poor performance When a division is a misfit with the organization When a large amount of cash is needed and cannot be obtained from other sources.

Defensive Strategies
Liquidation
Selling all of a companys assets, in parts, for their tangible worth

Defensive Strategies
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 firms assets

Means for Achieving Strategies

Joint Venture/Partnering

Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.

Means for Achieving Strategies

Cooperative Arrangements

Research and development partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia

Means for Achieving Strategies

Problems Causing Joint Ventures to Fail

Managers who must collaborate daily not involved in forming or shaping the venture Venture may benefit the companies but not the customers Venture not supported equally by both partners Venture may begin to compete with one of the partners more so than the other

Means for Achieving Strategies

Guidelines for Joint Ventures

Combination of privately held and publicly held can be synergistically combined 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 (e.g., Alaska pipeline) Two or more smaller firms have trouble competing with larger firm A need exists to introduce a new technology quickly

Example of Mergers
Acquiring Firm Mittal Tata Hewlett-Packard Ebay PepsiCo Sara Lee Phillips Petroleum Devon Acquired Firm Arcelor Corus Compaq Computer$ HomesDirect Quaker Oats Earthgrains Company Conoco Anderson Exploration

Porters Competitive Strategies

Competitive Strategy:
Low cost? Differentiation? Compete head to head in large market? Focus on niche?

Porters Competitive Strategies

Generic Competitive Strategies:
Lower cost strategy
Design, produce, market more efficiently than competitors

Differentiation strategy
Unique and superior value in terms of product quality, features, service

Michael Porters Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies

Generic Strategies
Cost Leadership Strategies

Pursued in conjunction with differentiation Economies or diseconomies of scale Capacity utilization achieved Linkages with suppliers and distributors

Generic Strategies
Low Cost Producer Advantages

Market of many price-sensitive buyers Few ways of achieving product differentiation Buyers not sensitive to brand differences Large number of buyers with bargaining power

Generic Strategies
Differentiation Strategies

Greater product flexibility Greater compatibility Lower costs Improved service Greater convenience More features

Generic Strategies
Differentiation Strategies

Allow firm to charge higher price Gain customer loyalty

Generic Strategies
Focus Strategies

Industry segment of sufficient size Good growth potential Not crucial to success of major competitors

Generic Strategies
Focus Strategies

Consumers have distinctive preferences Rival firms not attempting to specialize in the same target segment

Business Strategies
Business Strategy:
Focuses on improving the competitive position of a companys or business units products or services within the specific industry or market segment that the firm serves.

Porters Generic Competitive Strategies

Porters Competitive Strategies

Cost Leadership:
Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficientscale facilities Cost reductions Cost minimization

Porters Competitive Strategies

Competitive Advantage:
Determined by Competitive Scope
Breadth of the companys target market

Porters Competitive Strategies

Differentiation:
Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

Porters Competitive Strategies

Cost focus:
Low cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market

Porters Competitive Strategies

Differentiation focus:
Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market

Porters Competitive Strategies

Stuck in the middle:

No competitive advantage Below-average performance

Risks of Generic Competitive Strategies

Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segments differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry.

Competitive Strategy
Industry Structure:
Fragmented Industry
Many small and medium-sized local companies compete for small shares of total market
Focus strategies predominate

Competitive Strategy

Industry Structure:
Consolidated industry
Mature industry dominated by a few large companies
Cost Leadership or Differentiation predominate

Dimensions of Quality
Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality

Dimensions Quality

Competitive Strategy
Strategic rollup:
Quickly consolidate fragmented industry Money from venture capital Entrepreneur acquires hundreds of owner-operated firms Creates large firm with economies of scale

Competitive Strategy
Strategic rollup:
Differ from Conventional M&As
Large number of firms Owner-operated firms Goal to reinvent entire industry

Competitive Tactics
Tactic:
Specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action.
Timing tactics Market location tactics

Competitive Tactics
Timing Tactics:
First mover (pioneer)
Reputation as industry leader High profits Sets standards for subsequent products in the industry

Late mover
Able to imitate technological advances of others
Keeps R&D costs down Keeps risks down

Competitive Tactics
Market Location Tactics:
Offensive Tactics
Frontal assault Flanking maneuver Bypass attack Encirclement Guerrilla warfare

Competitive Tactics
Market Location Tactics:
Defensive Tactics
Raise structural barriers Increase expected retaliation Lower the inducement for attack

Cooperative Strategies
Cooperative Strategies:
Collusion
Active cooperation of firms to reduce output and raise prices
Explicit Tacit

Cooperative Strategies
Cooperative Strategies:
Strategic Alliance:
Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.

Cooperative Strategies
Obtain technology

Access to markets

Strategic Alliance

Reduce financial risk

Reduce political risk Achieve competitive advantage