1. Long Term Objectives, Generic and Grand Strategies
Session 10
Long Term Objectives, Generic and Grand Strategies

2. Session Objectives Setting your dominant long term objective.
Define the 3 generic (drivers) of effective competitive strategies.
Define and clarify 15 recurring grand strategies.

3. Long-Term Objectives
Short-run profit maximization is rarely the best approach to achieving sustained corporate growth and profitability
Types of Long Term Objectives:
Profitability – Productivity
Competitive Position – Employee development
Employee Relations – Productivity
Tech Leadership – Public Responsibility

4. Usage Frequencies of Long Term Objectives (N = 82)
Profitability %
Growth
Market Share
Social Responsibility
Employee Welfare
Product/Service Quality
R&D
Diversification
Efficiency

5. Qualities of Long-Term Objectives
Acceptable
Achievable
Flexible
Criteria used in preparing objectives
Understandable
Measurable
Suitable
Motivating

6. Forces Driving Industry Competition
Potential entrants
Threat of new entrants
Suppliers
Bargaining power
of suppliers
Industry competitors
Rivalry Among
Existing Firms
Buyers
Bargaining power
of buyers
Substitutes
Threat of substitute products or services

7. Generic Strategies
A long-term BL strategy must be based on a core idea about how the firm can best compete in the marketplace. The popular term for this core idea is generic strategy.

8. Three Generic Strategies
Low-cost leadership
Differentiation
Focus

9. 3 Generic Strategies
Striving for overall low-cost leadership in the industry.
Striving to create and market unique products for varied customer groups through differentiation.
Striving to have special appeal to one or more groups of consumers or industrial buyers, focusing on their cost or differentiation concerns

10. Low-Cost Leadership
Low-cost producers usually excel at cost reductions and efficiencies
They maximize economies of scale, implement cost-cutting technologies, stress reductions in overhead and in administrative expenses, and use volume sales techniques to propel themselves up the earning curve
A low-cost leader is able to use its cost advantage to charge lower prices or to enjoy higher profit margins

11. Differentiation
Strategies dependent on differentiation are designed to appeal to customers with a special sensitivity for a particular product attribute
By stressing the attribute above other product qualities, the firm attempts to build customer loyalty
Often such loyalty translates into a firm’s ability to charge a premium price for its product
The product attribute also can be the marketing channels through which it is delivered, its image for excellence, the features it includes, and its service network

12. Focus
A focus strategy, whether anchored in a low-cost base or a differentiation base, attempts to attend to the needs of a particular market segment
A firm pursuing a focus strategy is willing to service isolated geographic areas; to satisfy the needs of customers with special financing, inventory, or servicing problems; or to tailor the product to the somewhat unique demands of the small- to medium-sized customer
The focusing firms profit from their willingness to serve otherwise ignored or underappreciated customer segments

13. For each of the Three Requirements Risks Skills/resources
Organizational
Risks

14. Requirements for Generic Competitive Strategies
Generic Strategy
Overall cost leadership
Differentia-tion
Focus
Commonly Required Skills
and Resources
Sustained capital investment and access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease in manufacture
Low-cost distribution system
Strong marketing abilities
Product engineering
Creative flare
Strong capability in basic research
Corporate reputation for quality or technological leadership
Unique combination of skills
Strong cooperation from channels
Combination of above policies directed at the particular strategic target
Common Organizational Requirements
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 above policies directed at the regular strategic target

15. Risks of the Generic Strategies
Risks of Cost Leadership
Cost of leadership is not sustained
Competitors imitate
Technology changes
Other bases for cost leadership erode
Proximity in differentiation is lost
Cost focusers achieve even lower cost in segments
Risks of Differentiation
Differentiation is not sustained
Competitors imitate
Bases for differentiation become less important to buyers
Cost proximity is lost
Differentiation focusers achieve greater differentiation in segments
Risks of Focus
Focus strategy is imitated
Target segment becomes unattractive
Structure erodes
Demand disappears
Broadly targeted competitors overwhelm segment
Segment’s differences from others narrow
Advantages of broad line increase

16. Types of Grand Strategies
Concentrated Growth
Conglomerate Diversification
Market Development
Turnaround
Product Development
Divestiture
Innovation
Liquidation
Horizontal Integration
Bankruptcy
Vertical Integration
Joint Ventures
Concentric Diversification
Strategic Alliances
Consortia

17. Concentrated Growth
A grand strategy in which a firm directs its resources to the profitable growth of a single product, in a single market, with a single dominant technology.

18. Example 1
In 2011, McDonald’s uses promotional campaign “Monopoly” to increase the rate of use of their current customers. If you make a game out of it, people will purchase your products to play.

19. Example 2
Best Buy focused on the ‘Concept Stores’ and the initiatives that improved its performance and differentiated the company from its main competitor.

20. Example 3
Paypal revolutionized financial services through its on-line person-to-person (P2P) money transfer service. Paypal’s growth strategy is to increase its customer base and sales through focusing on its online payment market.

21. Market Development
A grand strategy of marketing present products. Often with only cosmetic modification, to customers in related marketing areas.

22. Example 1
Pacific Andes achieved considerable growth in seafood and vegetable business within a short span expanding into other countries. It also increased its global market share and gained a sustainable competitive advantage through synergy.

23. Example 2
Toyota expanded its presence in the European car market. Toyota succeeded in localizing its strategies in tune with the needs of the European car market. Toyota also analyzed its strategy in Europe in the wake of currency fluctuations and the new needs of the market.

24. Product Development
A grand strategy that involves the substantial modification of existing products that can be marketed to current customers.

25. Example 1
The entire Nikon group is implementing the “Nikon Product Assessment” to create new products which offer enhanced power consumption efficiency, are smaller and lighter, use less harmful substances, and utilise Eco-glass.

26. Example 2
Miller/Coors with their Coors Light cold themed packaging bells and whistles: frost brewed, cold activated can, wide mouthed, cold filtered, home keg…

27. Example 3
Sears Circa 1975 with their “buy your stocks where you buy your socks” expansion into financial services: Discover Card, Dean Witter, Coldwell Banker, Allstate Insurance

28. Innovation
A grand strategy that seeks to reap the premium margins associated with creation and customer acceptance of a new product or service.

29. Example 1
Apple is one of the most creative companies in the world. It designs and launches every Mac, iPhone, iPad. Its innovation on electronic products is so successful that everyone wants to own the new Apple products.
(I wrote it.)

30. Example 2
Google’s most recent innovation is on the Android OS for smartphones. It will challenge Apple's iPhone in the hotly competitive world of mobile devices.

31. Example 2
Virgin Galactic – For profit commercial and consumer space travel and transportation

32. Example 3
Google’s most recent innovation is on the Android OS for smartphones. It will challenge Apple's iPhone in the hotly competitive world of mobile devices.

33. Horizontal Integration
A grand strategy based on growth through the acquisition of similar firms operating at the same stage of the production-marketing chain.

34. Wachovia merging with First Union only to be acquired by Wells Fargo
Example 1
Wachovia merging with First Union only to be acquired by Wells Fargo

35. USAirways merging with Piedmont Airlines
Example 2
USAirways merging with Piedmont Airlines

36. Exxon Acquiring Mobil in 2000 for $85.1 Billion
Example 3
Exxon Acquiring Mobil in 2000 for $85.1 Billion

37. Vertical Integration
A grand strategy based on the acquisition of firms that supply the acquiring firm with inputs or new customers for its outputs.
Backward VI is the desire to increase the dependability of the supply or quality of the raw materials used as production inputs
Forward VI is the desire to gain greater control of the distribution/marketing/selling/service of products or services

38. Example 1
AT&T has ownership over companies that transmit equipments, including stations, cable lines, telephones, etc. which tremendously helped AT&T in providing one stop services and products. Without paying AT&T for its entitled infrastructure, other companies would never be able to use or provide similar services or products which AT&T is said to be a “dominating winning mix”.

39. Example 2
Starbucks originally started as a roaster and retailer of coffee-beans, when its founder, Howard Schultz joined the company as a young salesman. The company is immensely vertically integrated for one purpose alone, maintaining perfect quality throughout the value-chain.

40. Example 3
Apple figured out how to link the content, the hardware, the software, and the pricing and distribution mechanisms, all more or less under one company's control. However, Apple is controlling the parts of the operation that touch customer experience. Apple aggressively uses contract manufacturing rather than having to manage everything itself. Apple has dug even deeper into vertical integration by announcing that it now intends to design the very chips that go into some of its products.

41. Vertical and Horizontal Integration

42. Concentric Diversification
Concentric diversification involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products
With this grand strategy, the selected new businesses possess a high degree of compatibility with the firm’s current businesses
The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk

43. Example 1
The recent entry of Bell Atlantic Corporation, a telephone company, into the video programming business.

44. Example 2
Dell Computers is pursing concentric diversification by manufacturing and marketing consumer electronic products (Flat Panel TVs, MP3 players, online music-downloading store.) This is an example of Personal computer business becoming more aligned with the entertainment business because both are becoming more and more digital. thinkpositive.ciprasystems.com/Admin/Common/163.ppt

45. Example 3
Bill Gates (sorry - ahem - MS) bought Hotmail, which added a valuable service to the other internet activities and brought Microsoft a bright future.

46. Conglomerate Diversification
Occasionally a firm, particularly a very large one, plans acquire a business because it represents the most promising investment opportunity available. This grand strategy is commonly known as conglomerate diversification.
The principal concern of the acquiring firm is the profit pattern of the venture
Unlike concentric diversification, conglomerate diversification gives little concern to creating product-market synergy with existing businesses

47. Example 1
General Electric is an example of a firm that is highly diversified. GE makes locomotives, light bulbs, and refrigerators. GE manages more credit cards than American Express. GE owns more aircraft that American Airlines.

48. Example 2
ITC, a primarily cigarette company, is pursing conglomerate diversification by entering into hotel industry.
thinkpositive.ciprasystems.com/Admin/Common/163.ppt

49. Example 3
ESSAR GROUP is pursing conglomerate diversification by entering into these fields: iron and steel, oil support services, shipping, and marine constructions.
thinkpositive.ciprasystems.com/Admin/Common/163.ppt

50. Turnaround The firm finds itself with declining profits
Among the reasons are economic recessions, production inefficiencies, and innovative breakthroughs by competitors
Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround.
Two forms of retrenchment:
Cost reduction
Asset reduction

51. Divestiture
A divestiture strategy involves the sale of a firm or a major component of a firm
When retrenchment fails to accomplish the desired turnaround, or when a nonintegrated business activity achieves an unusually high market value, strategic managers often decide to sell the firm
Reasons for divestiture vary

52. Liquidation
When liquidation is the grand strategy, the firm typically is sold in parts, only occasionally as a whole—but for its tangible asset value and not as a going concern
Planned liquidation can be worthwhile

53. Bankruptcy
Liquidation (Chapter 7) bankruptcy—agreeing to a complete distribution of firm assets to creditors, most of whom receive a small fraction of the amount they are owed
Reorganization (Chapter 11) bankruptcy—the managers believe the firm can remain viable through reorganization

54. Joint Ventures
Occasionally two or more capable firms lack a necessary component for success in a particular competitive environment
The solution is a set of joint ventures, which are commercial companies (children) created and operated for the benefit of the co-owners (parents)
The joint venture extends the supplier-consumer relationship and has strategic advantages for both partners

55. Strategic Alliances
Strategic alliances are distinguished from joint ventures because the companies involved do not take an equity position in one another
In some instances, strategic alliances are synonymous with licensing agreements
Outsourcing arrangements vary

56. Session Objectives Setting your dominant long term objective.
Define the 3 generic (drivers) of effective competitive strategies.
Define and clarify 15 recurring grand strategies.

57. Group Exercise For your Case Company:
Are there examples of rivals that more closely follow CL, Diff, and Focus?
Provide 5 different company examples (hypothetical is ok) of rivals deploying one of the named grand strategies.

58. Break Out Reporting Case: Industry: Rival Generic Strategy Examples:
Grand Strategy Examples: