Chapter 5 Strategies in Action

Strategic Management: Concepts and Cases. 9th edition Fred R. David

PowerPoint Slides by Anthony F. Chelte Western New England College
Fred R. David Prentice Hall Ch5-1

Chapter Outline
Long-Term Objectives Types of Strategies

Integration Strategies
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Chapter Outline
Intensive Strategies

Diversification Strategies
Defensive Strategies Means for Achieving Strategies
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Chapter Outline
Michael Porters Generic Strategies

Strategic Management in Nonprofit and Governmental Organizations Strategic Management in Small Firms
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Strategies in Action

Even if youre on the right track, youll get run over if you just sit there. -- Will Rogers

Fred R. David Prentice Hall

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Strategies in Action
Hundreds of companies today

Embrace strategic planning

Quest for higher revenues Quest for higher profits

Fred R. David Prentice Hall

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Long-Term Objectives

The results expected from pursuing certain strategies

Fred R. David Prentice Hall

Ch5-7

Long-Term Objectives
Objectives
Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line
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Long-Term Objectives
Long-term objectives are necessary
Corporate Divisional Functional levels

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

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Integration Strategies

Forward Integration

Vertical Integration Strategies

Backward Integration Horizontal Integration

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

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

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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
Fred R. David Prentice Hall Ch5-14

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

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Ch5-15

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
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Integration Strategies
Horizontal Integration
Seeking ownership or increased control over competitors

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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
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Fred R. David Prentice Hall

Michael Porters Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies

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Generic Strategies
Cost Leadership Strategies

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

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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
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Generic Strategies
Differentiation Strategies

Greater product flexibility Greater compatibility Lower costs Improved service Greater convenience More features
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Generic Strategies
Differentiation Strategies

Allow firm to charge higher price Gain customer loyalty

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Generic Strategies
Focus Strategies

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

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Generic Strategies
Focus Strategies

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

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Intensive Strategies

Market Penetration

Intensive Strategies

Market Development Product Development

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

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

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

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

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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
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Fred R. David Prentice Hall

Diversification Strategies

Concentric Diversification

Diversification Strategies

Conglomerate Diversification
Horizontal Diversification

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

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

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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
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Fred R. David Prentice Hall

Diversification Strategies
Conglomerate Diversification
Adding new, unrelated products or services

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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

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

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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
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Defensive Strategies

Retrenchment

Defensive Strategies

Divestiture Liquidation

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

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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
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Defensive Strategies
Divestiture
Selling a division or part of an organization

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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.
Fred R. David Prentice Hall Ch5-46

Recent Divestitures
Recent Divestitures

Parent Company Dell Computer Cititgroup Maytag Wescoast Energy Westcoast Energy Westcoast Energy Credit Suisse emerson Electric General Motors DuPont

Part Being Divested web-hosting division Citi Capital Blodgett British Columbia Gas Union Energy Westcoast Capital CSFBdirect Chromalox Hughes Electronics drug division

Acquiring Company FON Group GE Capital Fleet Services Middleby Corporation BC Gas Epcor Utilities Epcor Utilities Bank of Montreal JPMorgan Partners Echostar Communications Bristol-Myers Squibb
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Fred R. David Prentice Hall

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

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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

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Ch5-49

Means for Achieving Strategies

Joint Venture/Partnering

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

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Means for Achieving Strategies

Cooperative Arrangements

Research and development partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia
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Fred R. David Prentice Hall

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
Fred R. David Prentice Hall Ch5-52

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
Fred R. David Prentice Hall Ch5-53

Recent Mergers
Acquiring Firm Hewlett-Packard Ebay PepsiCo Sara Lee Phillips Petroleum Devon AMR Tellabs Acquired Firm Compaq Computer Homes Direct Quaker Oats Earthgrains Company Conoco Anderson Exploration TWA Ocular Networks
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Key Terms

Acquisition Backward Integration Combination Strategy Concentric Diversification Conglomerate Diversification Cooperative Arrangements Cost Leadership
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Key Terms

Differentiation Diversification Strategies Divestiture Focus Forward Integration Franchising Generic Strategies
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Key Terms

Horizontal Diversification Horizontal Integration Integration Strategies Intensive Strategies Joint Venture Liquidation Long-Term Objectives
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Key Terms

Market Development Market Penetration Merger Outsourcing Product Development Retrenchment Takeover Vertical Integration
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