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Chapter 5

Strategies in Action
Strategic
Management:
Concepts & Cases
11th Edition
Fred David

Copyright 2007 Prentice Hall

Ch 5 -1

Long-Term Objectives
Objectives -Quantifiable
Measurable
Realistic
Understandable
Challenging

Copyright 2007 Prentice Hall

Ch 5 -2

Long-Term Objectives
Objectives -Hierarchical
Obtainable
Congruent
Time-line

Copyright 2007 Prentice Hall

Ch 5 -3

Long-Term Objectives
Varying Performance Measures
by Organizational Level
Organizational Basis for Annual Bonus/Merit Pay
Level

Corporate

75% on long-term objectives


25% on annual objectives

Division

50% on long-term objectives


50% on annual objectives

Function

25% on long-term objectives


75% on annual objectives
Copyright 2007 Prentice Hall

Ch 5 -4

Financial vs. Strategic


Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher earnings per share
Improved cash flow
Copyright 2007 Prentice Hall

Ch 5 -5

The Balanced Scorecard


Robert Kaplan & David Norton -Strategy evaluation & control technique
Balance financial measures with non-financial
measures
Balance shareholder objectives with customer
& operational objectives

Copyright 2007 Prentice Hall

Ch 5 -6

Types of Strategies
A Large Company

Corp
Level

Division Level

Functional Level

Operational Level

Copyright 2007 Prentice Hall

Ch 5 -7

Types of Strategies
Forward
Integration

Vertical
Integration
Strategies

Backward
Integration

Horizontal
Integration

Copyright 2007 Prentice Hall

Ch 5 -8

Types of Strategies
Market
Penetration

Intensive
Strategies

Market
Development

Product
Development

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Ch 5 -9

Types of Strategies
Related
Diversification

Diversification
Strategies

Unrelated
Diversification

Copyright 2007 Prentice Hall

Ch 5 -10

Types of Strategies
Retrenchment

Defensive
Strategies

Divestiture

Liquidation

Copyright 2007 Prentice Hall

Ch 5 -11

2003 Examples
Forward
Integration

Budget Rent-a-Car is Opening


car rental shops in Wal-Mart

Backward
Integration

Hotels, Inc. purchased a


furniture producer

Horizontal
Integration

Federated Department Stores


acquired May Department
Stores

Copyright 2007 Prentice Hall

Ch 5 -12

2003 Examples
Market
Penetration

Coca-Cola is spending millions


to advertise Coca-Cola Zero

Market
Development

Bank of America purchased a


9% stake in China Construction
Bank

Product
Development

Advanced Medical Optics is


using acquisition to obtain all
medical aspects of eye care

Copyright 2007 Prentice Hall

Ch 5 -13

2003 Examples
Related
Diversification
Unrelated
Diversification

Retrenchment

UPS acquired Overnite to


diversify its packaging
business into the trucking
business
Tupperware Corp. has entered
and is growing its skin and
Beauty business through
BeautiControl
Viacom is selling non-core
assets
Copyright 2007 Prentice Hall

Ch 5 -14

2003 Examples
Divestiture

Liquidation

Goodyear Tire & Rubber Co.


sold its North American farmtire business to Titan
International
Britains last major car
manufacturer, MG Rover Group
Ltd., liquidated in 2005 and laid
off its 5,000 employees

Copyright 2007 Prentice Hall

Ch 5 -15

Michael Porters Generic


Strategies
Cost Leadership Strategies
(Low-Cost & Best-Value)

Differentiation Strategies
Focus Strategies
(Low-Cost Focus &
Best-Value Focus)

Copyright 2007 Prentice Hall

Ch 5 -16

Copyright 2007 Prentice Hall

Ch 5 -17

Copyright 2007 Prentice Hall

Ch 5 -18

Recent Mergers
Acquiring Firm
IBM
Philip Morris

Acquired Firm
Ascential Software
PT Hanjaya Mandala
Samp

U.S. Steel
Oracle
OSIM Intl Ltd
Adobe Systems
US Airways
United Parcel Service

National Steel Corp


PeopleSoft
Brookstone
Macromedia
American West
Overnight Corp.

Copyright 2007 Prentice Hall

Ch 5 -19

First Mover Advantages

Benefits a firm may achieve by entering a


new market or developing a new product
or service prior to rival firms

Copyright 2007 Prentice Hall

Ch 5 -20

Outsourcing
Business-process outsourcing
(BPO)

Companies taking over the functional


operations of other firms

Copyright 2007 Prentice Hall

Ch 5 -21

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