Strategies in

Action

Chapter Five
 Chapter Objectives
1. Discuss the value of establishing long-term objectives.
2. Identify 16 types of business strategies.
3. Identify numerous examples of organizations pursuing
different types of strategies.
4. Discuss guidelines when particular strategies are most
appropriate to pursue.
5. Discuss Porter’s five generic strategies.
6. Describe strategic management in nonprofit,
governmental, and small organizations.
7. Discuss joint ventures as a way to enter the Somali
market.
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 Chapter Objectives (cont.)
8. Discuss the Balanced Scorecard.
9. Compare and contrast financial with strategic
objectives.
10. Discuss the levels of strategies in large versus
small firms.
11. Explain the First Mover Advantages concept.
12. Discuss recent trends in outsourcing.
13. Discuss strategies for competing in turbulent,
high-velocity markets.
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 The Nature of Long-Term
Objectives
 Objectives should  Objectives
be:  provide direction
 quantitative,  aid in evaluation
measurable,  establish priorities
realistic,
 reduce uncertainty
understandable,
challenging,  minimize conflicts
hierarchical,  aid in both the
obtainable, and allocation of resources
congruent among and the design of jobs
organizational units.
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Varying Performance Measures by
Organizational Level

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The Desired Characteristics
of Objectives

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Not Managing by Objectives

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 The Balanced Scorecard

 Balanced Scorecard
 derives its name from the perceived need of
firms to “balance” financial measures that
are oftentimes used exclusively in strategy
evaluation and control with nonfinancial
measures such as product quality and
customer service.

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A Comprehensive Strategic-
Management Model

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 Types of Strategies
 Most organizations 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.

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Alternative Strategies Defined and
Exemplified

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Alternative Strategies Defined and
Exemplified

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Levels of Strategies With Persons
Most Responsible

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 Integration Strategies
 Forward integration
 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
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 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 present distributors or retailers have high
profit margins.

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 Backward Integration Guidelines

 When an organization’s present suppliers are

especially expensive or unreliable
 When the number of suppliers is small and the
number of competitors is large
 When the advantages of stable prices are
particularly important
 When an organization needs to quickly acquire a
needed resource

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 Horizontal Integration Guidelines

 When an 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

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 Intensive Strategies
 Market penetration strategy
 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

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 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

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 Market Development Guidelines

 When new 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
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 Product Development Guidelines

 When an organization has successful products that

are in the maturity stage of the product life cycle
 When an organization competes in an industry that
is characterized by rapid technological
developments
 When major competitors offer better-quality
products at comparable prices
 When an organization competes in a high-growth
industry

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 Diversification Strategies

 Related  Unrelated
diversification diversification
 value chains possess  value chains are so
competitively dissimilar that no
valuable cross- competitively
business strategic valuable cross-
fits business
relationships exist

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 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 well-known brand
name

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Related Diversification Guidelines

 When an 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
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 Unrelated Diversification
Guidelines
 When revenues 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 an organization’s basic industry is
experiencing declining annual sales and profits

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 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

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 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
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 Retrenchment Guidelines

 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 has grown so large so
quickly that major internal reorganization is
needed

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 Defensive Strategies
 Divestiture
 Selling a division or part of an organization
 often used to raise capital for further strategic
acquisitions or investments

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 Divestiture Guidelines
 When an organization has pursued a retrenchment
strategy and failed to accomplish needed
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

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 Defensive Strategies
 Liquidation
 selling all of a company’s assets, in parts, for their
tangible worth.
 can be an emotionally difficult strategy

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 Liquidation Guidelines
 When an 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

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Porter’s Five Generic Strategies

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 Michael Porter’s Five
Generic Strategies

 Cost leadership
 emphasizes producing standardized products at a
very low per-unit cost for consumers who are
price-sensitive

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 Michael Porter’s Five
Generic Strategies
 Type 1  Type 2
 low-cost strategy  best-value strategy
that offers products that offers products
or services to a wide or services to a wide
range of customers range of customers
at the lowest price at the best price-
available on the value available on
market the market

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 Michael Porter’s Five
Generic Strategies
 Differentiation
 strategy aimed at producing products and services
considered unique industry-wide and directed at
consumers who are relatively price-insensitive

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 Michael Porter’s Five
Generic Strategies
 Type 4  Type 5
 low-cost focus  best-value focus
strategy that offers strategy that offers
products or services products or services
to a niche group of to a small range of
customers at the customers at the best
lowest price price-value available
available on the on the market
market

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 Cost Leadership Strategies

 To employ a cost leadership strategy

successfully, a firm must ensure that its total
costs across its overall value chain are lower
than competitors’ total costs

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 Cost Leadership Strategies

Two ways:
1.Perform value chain activities more efficiently
than rivals and control the factors that drive the
costs of value chain activities
2.Revamp the firm’s overall value chain to
eliminate or bypass some cost-producing
activities

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 Cost Leadership Guidelines

 When price competition among rival sellers is

especially vigorous
 When there are few ways to achieve product
differentiation that have value to buyers
 When most buyers use the product in the
same ways
 When buyers incur low costs in switching
their purchases from one seller to another
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 Differentiation Strategies
 Differentiation strategy should be pursued
only after a careful study of buyers’ needs
and preferences to determine the feasibility of
incorporating one or more differentiating
features into a unique product that features
the desired attributes

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 Differentiation
 When there are many ways to differentiate
the product
 When buyer needs and uses are diverse
 When few rival firms are following a similar
differentiation approach
 When technological change is fast paced

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 Focus Strategies
 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
 Most effective when consumers have
distinctive preferences

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 Focus Strategy Guidelines

 When the target market niche is large,

profitable, and growing
 When industry leaders do not consider the
niche to be crucial to their own success
 When the industry has many different niches
and segments
 When few, if any, other rivals are attempting
to specialize in the same target segment
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 Means for Achieving Strategies

 Cooperation Among Competitors

 Joint Venture/Partnering
 Merger/Acquisition
 Private-Equity Acquisitions
 First Mover Advantages
 Outsourcing

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Key Reasons Why Many Mergers
and Acquisitions Fail

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Potential Benefits of Merging With
or Acquiring Another Firm

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Benefits of a Firm Being
the First Mover

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 THAT ALL FOR TODAY

SEE YOU AGAIN NEXT LECTURE

CHAPTER 6

STRATEGY ANALYSIS AND CHOICE