Copyright 2005 Prentice Hall1 Bus 411 Day 9

Copyright 2005 Prentice Hall Ch 3 -2 Agenda Assignment #2 RE Corrected  5 A’s, 1 B,1 C’s and 1 MIS Assignment 3 Due Assignment 4 posted (next Slide)  Due March 3 One more assignment which will due after Spring Break Mid term Exam will be after Spring break and will be a take home exam covering the first 9 chapters of the text. Finish Discussion of Strategies in Action and begin looking at Strategic Analysis and Choice

Copyright 2005 Prentice Hall Ch 3 -3 Chapter 5 Strategies in Action Strategic Management: Concepts & Cases 11 th Edition Fred David

Copyright 2005 Prentice Hall Ch 3 -4 Assignment 4 For assignment 4, complete Experiential Exercise 5A on page 210 of your text.  Change the name of your report to "Strategies for Google in 2008".  A three page (single-spaced) report is about words, so if you are double-spacing your report, I expect about five to six pages.  Refer to the strategies listed in table 5-3 (page 173) and/or to Porter’s five generic strategies (figure 5-3 on page 189) when selecting and justifying strategies for Google.  This assignment will be due on March 3 at the beginning of class.  Make sure you provide the sources of your information (source attribution does not count towards the length requirement).

Copyright 2005 Prentice Hall Ch 3 -5 Michael Porter’s Generic Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies

Copyright 2005 Prentice Hall Ch 3 -6

Copyright 2005 Prentice Hall Ch 3 -7 Generic Strategies  In conjunction with differentiation  Economies or diseconomies of scale  Capacity utilization achieved  Linkages w/ suppliers & distributors Cost Leadership (Type 1 and Type 2)

Copyright 2005 Prentice Hall Ch 3 -8 Cost Leadership Ways of ensuring total costs across value chain are lower than competitors’ total costs 1. Perform value chain activities more efficiently than rivals and control factors that drive costs 2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities

Copyright 2005 Prentice Hall Ch 3 -9 Cost Leadership Can be especially effective when: 1. Price competition among rivals is vigorous 2. Rival’s products are identical and supplies are readily available 3. There are few ways to achieve differentiation 4. Most buyers use the product in the same way 5. Buyers have low switching costs 6. Buyers are large and have significant power 7. Industry newcomers use low prices to attract buyers

Copyright 2005 Prentice Hall Ch Generic Strategies  Many price-sensitive buyers  Few ways of achieving differentiation  Buyers not sensitive to brand differences  Large # of buyers w/bargaining power Low Cost Producer Advantage

Copyright 2005 Prentice Hall Ch Generic Strategies  Greater product flexibility  Greater compatibility  Lower costs  Improved service  Greater convenience  More features Differentiation (Type 3)

Copyright 2005 Prentice Hall Ch Differentiation Can be especially effective when: 1. There are many ways to differentiate and many buyers perceive the value of the differences 2. Buyer needs and uses are diverse 3. Few rival firms are following a similar differentiation approach 4. Technology change is fast paced and competition revolves around evolving product features

Copyright 2005 Prentice Hall Ch Generic Strategies  Industry segment of sufficient size  Good growth potential  Not crucial to success of major competitors Focused Strategies (Type 4 & 5)

Copyright 2005 Prentice Hall Ch Focused Strategy Can be especially effective when: 1. The target market niche is large, profitable, and growing 2. Industry leaders do not consider the niche crucial 3. Industry leaders consider the niche too costly or difficult to meet 4. The industry has many different niches and segments 5. Few, if any, other rivals are attempting to specialize in the same target segment

Copyright 2005 Prentice Hall Ch 3 -15

Copyright 2005 Prentice Hall Ch Means for Achieving Strategies  Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity Joint Venture/Partnering -

Copyright 2005 Prentice Hall Ch Reasons why Mergers and Acquisitions Fail Integration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy

Copyright 2005 Prentice Hall Ch Means for Achieving Strategies  R&D partnerships  Cross-distribution agreements  Cross-licensing agreements  Cross-manufacturing agreements  Joint-bidding consortia Cooperative Arrangements -

Copyright 2005 Prentice Hall Ch Means for Achieving Strategies  Managers who must collaborate daily; not involved in developing the venture  Benefits the company not the customers  Not supported equally by both partners  May begin to compete with one of the partners Why Joint Ventures Fail -

Copyright 2005 Prentice Hall Ch Joint Ventures 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 (e.g. Alaska Pipeline)  Two or more smaller firms competing w/larger firm  Need to introduce new technology quickly

Copyright 2005 Prentice Hall Ch Means for Achieving Strategies  Provide improved capacity utilization  Better use of existing sales force  Reduce managerial staff  Gain economies of scale  Smooth out seasonal trends in sales  Gain new technology  Access to new suppliers, distributors, customers, products, creditors Mergers & Acquisitions

Copyright 2005 Prentice Hall Ch Reasons why Mergers and Acquisitions Fail Too much diversification Managers overly focused on acquisition Too large an acquisition Difficult to integrate different organizational cultures Reduced employee moral due to layoffs and relocations

Copyright 2005 Prentice Hall Ch Recent Mergers Acquiring FirmAcquired Firm IBMAscential Software Philip MorrisPT Hanjaya Mandala Samp U.S. SteelNational Steel Corp OraclePeopleSoft OSIM International LtdBrookstone Adobe SystemsMacromedia US AirwaysAmerican West United Parcel ServiceOvernight Corp.

Copyright 2005 Prentice Hall Ch 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 2005 Prentice Hall Ch First Mover Advantages  Securing access to rare resources  Gaining new knowledge of key factors & issues  Carving out market share  Easy to defend position & costly for rival firms to overtake Potential Advantages

Copyright 2005 Prentice Hall Ch Get Big Fast When … “Winner-take-all” dynamics apply  Network effects (i.e., “viral”)  Scale economies (i.e., “scalable”)  Customer retention (i.e., “sticky”) And, competitive risks are “reasonable” And, lifetime value of customer exceeds acquisition cost And, you can fund aggressive growth McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Copyright 2005 Prentice Hall Ch Phases of Investment Manias (Kindleberger) McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Euphoria Overtrading - Entrants fight wars of escalation and attrition - Early movers expand scope to exploit/sustain valuation Revulsion - “Babies out with bathwater” - Opportunities for those with cash, courage

Copyright 2005 Prentice Hall Ch Get It Right First When… Protecting quality/brand is paramount “Learning by doing” is important  The first mover provides the “lessons learned”

Copyright 2005 Prentice Hall Ch Outsourcing  Companies taking over the functional operations of other firms Business-process outsourcing (BPO)

Copyright 2005 Prentice Hall Ch Outsourcing  Less expensive  Allows firm to focus on core business  Enables firm to provide better services Benefits

Copyright 2005 Prentice Hall Ch Chapter 6 Strategy Analysis & Choice Strategic Management: Concepts & Cases 11 th Edition Fred David

Copyright 2005 Prentice Hall Ch Chapter Outline The Nature of Strategy & Choice A Comprehensive Strategy-Formulation Framework The Input Stage

Copyright 2005 Prentice Hall Ch Chapter Outline ( cont’d ) The Matching Stage The Decision Stage Cultural Aspects of Strategy Choice

Copyright 2005 Prentice Hall Ch Chapter Outline ( cont’d ) The Politics of Strategy Choice Governance Issues

Copyright 2005 Prentice Hall Ch To acquire or not to acquire, that is the question – Robert J. Terry Strategy Analysis & Choice Life is full of lousy options – General P.X. Kelley

Copyright 2005 Prentice Hall Ch External Audit Chapter 3 Internal Audit Chapter 4 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Vision & Mission Chapter 2 Comprehensive strategic management model

Copyright 2005 Prentice Hall Ch Establishing long-term objectives -- Generating alternative strategies -- Selecting strategies to pursue -- Best alternative - achieve mission & objectives Nature of Strategy Analysis & Choice Strategy Analysis & Choice

Copyright 2005 Prentice Hall Ch Vision Mission Objectives External audit Internal audit Past successful strategies Strategy Analysis & Choice Alternative Strategies Derive From --

Copyright 2005 Prentice Hall Ch Strategy Analysis & Choice Generating Alternatives -- Participation in generating alternative strategies should be as broad as possible

Copyright 2005 Prentice Hall Ch Comprehensive Strategy-Formulation Framework Stage 1: The Input Stage Stage 2: The Matching Stage Stage 3: The Decision Stage

Copyright 2005 Prentice Hall Ch Strategy-Formulation Analytical Framework Internal Factor Evaluation Matrix (IFE) External Factor Evaluation Matrix (EFE) Competitive Profile Matrix (CPM) Stage 1: The Input Stage

Copyright 2005 Prentice Hall Ch Stage 1: The Input Stage  Basic input information for the matching & decision stage matrices  Requires strategists to quantify subjectivity early in the process  Good intuitive judgment always needed

Copyright 2005 Prentice Hall Ch Strategy-Formulation Analytical Framework SWOT Matrix SPACE Matrix BCG Matrix IE Matrix Grand Strategy Matrix Stage 2: The Matching Stage

Copyright 2005 Prentice Hall Ch Stage 2: The Matching Stage  Match between organization’s internal resources & skills and the opportunities & risks created by its external factors

Copyright 2005 Prentice Hall Ch Stage 2: The Matching Stage  Strengths  Weaknesses  Opportunities  Threats SWOT Matrix

Copyright 2005 Prentice Hall Ch SWOT Matrix  Strengths-Opportunities (SO)  Weaknesses-Opportunities (WO)  Strengths-Threats (ST)  Weaknesses-Threats (WT) Four Types of Strategies

Copyright 2005 Prentice Hall Ch SO Strategies Use a firm’s internal strengths to take advantage of external opportunities SO Strategies Strengths Weaknesses Opportunities Threats SWOT

Copyright 2005 Prentice Hall Ch WO Strategies Improving internal weaknesses by taking advantage of external opportunities WO Strategies Strengths Weaknesses Opportunities Threats SWOT

Copyright 2005 Prentice Hall Ch ST Strategies Use a firm’s strengths to avoid or reduce the impact of external threats ST Strategies Strengths Weaknesses Opportunities Threats SWOT

Copyright 2005 Prentice Hall Ch WT Strategies Defensive tactics aimed at reducing internal weaknesses & avoiding environmental threats WT Strategies Strengths Weaknesses Opportunities Threats SWOT

Copyright 2005 Prentice Hall Ch SWOT Matrix Developing the SWOT  List firm’s key internal Strengths  List firm’s key internal Weaknesses  List firm’s key external Opportunities  List firm’s key external Threats

Copyright 2005 Prentice Hall Ch SWOT Matrix Leave Blank Strengths – S List Strengths Weaknesses – W List Weaknesses Opportunities – O List Opportunities SO Strategies Use strengths to take advantage of opportunities WO Strategies Overcoming weaknesses by taking advantage of opportunities Threats – T List Threats ST Strategies Use strengths to avoid threats WT Strategies Minimize weaknesses and avoid threats

Ch Develop a new employee benefits package = Strong union activity (threat) + Poor employee morale (weakness) Develop new products for older adults = Decreasing numbers of young adults (threat) +Strong R&D (strength) Pursue horizontal integration by buying competitor's facilities = Exit of two major foreign competitors from the industry (opportunity) + Insufficient capacity (weakness) Acquire Cellfone, Inc.= 20% annual growth in the cell phone industry (opportunity) + Excess working capacity (strength) Key Internal FactorKey External FactorResultant Strategy Matching Key Factors to Formulate Alternative Strategies

Copyright 2005 Prentice Hall Ch Limitations with SWOT Matrix Does not show how to achieve a competitive advantage Provides a static assessment in time May lead the firm to overemphasize a single internal or external factor in formulating strategies