Formulating Long-Term Objectives and Grand Strategies

1. Formulating Long-Term Objectives and Grand Strategies

2. Types of Long-Term Objectives • Profitability • Productivity • Competitive position • Employee development • Employee relations • Technological leadership • Public responsibility

3. Qualities of Long-Term Objectives • Acceptable • Achievable • Flexible • Measurable • Motivating • Suitable • Understandable

4. The Balanced Scorecard The Balanced Scorecard is a set of measures that are directly linked to the company’s strategy. It directs a company to link its own long-term strategy with tangible goals and actions.

5. The Balanced Scorecard

6. 5 Generic Competitive Strategies

7. Menu of Strategy Optionsfor Winning in the Marketplace

8. GENERIC STRATEGIES • Low-Cost Leadership A strategy aimed at producing standardized products at low per-unit cost for consumers who are price-sensitive . Examples: H.J Heinz – because beans and canned vegetables do not permit much of a mark-up, the profit comes from the large volume of cans sold. Thus, Heinz goes to extraordinary lengths to reduce costs – by even one-twentieth of a cent per can.

9.  Wal-Mart is famous for squeezing its suppliers to ensure low prices for its goodsespecially that they are famous for their Every Day Low Pricing strategy (EDLP) • Dell Computer initially achieved market share by keeping inventories low and only building computers to order.

10. GENERIC STRATEGIES • Differentiation A strategy aimed at producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive .

11. Differentiation Themes • unique taste – Dr. Pepper • multiple features – Microsoft Office • wide selection and one-stop shopping – Home Depot, Wal-Mart • engineering design and performance – BMW, Ferrari • rapid product innovation • prestige and distinctiveness – Rolex, Chanel, Mercedes Benz • top-of-the-line image and reputation – Starbucks, Tiffany

12. GENERIC STRATEGIES • Focus A strategy aimed at producing products and services that fulfill the needs of small groups of customers . Example: RTW stores selling plus-size clothes

13. Risks of Generic Strategies

14. The Value Disciplines • Operational Excellence A specific strategic approach to the production and delivery of products and services. A company that follows this strategy attempts to lead its industry in price and convenience by pursuing a focus on lean and efficient operations.

15. The Value Disciplines • Customer Intimacy Companies excelling in customer intimacy combine detailed customer knowledge with operational flexibility. They are willing to spend money now to build customer loyalty for the long-term, considering each customer’s lifetime value to the company, not the profit of any single transaction.

16. The Value Disciplines • Product Leadership Companies that pursue the discipline of product leadership strive to produce a continuous stream of state-of-the-art products and services. The 3 challenges that must be met are: Creativity Commercialize ideas quickly Release their own improvements

17. GRAND STRATEGIES Types of Grand Strategies • Concentrated growth • Market development • Product development • Innovation • Horizontal integration • Vertical integration • Concentric diversification • Conglomerate diversification • Turnaround • Divestiture • Liquidation • Bankruptcy • Joint ventures • Strategic alliances • Consortia

18. Characteristics of a Concentrated Growth Strategy • Involves focusing resources on the profitable growth of a single product, in a single market, with a single dominant technology • Rationale – Firm develops and exploits its expertise in a delimited competitive arena • Determinants of competitive market success • Ability to assess market needs • Knowledge of buyer behavior • Customer price sensitivity • Effectiveness of promotion

19. Strategies of Market & Product Development • Market development • Consists of marketing present products, often with only cosmetic modifications to customers in related market areas by • Adding channels of distribution or • Changing content of advertising or promotion

20. Strategies of Market & Product Development • Product development • Involves substantial modification of existing products or creation of new but related products • Based on penetrating existing market by - Incorporating product modifications into existing items or - Developing new products connected to existing products

21. Innovation Strategy Involves creating a new product life cycle, thereby making similar existing products obsolete.

22. Horizontal and Vertical Integration Strategies Horizontal Integration • Based on growth via acquisition of one or more similar firms operating at the same stage of the production-marketing chain

23. Horizontal and Vertical Integration Strategies Vertical Integration • Involves acquiring firms • That supply acquiring firm with inputs (backward integration) or • Are customers for firm’s outputs (forward integration)

24. Vertical and Horizontal Integrations Textile producer Textile producer Shirt manufacturer Shirt manufacturer Clothing store Clothing store

25. Motivations for Diversification  Increase firm’s stock value  Increase growth rate of firm  Investment is better use of funds than using them for internal growth  Improves stability of earnings and sales  Balance or fill out product line  Diversify product line  Acquire a needed resource quickly  Achieve tax savings  Increase efficiency and profitability

26. Diversification Strategies Concentric Diversification • Involves acquisition of businesses related to acquiring firm in terms of technology, markets, or products

27. Diversification Strategies Conglomerate Diversification • Involves acquisition of a business because it represents a promising investment opportunity • Primary motivation is profit pattern of venture

28. Turnaround Strategy • A turnaround situation represents absolute and relative-to-industry declining performance of a sufficient magnitude to warrant explicit turnaround actions • The immediacy of the resulting threat to company survival posed by the turnaround situation is known as situation severity • Turnaround responses typically include two stages of strategic activities • Retrenchment • Recovery response

29. Divestiture and Liquidation Strategies Divestiture Strategy • Involves selling a firm or a major component of a firm • Reasons for divestiture • Partial mismatches between acquired firm and parent firm • Corporate financial needs • Government antitrust action

30. Divestiture and Liquidation Strategies Liquidation Strategy • Involves selling parts of a firm, usually for its tangible asset value and not as a going concern

31. The Strategy of Bankruptcy • Two approaches • Liquidation – Involves complete distribution of a firm’s assets to creditors, most of whom receive a small fraction of amount owed • Reorganization – Involves creditors temporarily freezing their claims while a firm reorganizes and rebuilds its operations more profitably • Advantage of a reorganization bankruptcy • Proactive option offering maximum repayment of a firm’s debt in the future if a recovery strategy is successful

32. Corporate Combination Strategies Joint Ventures • Involves establishing a third company (child), operated for the benefit of the co-owners (parents) Strategic Alliance • Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project • Exists for a defined period • Does not involve the exchange of equity

33. Corporate Combination Strategies • Consortiaare defined as large interlocking relationships between businesses of an industry. In Japan such consortia are known as keiretsus, in South Korea as chaebols • A Japanese keiretsu is an undertaking involving up to 50 different firms that are joined around a large trading company or bank and are coordinated through interlocking directories and stock exchanges • Chaebols are typically financed through government banking groups and largely are run by professional managers trained by participating firms expressly for the job