Chapter 5 Strategies in Action

1. Chapter 5Strategies in Action Strategic Management: Concepts & Cases 12th Edition Fred David

2. Levels of Strategies Corp Level - CEO A Large Company Division Level - Division president or executive vice president Functional Level - Functional managers (finance, marketing, operation, HR) Operational Level - Plant manager, sales manager

3. Levels of Strategies A Small Company Company Level - Owner or president Functional Level - Functional managers (finance, marketing, operation, HR) Operational Level - Plant manager, sales manager

4. Types of Strategies 1. Forward Integration (1) IntegrationStrategies 2. BackwardIntegration 3. HorizontalIntegration

5. 1. Forward Integration Strategies Gain Control Over -- • Distributors • Retailers

6. Forward Integration Strategies Guidelines -- • Current distributors – expensive or unreliable • Availability of quality distributors – limited • Firm competing in industry expected to grow markedly • Firm has both capital & HR to manage new business of distribution • Current distributors have high profit margins

7. 2. Backward Integration Strategies Ownership or Control -- • Firm’s suppliers

8. Backward Integration Strategies Guidelines -- • Current suppliers – expensive or unreliable • No. of suppliers is small; no. of competitors is large • High growth in industry sector • Firm has both capital & HR to manage new business • Stable prices are important • Current suppliers have high profit margins

9. 3. Horizontal Integration Strategies Ownership or Control -- • Firm’s competitors

10. Horizontal Integration Strategies Guidelines -- • Gain monopolistic characteristics w/o federal government challenge • Competes in growing industry • Increased economies of scale – major competitive advantages • Faltering due to lack of managerial expertise or need for particular resource

11. Types of Strategies 1. MarketPenetration (2) IntensiveStrategies 2. MarketDevelopment 3. ProductDevelopment

12. 1. Market Penetration Strategies Increased Market Share -- • Present products/services • Present markets • Greater marketing efforts

13. Market Penetration Strategies Guidelines -- • Current markets not saturated • Usage rate of present customers can be increased significantly • Shares of competitors declining; industry sales increasing • Increased economies of scale provide major competitive advantage

14. 2. Market Development Strategies New Markets -- • Present products/services to new geographic areas

15. Market Development Strategies Guidelines -- • New channels of distribution – reliable, inexpensive, good quality • Firm is successful at what it does • Untapped/unsaturated markets • Excess production capacity • Basic industry rapidly becoming global

16. 3. Product Development Strategies Increased Sales -- • Improving present products/services • Developing new products/services

17. Product Development Strategies Guidelines -- • Products in maturity stage of life cycle • Industry characterized by rapid technological development • Competitors offer better-quality products @ comparable prices • Compete in high-growth industry • Strong R&D capabilities

18. Types of Strategies 1. Related Diversification (3) DiversificationStrategies 2. Unrelated Diversification

19. Diversification Strategies Less Popular -- • More difficult to manage diverse business activities However -- • The greatest risk of being in a single industry is having all your eggs in one basket

20. Diversification Strategies • 1. Related (concentric) – When their value chains posses competitively valuable cross-business strategic fits • 2. Unrelated (conglomerate) – When their value chains are so dissimilar that no competitively valuable cross-business relationships exist

21. Concentric Diversification Strategies Guidelines -- • Compete in no/slow growth industry • New & related products increases sales of current products • New & related products offered at competitive prices • Current products—decline stage of product life cycle • Strong management team

22. Conglomerate Diversification Strategies Guidelines -- • Declining annual sales & profits • Capital & managerial ability to compete in new industry • Financial synergy between acquired and acquiring firms • Current markets for present products - saturated

23. Types of Strategies 1. Retrenchment (4) DefensiveStrategies 2. Divestiture 3. Liquidation

24. 1. Retrenchment Strategies Regrouping -- • Cost & asset reduction to reverse declining sales & profit

25. Retrenchment Strategies Guidelines -- • Failed to meet objectives & goals consistency; has distinctive competencies • Firm is one of weaker competitors • Inefficiency, low profitability, poor employee morale, pressure for stockholders • Strategic managers have failed • Rapid growth in size; major internal reorganization necessary

26. 2. Divestiture Strategies • Selling a division or part of an organization

27. Divestiture Strategies Guidelines -- • Retrenchment failed to attain improvements • Division needs more resources than are available • Division responsible for firm’s overall poor performance • Division is a mis-fit with organization • Large amount of cash is needed and cannot be raised through other sources

28. 3. Liquidation Strategies Selling • Company’s assets, in parts, for their tangible worth

29. Liquidation Strategies Guidelines -- • Retrenchment & divestiture failed • Only alternative is bankruptcy • Minimize stockholder loss by selling firm’s assets

30. 2007 Examples

31. 2007 Examples

32. 2007 Examples

33. 2007 Examples

34. Michael Porter’s Generic Strategies 1. Cost Leadership Strategies (Low-Cost & Best-Value) 2. DifferentiationStrategies 3. Focus Strategies(Low-Cost Focus & Best-Value Focus)

36. Generic Strategies Cost Leadership (Type 1 and Type 2) • In conjunction with differentiation • Economies or diseconomies of scale • Capacity utilization achieved • Linkages with suppliers & distributors

37. Generic Strategies Differentiation (Type 3) • Greater product flexibility • Greater compatibility • Lower costs • Improved service • Greater convenience • More features

38. Generic Strategies Focused Strategies (Type 4 & 5) • Industry segment of sufficient size • Good growth potential • Not crucial to success of major competitors

39. Means for Achieving Strategies (Cooperative Arrangements / Strategic Alliances) • Joint Venture • Merger • Acquisition • Takeover/hostile takeover

40. Means for Achieving Strategies (Strategic Alliances) 1. Joint Venture / Partnering - Is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. - The two or more sponsoring firms form a separate organization and have shared equity ownership in the new entity.

41. Means for Achieving Strategies (Strategic Alliances) 2. Merger - A merger occurs when two organizations of about equal size unite to form one enterprise.

42. Means for Achieving Strategies (Strategic Alliances) 3. Acquisition - An acquisition occurs when a large organization purchases (acquires) a smaller firm, or vice versa.

43. Means for Achieving Strategies (Strategic Alliances) 4. Takeover / Hostile Takeover - When a merger or acquisition is not desired by both parties, it can be called a takeover or hostile takeover.

44. Means for Achieving Strategies (Strategic Alliances) Guidelines -- • Synergies between private and publicly held • Domestic with foreign firm, local management can reduce risk • Complementary distinctive competencies • Resources & risks where project is highly profitable • Two or more smaller firms competing with larger firm • Need to introduce new technology quickly

45. Recent Mergers