Topic 5 Strategies: are the means by which the Mission of the Organization And the objectives of the firm are attained. Objectives: tell you WHAT results you are trying to achieve and WHEN the results are scheduled for achievement. In the simulation, Performance Goals are your Objectives. You must allocate 100% among eight performance goals before 1 st non-practice run. Strategies answer the question HOW you will attain objectives.

The order that you develop in logical sequence is: 1 st develop a Mission and Vision 2 nd develop Objectives to quantify and make your mission specific 3 rd come up with Strategies to attain objectives Many of the strategies given below involve growth, therefore, some type of growth strategy is most popular type of strategy.

Strategic Management Model Strategy Formulation Strategy Implementation Evaluation and Control Mission Objectives Strategies Feedback/Learning Environmental Scanning Societal Environment General Forces Task Environment Industry Analysis Structure Chain of Command Resources Assets, Skills Competencies, Knowledge Culture Beliefs, Expectations, Values Reason for existence What results to accomplish by when Plan to achieve the mission & objectives Programs Activities needed to accomplish a plan Budgets Cost of the programs Procedures Sequence of steps needed to do the job Process to monitor performance and take corrective action Performance External Internal Go through decision- making process and Determine alternative strategy To select

Potential Groups of Strategies that you can develop are given in text in 5 groupings: A)Integration Strategies B)Intensive Strategies C)Diversification Strategies 1. Cooperative strategies 2. True Defensive strategies D.Generic Competitive Strategies by Porter E.Stability Strategies

A)Integration Strategies are those strategies where you move vertically up or down your channel of distribution or horizontally side-to-side. Suppliers MGFR Distributor Retailer Consumer

Forward Integration – You move down the channel – best used when you have ineffective channel members, there are high margins, and you have capital/resources and knowledge for success. An effective way to use this strategy is by franchising. Backward Integration – You move up your channel of distribution - best when you have ineffective unreliable, high margin suppliers – better in rapidly growing, competitive industry. Horizontal Integration – You set up internally, or buy up other companies (external) that are at your same level of Channel of Distribution - best when you can gain unchallenged monopoly, you have resources, you can gain competitive advantage.

Which Integration Strategies Are Most Successful Vertical Growth80% Horizontal Growth50% Concentric 35% Conglomerate ( least successful )27% Supply Chain management and Joint Strategy Planning are used to do Vertical Integration often without buying out those in your vertical channel.

B. Intensive Strategies Old ProductNew Product Old Market New Market Product Development Conglomerate Strategies Market Development Penetration

Market Penetration You sell more products to your same customers - you lower the price, add salespersons and outlets and try to increase use by present customers. Market Development – you distribute goods to new customers that haven’t traditionally been in your territory or that haven’t been the type of customer to whom you market. Often useful when a company has excess production capacity. Product Development – change or renew product that is becoming perceptually, or technically inferior. [Old Tide is New Tide with crystals – In some cases products are is just perceived as inferior so you change your advertising and call it a new product. In other situations you actually redo your product.]

C.1.a. Diversification Strategies Concentric Diversification – Adding new, but related, products or services. Complementary and Supplementary. Horizontal Diversification – Adding new, unrelated products or services for present customers. Conglomerate Diversification – Adding new, unrelated products and services. (Most risky of diversification strategies)

C.1.b. Strategic Alliances Mutual Service Consortium - companies pool to do tasks that would be too expensive individually (Financial name syndication) Examples: IGA, AG Wholesaling, use Purchasing, Inventory, Company Transportation consortium

C.1.b. Strategic Alliances Joint Ventures - usually temporary business unit set up to do particular tasks Most popular type of alliance Useful in international trade Licensing - agreement to produce or sell product of other company (Patents, Brands, Copyrights)

C.2. Defensive Strategies Joint Venture – Two or more companies form a temporary partnership to reduce each others competition, or to survive in a highly competitive situation. Retrenchment – When a organization regroups through cost and asset reduction – Retrenchment Turnaround –appropriatewhen industry is good and problems are pervasive but not critical. (Chapter 11 reorganize and restructure debt is also a possibility. This could be the best strategy for some companies.) Captive Company Strategy-Become a captive of one of your larger Customers. Outsourcing may be a way of getting rid of functions you no longer want to perform. Divestiture – Selling of part of organization Liquidation – Selling of all of the company’s assets ( extreme is total bankruptcy forced on you by creditors.) Combination – The use of several strategies

D. Porter’s Generic Competitive Strategies: Cost Leadership (Mass market) Differentiation (Concentrate on major segment of market, or major product lines) Focus Differentiation (Focus on a segment with customized products) Cost Focus (Go after niche with lowest prices) Quick response and flexibility is a strategy that is recently being used.

Porter’s Generic Competitive Strategies Source: Reprinted with permission of The Free Press, an imprint of Simon & Schuster, from The Competitive Advantage of Nations by Michael E. Porter, p. 39. Copyright © 1990 by Michael E. Porter. Differentiation Broad Target Narrow Target Competitive Advantage Cost LeadershipDifferentiation Cost FocusFocused Differentiation Competitive Scope Lower Cost

Requirements for Generic Competitive Strategies Commonly Required Generic Common Organizational Strategy Requirements Skills and Resources Overall Cost Leadership Sustained capital investment and access to capital Process engineering skills Intense supervision of labor Products designed for ease of manufacture Low-cost distribution system Differentiation Strong marketing abilities Product engineering Creative flair Strong capability in basic research Corporate reputation for quality or technological leadership Long tradition in the industry or unique combination of skills drawn from other businesses Strong cooperation from channels Focus Combination of the above policies directed at the particular strategic target Tight cost control Frequent, detailed control reports Structured organization and responsibilities Incentives based on meeting strict quantitative targets. Strong coordination among functions in R&D, product development, and marketing Subjective measurement and incentives instead of quantitative measures Amenities to attract highly skilled labor, scientists, or creative people Combination of the above policies directed at the particular strategic target

E. Stability Strategies Pause or Proceed with Caution - strategy used when industry faces uncertain future, and/or a company needs to consolidate after a period of growth. No Change Strategy – strategy used when company is operating in medium attractiveness industry and is an average firm. Small adjustments are made. Short-term Profit Strategy – strategy to run out profits of firm for the short-run. This is not a useful long-term strategy.

What is the best strategy to pick? 1. It attains the objectives of the company –(Financial, Market rank, Best in Industry) 2.It fits the mission of the company 3.It narrow down the choices of directions of the company and can be accomplished with the resources of the company (We are looking for competitive or distinctive advantage.) 2.It fits the risk characteristics of the company