1. Chapter 5 Strategies in Action
“One big problem with American business is that when it gets into trouble, it redoubles its effort. Its like digging for gold. If you dig down twenty feet and haven’t found it, one of the strategies you could use is to dig twice as deep. But if the gold is twenty feet to the side, you could dig a long time and not find it”

2. Even if you’re on the right track, you’ll get run over if you just sit there

3. Introduction …………………
Hundreds of company today, including IBM & HP embraced Strategic Planning for high revenues & profits
Contemporary examples complimented by 16 Strategies are defined including Michael Porter’s Generic Strategies
When it is appropriate to pursue different types of strategies….Guidelines presented

4. Managerial approach is the expectation that it will enhance Org performance
Strategic Management allows ORG’s to be efficient, but more important, it allows them to be effective
SM doesn’t guarantee success, the process allows proactive rather reactive decision making
16 strategies- new beginning for firms- managers & employees in the ORG understand & support the plan for action

5. Long-Term Objectives Objectives --
LTO represent the results expected from pursing certain strategies
Strategies represent the actions to be taken to accomplish long-term objectives
Objectives --
Quantifiable (increasing profits by 2%, decreasing scrap by 1%)
Measurable (Not all goals can be expressed in numerical terms but vague goals have little motivating power for employees)
Realistic (Goals should be challenging but not unreasonably difficult
When goals are unrealistic, they set employees up for failure and lead to decreasing employee morale)
Understandable (At the Top Org, goals often are qualitative as well as quantitative)
Challenging (Kmart: set a goal to have more revenues than Wal-Mart next year)

6. Long-Term Objectives Objectives --
Hierarchical ?
Obtainable (Managers should, however make sure that goals are set within the existing resource base, not beyond dept’s time, equipment & financial resource)
Congruent (Consistent)
Time-line (Goals should specify the time period over which the will be achieved)

7. Long term objectives
Strategies represent the actions to be taken to accomplish LTO
Time Frame 2-5years
Table 5.1 (Bonuses /merit pay for managers must be based on LTO)
LTO serve as standards by which individuals, dept’s, division & entire ORG’s can be evaluated

8. Financial vs. Strategic Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher Earnings per share
Improved cash flow
Dell Computer corporate objective to
Grow revenues by 15% annually
Through 2006 & to reach $60 billion
In total revenues by that year

9. Financial vs. Strategic Objectives
Larger Market share
quicker on-time delivery than rivals
Shorter design to market times than rivals
Lower costs than rivals
Higher product quality
Wider geographic coverage
Achieving tech leadership
Often times there is a trade-off between financial & strategic objectives such that a crucial decisions have to be made
YOU NEED TO FIND OUT?

10. Financial VS Strategic Objectives
If competitor pursue increased market share at the expense of short-term profitability----- Danger is associated with trading LTO
Other trade offs between F&S objectives
-Riskiness of actions
Preserve the natural environment
Social responsibility
Conclusion---Sustain competitive adv over long run is to pursue ‘SO’..
Financial objectives can be met by focusing first on SO- to improve a firm’s competitiveness & market strength
Concern for business ethics

11. Will be discussed later in chapter 9
The Balanced Scorecard
Robert Kaplan & David Norton --
Strategy evaluation & control technique
Balance financial measures with non-financial measures (product quality & customer service)
BS contains strategic & financial Obj’s tailored to the Companies
Balance shareholder objectives with customer & operational objectives
Will be discussed later in chapter 9

12. The Balanced Scoreboard
Theme is the same to evaluate firms strategy based upon quantitative & qualitative measures
3M FO– annual growth earnings per share 10% or better
SO– at least 30% of shares from products introduced in the past 4 years

13. Types of Strategies
Combination strategy can be exceptionally risky if carried out too far
Strategic planning involves
“ Choices that risk resources”
“ trade-offs that sacrifice opportunity”
If you have a strategy to go north, then you must buy snowshoes & warm jackets (spend resources) &forgo the opportunity of population increases you would have by going south
You cannot have a strategy to go north & then take a step east, south, or west “just to be on the safe side”

14. Levels of Strategies A Large Company Corp Level
Strategy making is not just a task for top executive
All managers at all level must be involved
Division Level
Functional Level
Operational Level

15. Forward integration
Gaining ownership or increased control over distributors or retailers
Manufacturers (suppliers) today are pursuing a FIS by establishing Websites to directly sell products to consumers
Dell establishing its own stores-within-a-store….(Don’t stock computers-Customers will still order Dells by phone or over the internet-which differentiated Dell from other computer firms)
Franchising (to distribute their products or services)
Cost & opportunities are spread among many individuals

16. Guidelines- when FI may be an especially effective Strategy
That’s what you need to Find out ?

17. Backward Integration
Strategy of seeking ownership or increased control of a firm’s supplier
Appropriate when a firm’s current suppliers are unreliable, too costly or cannot meet the firm’s needs
Example: buy a box of Pampers diapers at Wal-Mart, a scanner at the store’s checkout counter instantly zaps an order to P&G Co.
Contrast- Hospitals, reordering supplies is a logistical nightmare…. Inefficiency of control of suppliers in the healthcare industry—Giant purchasers do more effective backward integration

18. Seven guidelines- when BI may be an especially effective Strategy
Read Out………..

19. Horizontal Integration
Strategy of seeking ownership of or increased control over a firm’s competitors
Mergers, acquisitions & takeovers among competitors allow for increased economies of scale & enhanced transfer of resources & competencies

20. Five guidelines- when HI may be an especially effective Strategy
Read Out……………

21. Intensive Strategies
Market penetration, market development & product development are sometimes referred to as intensive strategies because they require intensive efforts if a firm’s competitive position with existing products is to improve

22. Market Penetration
Seeks to increase market share for present products or services in present markets through greater marketing efforts
Used alone & in combination with other strategies
Increasing number of salespersons, increasing advertising expenditures, offering extensive sales promotion items or increasing publicity efforts
Sony is spending over $140M in a new advertising & promotion drive to market HDTV sets in the U.S (Bravia)
Sony- setting up special tents to promote Bravia at 1000 stores in America

23. Five guidelines- when Market penetration may be an especially effective Strategy
When the usage rate of present customers could be increased significantly
When the market shares of major competitors have been declining while total industry sales have been increasing
When increased economies of scale provide major competitive adv
When current markets are not saturated with a particular product or service
when the correlation btw $sales & $ marketing expenditure historically has been high

24. Market Development
Involves introducing present products or services into new geographic areas
Adidas in 2005 had 1500 stores in China & stated that it would open another 40 stores every month in china for the next 40 months
United Parcel Service (UPS) is building new cargo hub in shanghai– UPS planning to compete in China with FedEx & DHL

25. Guidelines for when market development may be an especially effective strategy
When an org is very successful at what it does
When an Org has the needed capital & HR to manage expanded operations
Excess production capacity
Org basic industry is becoming rapidly global in scope

26. Product Development
Strategy that seeks increased sales by improving or modifying present products or services
Usually entails large research and development expenditures
Coca-Cola introducing Zero which underscore the growing popularity of diet soft drinks at the expense of sugary drinks. Sales in sugary drinks fell 3%. Diet drinks now have 29.1% market share & that is growing. Many teenagers & young adults ditched regular colas in favor of bottled water & diet drinks
McDonald’s design your own deli sandwiches (chicken salad blended with pecans, apples & grapes)

27. Guidelines for when Product development may be an especially effective strategy…..
When an organization has successful products that are in the maturity stage of the product life cycle; the idea here is to attract satisfied customers to try new (improved) products as a result of their positive experience with the Org present products or services
When major competitors offer better quality products at comparable prices
When an organization competes in a high growth industry
Org has strong R&D capabilities

28. Diversification Strategies
Business are said to be related when their value chains posses competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value chain are so dissimilar that no competitively valuable cross-business relationship exist

29. Diversification Continue……..
Becoming less popular as organizations are finding it more difficult to manage diverse business activities
1960’s-70’s trend was to diversify so as not to be dependent on any single industry
But 1980’s saw a general reversal of that thinking
M.Porter “Management found it couldn’t manage the beast”– hence business selling or closing less profitable divisions in order to focus on core businesses

30. Diversification Continue……..
Being in single industry is having all of the firm’s eggs in one basket
New technologies, new products or fast shifting buyer preferences can decimate particular business
Diversification must do more than simply spread business risk across different industries
Strategy adds more to share holder value ……

31. Related Diversification
Entering a new business or industry to create a competitive advantage in one or more of an organizations existing divisions or businesses
Synergy is obtained when value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately
Amazon. COM recent move to sell Personal Computers through its online store
Dell manufacturing & marketing consumer electronics products such as flat-panel TV & MP3 players- opened online music-downloading store
Dell sees the PC business more aligned with the entertainment business because both are becoming more & more digital
Computing & consumer electronics are converging into one industry
Dell, HP, Gateway compete with Sony, Matsushita & Samsung

32. Joint sales force
Same distribution system
Businesses share one of the best examples of the successful production of synergies
Share the costs of producing inputs such as paper & developing new technology to reduce manufacturing costs

33. Guidelines ….. When Org competes in no-growth or slow growth industry
When adding new, but related products would significantly enhance the sales of current products
When an org products are currently in the declining stage of the products life cycle
When an org has a strong management team

34. Unrelated Diversification
Strategy favors capitalizing upon a portfolio of businesses that are capable of delivering excellent financial performance in their respective industries, rather than striving to capitalize on value chain strategic fits among the businesses
Search different industries for Companies that could be acquired for a deal & yet have potential to provide a high return on investment
Hunt to acquire Co.’s hat have growth prospects but are short on investment capital

35. Three major TV networks are all owned by diversified firms
GE owns NBC
Walt Disney owns ABC & CBS
“Unless we diversify our revenue, we wont be able to fulfill our mission of providing healthcare. We want our hospital to be a place that people want to go to”
Hospitals creating malls by offering Banks, bookstores, coffee shops, restaurants & other retail stores… improving ambiance for patients & their visitors
Three major TV networks are all owned by diversified firms

36. Guidelines …………..
When revenues derived from an organization’s current products or services would increase significantly by adding new, unrelated products
When an Org present channels of distribution can be used to market the new products to current customers
When an Org basic industry is experiencing declining annual sales & profits

37. Retrenchment
Occurs when an organization regroups through cost and asset reduction to reverse declining sales & profits
Sometimes called turnaround or re-organizational strategy
Entail selling off land & buildings to raise needed cash, pruning products lines, closing marginal businesses, closing obsolete factories, automating processes, reducing the number of employees & instituting expense control systems

38. Retrenchment Continue….
Winn-Dixie is pursing a retrenchment strategy in 2005 to 2006 by closing one third of its stores & eliminating 22,000 jobs, representing 28% of its workforce
Trying to emerge from Chapter 11 bankruptcy
Bankruptcy can be effective type of retrenchment strategy
Five major types of bankruptcy
Chapter 7, 9, 11, 12, 13 (You find out)

39. Divestiture Selling a division or part of an Org
Used to raise capital for further strategy to rid an Org of businesses that are unprofitable- require too much capital- do not fit well with the firm’s other activities
Example: Unilever recently sold its perfume business, including brands CK to Coty Inc. for $800M
Adidas divested ski-equipment maker Salomon-which was its least profitable division

40. Guidelines
When an Org has pursued a retrenchment strategy & failed to accomplish needed improvements
Division needs more resources to be competitive than the company can provide
When a division is responsible for an Org’s overall poor performance ……….

41. Liquidation
Selling all of a company’s assets in parts for their tangible worth
Recognition of defeat & consequently can be an emotionally difficult strategy
Better to cease operating than to continue losing large sums of money
Example: AOL filed for bankruptcy protection in mid 2005 & announced plans to liquidate its business

42. Guidelines
When an Org has pursued both a Retrenchment strategy & a divestitute strategy & neither has been successful
When Org’s only alternative is banktruptcy
Liquidation represents an orderly & planned means of obtaining the greatest possible cash for an Org assets
A company can legally declare bankruptcy first & then liquidate various divisions to raise needed capital

43. Michael Porters Five Generic Strategies
Cost leadership –Low cost (Type 1)
Cost Leadership – Best Value (Type 2)
Differentiation (Type 3)
Focus-Low Cost (Type 4)
Focus-Best Value (Type 5)
Do it yourself

44. Strategies for Competing in Turbulent, High-Velocity Markets
Joint Ventures / Partnering
Merger / Acquisition
First Mover Advantages
Outsourcing

45. Joint Venture / Partnering
Two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity
Often used to pursue an opportunity that is too complex, uneconomical, or risky for a single firm to pursue alone
JV & Partnerships, alliances are proving to be more effective way to enhance corporate growth than Mergers & Acquisitions

46. VA & Partnering ………….continue
Take many forms including – outsourcing, information sharing, joint marketing and R&D
10,000 JV’s formed annually, more than all mergers & acquistions
Starbucks’ JV with China’s president coffee to open hundreds of SB coffee shops in China (building Chinese taste for coffee)
Microsoft Online service division JV with Shanghai alliance investment to launch MSN China throughout China

47. Concluding thoughts
JV are preferred over M&A as a means of achieving strategies, certainly they are not all successful- Good news is that JV are less risky but bad news is that many alliances fail
Statistics you have to find out 

48. Mergers & Acquisitions
Merger occurs when two organizations of about equal size unite to form one enterprise
Acquisition occurs when a large organization purchases (acquires) a smaller firm, or vice versa

49. M&A not desired by both parties – take over or hostile takeover
In contrast, if the acquisitions is desired by both firms, it is termed as friendly merger
There are number or reasons (forces) which drives companies to merger around the world
( You to find out :Hint for exams  )
Not all mergers are successful
Some key reasons for their failures are ?
Many reasons for companies to merge and acquire ?

50. First Mover Advantages
Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.

51. Outsourcing
Business-process outsourcing (BPO)
Companies taking over the functional operations of other firms

52. Horizontal Integration
Types of Strategies
Forward Integration
Vertical Integration Strategies
Backward Integration
Horizontal Integration

53. Types of Strategies Market Penetration Market Development
Intensive Strategies
Market Development
Product Development

54. Related Diversification
Types of Strategies
Related Diversification
Diversification Strategies
Unrelated
Diversification

55. Types of Strategies Retrenchment Divestiture Liquidation
Defensive Strategies
Divestiture
Liquidation

56. 2003 Examples Forward Integration Backward Integration
Budget Rent-a-Car is opening car rental shops in Wal-Mart stores.
Backward Integration
McDonalds recently acquired a paper cup producer
Hotels, Inc. purchased a furniture producer
Horizontal Integration
Federated Dept stores, the parent of Macy’s & Bloomingdale’s acquired May dept stores
Callaway Golf recently acquired Top-Flite Golf Company

57. 2003 Examples Market Penetration Market Development
Coca-Cola Co. is spending millions to advertise its new zero calorie drink called Coca-Cola Zero
Market Development
Bank of America recently purchased a 9% stake in China Construction Bank- 4th largest lender. BOA first big move into China
Product Development
GM developing hydrogen powered automobiles
Pfizer developing a new antismoking pill

58. 2003 Examples Related Diversification Unrelated Diversification
Microsoft launched its first personal computers that double as entertainment centers
Unrelated Diversification
The video-rental firm Blockbuster may acquire the DVD and music direct-marketing firm Columbia House
Tupperware Corp., the direct seller of kitchenware, has entered & is growing its skin & beauty business through BeautiControl

59. 2003 Examples Retrenchment Divestiture Liquidation
America West Airlines closing its hub at Columbus, Ohio and laying off 390 employees
Divestiture
ConocoPhillips recently sold its Circle K convenience store chain to Alimentation Couche-Tard, a Canadian firm
Liquidation
Sprint liquidated its Web-hosting division
Britain’s last major car manufacturer, MG Rover liquidated in 2005 & laid off its 5000 employee

60. Cost Leadership Strategies Differentiation Strategies
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

61. Recent Mergers Acquiring Firm Acquired Firm IBM Rational Software Corp
Yahoo
Inktomi Corp
U.S. Steel
National Steel Corp
Pfizer
Pharmacia
Krispy Kreme Doughnuts
Montana Mills
Oracle
People Soft
Palm
Handspring
Nike
Converse