Chapter Understanding Strategies

Chapter Objectives

To study and understand the goals in any organization To understand strategies at two levelsThe corporate level and The business unit level

GOALS

- Profitability

Profitability- most important goal, broadest is a product of two ratios: 1. profit margin percentage X 2. investment turnover i.e. (revenues-expenses/revenues) X (revenues/investment) Result is Return on Investment (ROI)= ((revenue-expenses)/investment)

Profitability refers to profits in long run

Q)

What does profitability depict?

Does the companys goal, change its interpretation of profitability equation?

GOALS - Maximizing Shareholder Value Q)

Maximizing Shareholder Value means what? Is earning maximum and increasing profitability same?
Maximizing shareholder value may be a major goal but not the only goal

GOALS

Risk

Risk also means POSSIBILITIES The risk-taking varies from company to company, among personalities and managers Some companies make it very clear that the primary responsibility is to preserve companys assets

GOALS -Multiple Stakeholder Approach

Organizations deal in capital market, product market, factor market The firm has responsibilities to all these multiple stakeholders

The Concept of Strategy

Strategies describe the general direction in which an organization plans to move to attain its goals Industry Opportunities

Core Competencies

Strategies

Two Levels Of Strategy Corporate Level Business Unit Level Corporate Level Strategy

Is about being in the right mix of businesses

Concerns of questions like where to compete than how

Corporate-level Strategies
High McDonalds

Degree of Relatedness

P&G

Textron Low High

Extent of Diversification

Contd

Single Industry Firms Unrelated Diversified Firms Related Diversified Firms

Business Unit Strategies

Depends on two interrelated aspects: Its mission Its competitive advantage

Business Unit Mission

The BCG Model build, hold, harvest, divest Porters Five Force Model Value Chain for Business

Business Unit Competitive Advantage