1. 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
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2. Chapter Outline Long-Term Objectives Types of Strategies
Integration Strategies
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3. Chapter Outline Intensive Strategies Diversification Strategies
Defensive Strategies
Means for Achieving Strategies
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4. Chapter Outline Michael Porter’s Generic Strategies
Strategic Management in Nonprofit and Governmental Organizations
Strategic Management in Small Firms
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5. Strategies in Action
Even if you’re on the right track, you’ll get run over if you just sit there.
-- Will Rogers
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6. Strategies in Action Hundreds of companies today –
Embrace strategic planning
Quest for higher revenues
Quest for higher profits
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7. Long-Term Objectives
The results expected from pursuing certain strategies
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8. Long-Term Objectives Objectives – Quantifiable Measurable Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent
Time-line
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9. Long-Term Objectives Long-term objectives are necessary – Corporate
Divisional
Functional levels
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10. Long-Term Objectives Strategists should avoid –
Managing by Extrapolation
Managing by Crisis
Managing by Subjectives
Managing by Hope
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11. Horizontal Integration Vertical Integration Strategies
Forward Integration
Backward Integration
Horizontal Integration
Vertical Integration Strategies
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12. Integration Strategies
Vertical Integration strategies –
Allow a firm to gain control over:
Distributors
Suppliers
competitors
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13. Integration Strategies
Forward Integration –
Gaining ownership or increased control over distributors or retailers
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14. Integration Strategies
Guidelines for Forward Integration –
Present distributors are expensive, unreliable, or incapable of meeting firm’s 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
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15. Integration Strategies
Backward Integration –
Seeking ownership or increased control of a firm’s suppliers
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16. 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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17. Integration Strategies
Horizontal Integration –
Seeking ownership or increased control over competitors
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18. 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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19. Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
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20. 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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21. 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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22. Generic Strategies Differentiation Strategies –
Greater product flexibility
Greater compatibility
Lower costs
Improved service
Greater convenience
More features
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23. Generic Strategies Differentiation Strategies –
Allow firm to charge higher price
Gain customer loyalty
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24. Generic Strategies Focus Strategies –
Industry segment of sufficient size
Good growth potential
Not crucial to success of major competitors
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25. Generic Strategies Focus Strategies –
Consumers have distinctive preferences
Rival firms not attempting to specialize in the same target segment
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26. Intensive Strategies Market Penetration Market Development
Product Development
Intensive Strategies
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27. Intensive Strategies Intensive strategies –
Require intensive efforts to improve a firm’s competitive position with existing products
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28. Intensive Strategies Market Penetration –
Seeking increased market share for present products or services in present markets through greater marketing efforts
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29. 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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30. Intensive Strategies Market Development –
Introducing present products or services into new geographic area
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31. 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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32. Intensive Strategies Product Development –
Seeking increased sales by improving present products or services or developing new ones
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33. 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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34. Diversification Strategies
Concentric Diversification
Conglomerate Diversification
Horizontal Diversification
Diversification Strategies
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35. Diversification Strategies
Becoming less popular as organizations are finding it more difficult to manage diverse business activities
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36. Diversification Strategies
Concentric Diversification –
Adding new, but related, products or services
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37. 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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38. Diversification Strategies
Conglomerate Diversification –
Adding new, unrelated products or services
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39. 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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40. Diversification Strategies
Horizontal Diversification –
Adding new, unrelated products or services for present customers
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41. 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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42. Defensive Strategies Retrenchment Divestiture Liquidation
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43. Defensive Strategies Retrenchment –
Regrouping through cost and asset reduction to reverse declining sales and profit
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44. 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 organization’s strategic managers have failed
Very quick growth to large organization where a major internal reorganization is needed
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45. Defensive Strategies Divestiture –
Selling a division or part of an organization
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46. 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 firm’s 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.
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47. Recent Divestitures
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48. Defensive Strategies Liquidation–
Selling all of a company’s assets, in parts, for their tangible worth
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49. 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 firm’s assets
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50. 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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51. 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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52. 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
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53. 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
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54. Recent Mergers Acquiring Firm Acquired Firm Hewlett-Packard
Compaq Computer
Ebay
Homes Direct
PepsiCo
Quaker Oats
Sara Lee
Earthgrains Company
Phillips Petroleum
Conoco
Devon
Anderson Exploration
AMR
TWA
Tellabs
Ocular Networks
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55. Key Terms Acquisition Backward Integration Combination Strategy
Concentric Diversification
Conglomerate Diversification
Cooperative Arrangements
Cost Leadership
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56. Key Terms Differentiation Diversification Strategies Divestiture Focus
Forward Integration
Franchising
Generic Strategies
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57. Key Terms Horizontal Diversification Horizontal Integration
Integration Strategies
Intensive Strategies
Joint Venture
Liquidation
Long-Term Objectives
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58. Key Terms Market Development Market Penetration Merger Outsourcing
Product Development
Retrenchment
Takeover
Vertical Integration
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