1. Topic 4 Long-Term Objectives and Grand Strategies

2. Topics
Long-Term Objectives
Generic Strategies
Grand Strategies

3. Long-Term Objectives … Examples
Statements of the results that a firm seeks to achieve over a specified period
Profitability
Productivity
Competitive position
Employee development
Employee relations
Technological leadership
Public responsibility

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

5. Porter’s Generic Strategies core ideas about how the firm can best compete in the marketplace … based on either …
Low-cost Leadership
Focus
(Niche)
Differentiation

6. Porter’s - Requirements for Generic Competitive Strategies
Generic Strategy
Commonly Required Skills and Resources
Common Organizational Requirements
Overall Cost Leadership
Sustained capital investment
and access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease in
manufacture
Low-cost distribution system
Tight cost control
Frequent, detailed
control reports
Structured
organization and
responsibilities
Incentives based on
meeting strict
quantitative targets

7. Foundation Strategy Broad Cost Leader
… will attempt to be the low-cost producer in both segments of the market. It will have good profit margins on all sales while keeping prices low for price-sensitive customers.
Firm Profile:
More likely to reposition products than introduce new ones to the market
Capacity improvements are unlikely to be undertaken (may run overtime instead) … Automation may be pursued to increase margins
Investments will be financed with debt and/or stock issues
Tends to spend less on promotion and sales
Focus on Market Share, Profits, and Stock Price

8. Foundation Strategy Cost Leader with Product Life Cycle Focus
… minimize costs through efficiency and expertise.
Products will be allowed to age and change in appeal from High Tech to Low Tech buyers.
Low R&D spending (very little repositioning & new product every 2-3 years)
Invests in automation early in the product’s life-cycle
Moderate spending on promotion and sales
Focus on ROE, ROS, and Profits

9. Porter’s - Requirements for Generic Competitive Strategies (contd.)
Generic Strategy
Commonly Required Skills and resources
Common Organizational Requirements
Differentiation
Product engineering
Creative flair
Strong capability in basic research
Corporate reputation for quality or
technological leadership
Unique combination of skills
Strong cooperation from channels
Strong marketing abilities
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

10. Foundation Strategy Broad Differentiation
… will seek to create maximum awareness and brand equity. It wants to be well known as a maker of high quality/highly desirable products.
Firm Profile:
High R&D spending to keep products fresh
Maintains a presence in both market segments
Spends heavily on advertising and sales to create maximum awareness and accessibility
Prices tend to be higher
Focus on Market Share, Profits, and Stock Price

11. Foundation Strategy Differentiation Strategy with a Product Life Cycle Focus
… seeks to be well-known as a top producer of good performing products in both segments.
Firm Profile:
Multiple product lines in both segments
High promotion and sales investments to create maximum awareness and accessibility
High R&D expenditures to continually reposition product lines and keep products fresh
Unlikely to invest in increased automation or production capacity
Focus on ROA, Stock Price, and Asset Turnover

12. Porter’s - Requirements for Generic Competitive Strategies (contd.)
Generic Strategy
Commonly Required Skills and resources
Common Organizational Requirements
Focus
Combination of above policies directed at the particular strategic target

13. Foundation Strategy Niche Cost Leader
… seeks to dominate the price sensitive Low Tech market segment. Its aim is to set prices below all competitors — and still be profitable.
Firm Profile:
Multiple product lines in the Low Tech segment
Invests heavily in automation
Spends moderately on advertising to cost sensitive customers (sales people have more than one product to pitch to prospects)
Investments financed with debt and/or stock issues
Focus on ROS, ROE, and Profits

14. Foundation Strategy Niche Differentiation
… company seeks to be known far and wide as the top producer of the best performing state-of-the-art products.
Firm Profile:
Multiple product lines in the High Tech Segment
Minimum focus in the other segment
High promotion and sales investments to create maximum awareness and accessibility
High R&D expenditures to continually introduce new product lines and keep existing products fresh
Unlikely to invest in increased automation or production capacity
Focus on ROA, Asset Turnover, and ROE

15. Grand Strategies Comprehensive general approaches that guide a firm’s major actions
Conglomerate diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint ventures
Strategic alliances
Concentrated growth
Market development
Product development
Innovation
Horizontal integration
Vertical integration
Concentric diversification

16. Characteristics of a Concentrated Growth Strategy
Involves focusing resources on the profitable growth of a single product, in a single market, with a single dominant technology
Rationale – Firm develops and exploits its expertise in a limited competitive arena

17. Strategies of Market and Product Development
Market development
Consists of marketing present products, often with only cosmetic modifications to customers in related market areas by
Adding channels of distribution or
Changing content of advertising or promotion
Product development
Based on penetrating existing market by
Incorporating product modifications into existing items or
Developing new products connected to existing products

18. Innovation Strategy
Involves creating a new product life cycle, thereby making similar existing products obsolete

19. Horizontal and Vertical Integration Strategies
Horizontal Integration
Based on growth via acquisition of one or more similar firms operating at the same stage of the production-marketing chain
Vertical Integration
Involves acquiring firms that
supply acquiring firm with inputs (backward integration) or
are customers for firm’s outputs (forward integration)

20. Diversification Strategies
Concentric Diversification
Involves acquisition of businesses related to acquiring firm in terms of technology, markets, or products
Conglomerate Diversification
Involves acquisition of a business because it represents a promising investment opportunity
Primary motivation is profit pattern of venture
Difference between the approaches
Concentric diversification emphasizes commonality whereas conglomerate diversification emphasizes profits for each individual unit

21. Turnaround Strategy
Involves a concerted effort over a period of time to fortify a firm’s distinctive competencies, returning it to profitability
done through :
Cost reduction
Asset reduction

22. Divestiture and Liquidation Strategies
Divestiture Strategy
Involves selling a firm or a major component of a firm
Reasons for divestiture
Partial mismatches between acquired firm and parent firm
Corporate financial needs
Government antitrust action
Liquidation Strategy
Involves selling parts of a firm, usually for its tangible asset value and not as a going concern

23. The Strategy of Bankruptcy
Two approaches
Liquidation – Involves complete distribution of a firm’s assets to creditors, most of whom receive a small fraction of amount owed (7)
Reorganization – Involves creditors temporarily freezing their claims while a firm reorganizes and rebuilds its operations more profitably (11, 13)

24. Corporate Combination Strategies
Joint Ventures
Involves establishing a third company (child), operated for the benefit of the co-owners (parents)
Strategic Alliance
Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project
Exists for a defined period
Does not involve the exchange of equity