Lecture 13 Strategies in Action. Lecture Outline Defensive Strategies

Lecture 13 Strategies in Action

Lecture Outline

• Defensive Strategies

Defensive StrategiesDefensive Strategies

Defensive Strategies

Retrenchment

Divestiture

Liquidation

Defensive Strategies

Retrenchment –

– Regrouping through cost and asset reduction to reverse declining sales and profit

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

Defensive Strategies

Divestiture –

– Selling a division or part of an organization

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.

Recent Divestitures

Dell Computer web-hosting division FON GroupCititgroup Citi Capital GE Capital Fleet ServicesMaytag Blodgett Middleby Corporation

Wescoast Energy British Columbia Gas BC GasWestcoast Energy Union Energy Epcor UtilitiesWestcoast Energy Westcoast Capital Epcor Utilities

Credit Suisse CSFBdirect Bank of Montrealemerson Electric Chromalox JPMorgan PartnersGeneral Motors Hughes Electronics Echostar Communications

DuPont drug division Bristol-Myers Squibb

Parent Company Part Being Divested Acquiring Company

Recent Divestitures

Defensive Strategies

Liquidation–

– Selling all of a company’s assets, in parts, for their tangible worth

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

Means for Achieving Strategies

Joint Venture/Partnering –

Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.

Means for Achieving Strategies

Cooperative Arrangements –

Research and development partnerships Cross-distribution agreements Cross-licensing agreements Cross-manufacturing agreements Joint-bidding consortia

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

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

Recent Mergers

Acquiring Firm Acquired Firm

Hewlett-Packard Compaq Comuter

Ebay HomesDirect

PepsiCo Quaker Oats

Sara Lee Earthgrains Company

Phillips Petroleum Conoco

Devon Anderson Exploration

AMR TWA

Tellabs Ocular Networks

Key Terms

• Acquisition• Backward Integration• Combination Strategy• Concentric Diversification• Conglomerate Diversification• Cooperative Arrangements• Cost Leadership

Key Terms

• Differentiation• Diversification Strategies• Divestiture• Focus• Forward Integration• Franchising• Generic Strategies

Key Terms

• Horizontal Diversification• Horizontal Integration• Integration Strategies• Intensive Strategies• Joint Venture• Liquidation• Long-Term Objectives

Key Terms

• Market Development• Market Penetration• Merger• Outsourcing• Product Development• Retrenchment• Takeover• Vertical Integration

Thank You