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GrowthStrategiesandFirmBoundaries
Prof. Dr. MarcosFavaNevesProf.Dr.AllanWayneGray
BusinessSchool- UniversityofSãoPaulo(USP)at RibeirāoPreto,since 1995BusinessSchool– FundaçãoGetulioVargas(FGV)atSāoPaulo,since 2018CenterforAgriculturalBusiness- PurdueUniversity (Indiana/USA), since 2013SchoolofAgronomy(PAA)– Universityof deBuenosAires (Argentina),since 2006FounderofMarkestratProjectsOrganization(www.markestrat.com.br)in2004SpecialistinAgribusinessStrategicPlanning
www.doutoragro.com
Chapter 5Strategies to Reach the
ObjectivesGrowthStrategies
Ansoffproduct/marketexpansiongrid
Source:Ansoff (1965,p.109).Figure5.3 Growthstrategies(product/marketexpansiongrid).
New
MarketPenetration MarketDevelopment
ProductDevelopment Diversification
Current NewCu
rren
t
PRODU
CTS
MARKETS
Chapter 5Strategies to Reach the Objectives
Chapter 5Strategies to Reach the
ObjectivesBCGMatrix – Growthx Share
Source:AdaptedfromHenderson(1984)andGrant(2002).Obs.:relativemarketparticipation(inrelationtothesecondplace).
Figure5.4 BCGmatrix– growth´ share.
Earnings:low,unstable,growingCashFlow: negative
Strategy: growinginvestment
Earnings:high,stable,growingCashFlow: neutral
Strategy:growinginvestment
Earnings:highandstablesCashFlow: highandstables
Strategy: Toexplore
Earnings: lowandunstableCashFlow: neutralornegative
Strategy: toleave
Market Share
Mar
ket G
row
th
Chapter 5Strategies to Reach the Objectives
Chapter 5Strategies to Reach the
ObjectivesGE/McKinseyMarketAttractivenessMatrix
Source:AdaptedfromHamermesh (1986)andKotler (1996).Figure5.5 GE/McKinseyMarketAttractivenessMatrix
Competitive PositionStrong Medium Weak
Strong
Protecting Position-Investformaximumgrowth.-Concentrateeffortsforkeepingposition.
Investing forgrowing-Challengetoleadership-Selectivegrowthonthestrongfeatures-Reinforcevulnerableareas.
Selective growth-Specializeinwelldefinedcompetitivepositions.-Developskillsinordertocountercompetitors.-Emphasizeprofitabilitythrought gainsinproductivity.
Med
ium
SelectiveGrowth-Strongly investintheattractivesegment-Develop skillsinordertostopthecompetitors-Emphasizeprofitabilitythroughgainsinproductivity
Selectivity/ profitemphasis-Protectthecurrentprogram-Concentrateinvestmentsinsegmentswithgoodprofitabilityandrelativelylowrisks.
Limited expansionordeceleration-Lookforwaystoexpandwithouthighrisksortominimizetheinvestmentsandrationalizeoperations.
Weak
Protectingandreorienting-Managethecurrentprofits-Concentrateonattractivesegments-Defendcompetitiveposition
Protectingandreorienting-Protect positioninthemostprofitablesegments.-Expandtheproductsline.-Minimizeinvestments.
Abandoning-Sellat therightmomentinordertomaximizetheinvestedcapital-Eliminatefixedcostsandavoidnewinvestments
MarketA
ttractiven
ess
Chapter 5Strategies to Reach the Objectives
Chapter 5Strategies to Reach the
Objectives
Table5.7 Summarymatrixofgrowthstrategies.
TypeofGrowthStrategy Howcanitbeachieved? Possibilitiesforthecompany
1- Largermarketshareofthecurrent
market
Stimulatecurrentconsumerstobuylargerquantitiesoftheproduct,communicateandpublicizetheproduct'sbenefits, attractthecompetition’sconsumers,stimulatechangeofbrandsandconvertingnon-usersintousers.
⦁ Idea 1⦁ Idea 2⦁⦁⦁
2- Developingnewmarkets
Newmarketsforexistingproducts,whetherinnewgroupsofpotentialcustomersinitsarea,orinotherdistributionchannelsincurrentmarketsorexpandingitsoperationalareatootherregionsnotyetexplored.
⦁⦁⦁
3- Developingtheproduct
Newproductsformarketsinwhichthecompanyalreadyoperates,creatingdifferentmodels,differentiatedlevelofquality,versionsorinnovations.
⦁⦁⦁
4- Concentricdiversification
Astrategywherethecompanyseeksnewproductsoropportunitiesthathavesynergyintermsoftechnologyandmarketingwithcurrentproducts,eveniftheseproductsmeetneedsofdifferentcustomers.
⦁⦁⦁
Chapter 5Strategies to Reach the Objectives
9PossibilitiesofGrowthStrategies
Chapter 5Strategies to Reach the
Objectives9PossibilitiesofGrowthStrategies
Table5.7 Summarymatrixofgrowthstrategies.
5- Horizontaldiversification
Inthiscase,thecompanycanseeknewanddifferentproductsthatservethesamesegmentofconsumersitcurrentlyserves,whoseproductsarenotrelatedtechnologicallywiththecurrentproductlines.
Ø
Ø
Ø
Ø
6- Conglomeratediversification
Thisisthesituationwherethecompanyseeksordevelopsnewbusinessesthatarenotrelatedtoitscurrenttechnology,productsandmarkets.
Ø
Ø
Ø
7- Verticalintegrationbackwards Thecompanybuysoutasupplierasasupplystrategy
Ø
Ø
Ø
8- Verticalintegrationforwards
Thecompanybuysoutadistributororthenextproductivestageasastrategyofadvancinginthechain.
Ø
Ø
Ø
9- Horizontalintegration Thecompanygrowsbybuyingoutcompetitors.
Ø
Ø
TypeofGrowthStrategy Howcanitbeachieved? Possibilitiesforthecompany
Source:ProducedbytheauthorbasedonAnsoff (1965),Rumelt (1986),SalterandWeinhold (1979)Kotler (1997),Besanko etal.(2000).Chapter 5
Strategies to Reach the Objectives
Chapter 5Strategies to Reach the
ObjectivesDiversificationStrategiesandItsAlternatives
Table5.8Motivesfordiversificationandalternativestodiversification.
Motivesfordiversification Meansorincentives Alternativestodiversification
1- ManagerialFactors
Ø Executives’ search for status/prestige and increase insalaries through the organization’s growth
Ø focus on obtaining status and higher salary levelthrough the pursuit of market leadership orinnovation
2- Riskreduction
Ø the company seeks to reduce its risks throughdiversification. This can happen when companies havecash flows coming from different sources, and cantransfer resources to avoid insolvency
Ø shareholders diversify their stock portfolio inother companies
Ø resources can be cheaper from other sources
3- ProfitabilityØ diversification because of attractiveness of a new business
with high rates of returnØ By reaching economies of scale it will be possible
to have higher levels of profit
4- Marketpower
Ø diversification can bring predatory prices, dumping,crossed subsidies
Ø reciprocal purchases between companiesØ arrangements between company conglomerates, with
one buying from another
Ø other forms of vertical coordination, such ascontracts, joint ventures, licensing, strategicalliances, franchises
Ø other forms of horizontal coordination, such ascollective actions as well as initiatives throughparticipation in associations
Chapter 5Strategies to Reach the Objectives
Chapter 5Strategies to Reach the
Objectives
Table5.8Motivesfordiversificationandalternativestodiversification.
5- EconomiesofScope
Ø increase savings producing different products or indifferent businesses
Ø tangibles: share information systems, distributionchannels, sales force, research laboratories,centralization of administrative services, R&D
Ø intangibles: share the brand, corporate image, technology,organizational competencies at the corporate level
Ø other forms of vertical coordination, such ascontracts, joint ventures, licensing, strategicalliances, franchises
Ø other forms of horizontal coordination, such ascollective actions as well as initiatives throughparticipation in associations
6- Synergiesbetweenbusiness
units
Ø in supply chain purchasingØ joint administrationØ create a service marketØ information sharingØ learning – experience curveØ share legal, human resources, accountancy servicesØ fiscal planning
Ø outsourcing can be more efficient thanmaintaining internal activities
Source:Author.
Motivesfordiversification Meansorincentives Alternativestodiversification
Chapter 5Strategies to Reach the Objectives
DiversificationStrategiesandItsAlternatives
AdvantagesandRisksinStrategicAlliances(JointVentures)
Canincreaseaccesstocriticalresources;Avoidlegalandeconomicalentrybarriers;Gainmoremarketforceandcoverage(scale);Spreadrisks;Acquireexperienceandcontactnetwork;Avoidsupplierand/ordistributorpower;Accesstodistributionchannels;Decreaseinstocks,betterlogisticcoordinationIdlecapacityutilization;Adaptationcapacityinlocalmarkets;Lowerculturalriskstoenternewmarkets;IncreaseR&D;Uniteeffortstoreachcommonobjectives;
Conflictsbetweencompanies (culturaldiferences);Delicateconstructionoftheadministrativeteam;Creatingitsownidentityiscritical;Riskoftechnology transferwithoutanycompensation;Risksofunbalanced power;Hold-uprisk(contractbreak)whenonlyoneofthepartsmakesinvestmentsinspecificassets;Partnerscandisagreeaboutthedivisionoftheinvestments,marketingorotherpolicies;Adynamicpartnerinajointventurecanbecomeastrongcompetitor;Riskofchoosingthewrongpartner.
AdvantagesofStrategicAlliances/JointVentures
RisksofStrategicAlliances/JointVentures
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
AdvantagesandRisksinFranchising
AdvantagesinfranchisesForthefranchiser(theowneroftheconcept):
RisksinfranchisesForthefranchiser(theowneroftheconcept):
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
Long-termstrategicrelationship;Businessexpansionwithoutdemandinghighlevelsofinvestment.Brandmanagementandcontrol;Moreflexibilitythanverticalintegration;Scaleformarketingandtechnology(advertisement,newproductdevelopment,administrativeprocedures);Capturelocalknowledgeofthefranchisee;Captureentrepreneurial spiritofthefranchisee andincentives (itishisbusiness)Networkintegrationprocessandparticipationofthefranchiseesinstrategiesandnewdevelopments;
“Franchisebrokers”and“franchiseecooperatives”(wherefranchiseesmeettoincreasetheirbargainpowerwiththefranchiser)canthreatenthesystem;Concentrationinthehandsoffewfranchiseescanmakethenegotiationprocessunequalbetweentheparts;Laboraspectsonthefranchisee’sbehalfthatcouldresultinlawsuitsforthefranchiser;Brandvaluelossduetotheofferingoflowerqualityproducts;OtheractivitiesdonebythefranchiseeEx-franchiseescopyingthebusiness.
AdvantagesandRisksinFranchising
AdvantagesinfranchisesForthefranchiser(theowneroftheconcept):
RisksinfranchisesForthefranchiser(theowneroftheconcept):
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
Receivemarketingsupport;Locationfortheventure;Efficiencyinthesupplychain;Marketresearch;Projectandlayout;Financialcounseling;Operationalmanuals;Administrativetraining;Employeetraining;Knowledgealreadyacquiredfromthefranchiser’sexperience;Accesstoconsolidatedbrandsinthemarket.
Unknownexpensesinthesystem;Geographicalconcentrationoffranchiseesinthesameareageneratingcompetitionwithinthefranchisesystem;Lackofinvestmentsfromthefranchiserinmarketingandinnovation;Canlimitcreativityandinnovationofentrepreneursorfranchisees;Thepaymentsystemcanbediscouragingwiththeinitialfixedfeepluspartoftheeconomicresult(royalties)andcontributionsforcommunication;Mandatorypurchaseofinputsfromthefranchiserthatcanbeoverpriced.NewunitsintheareacompetingLackofopenesstodiscussenvironmentalchanges
FactorstoConsiderandRisksintheVerticalIntegrationStrategies
FactorstoConsiderinVerticalIntegration
RisksinVerticalIntegration
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
Completecontrolofthechannelsorsupply chain;Accesstomarketinformation;Protectionagainstmarketoscillations;“Agency”costsasaresultofdifferentinterestsintheorganization;Integratedtaxplanninginthechain;Differentiationopportunity;Increasednegotiationpowerwithotherdistributorsorsuppliers;Creationofscaleandentrybarrierstonewcompetitors;Unitsworkingasconsumerlaboratories
Thecosttochangebecomestoohigh;Costsandexpensesassociatedwiththeintegrationcanbehigherthanotheralternatives;Possiblelackofflexibility;Largerinvestmentsandexitbarriers;Mayreduceandlimittheinnovationrate;Clientsmaybecomecompetitors;Differencesinoptimumproductionscale;Possiblelackofadministrativesynergy;Problemsinoneproductionstagethreatenproductionandprofitabilityofallotherstages;Theactivitiesmaybeverydifferent.
Inwhatshouldwe“thinkabout”whendevelopingoursupply chain?
COST RELATIONSHIPS OTHERDIFFERENTIALS
• Knowledge/technology• Globalsourcing• Scaleinbuying• Efficiencyofsuppliers• Innovation• Competitionofsuppliers• Avoidsupplierconcentration
dependence• Quality/security• Inboundlogistics
• Collaboration andCoordination(flexibilityandresponsiveness)
• Transactioncosts• InformationFlow• Simplicity, control/predictability• Yearroundsupply• Lookatthebest(brandsofsuppliers)• Fairness• Ethicsandbehaviorofsuppliers(suppliercodeof
conduct)• Stimulatebenchmarking• Buildingcommittees andtrust
• Stimulatinginclusion• Certifications• Directconnection• Buyinglocal• Environmentalissues
(energy,water,carbon,waist)
• Socialissuesofsuppliers(treatingemployees,community,etc.)
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
Step 1
UnderstandtheCompany´sIntegratedSupplyChainStructure- Majorinputs(productsorservices)purchasedorinternallyproduced;- Costsinvolved(procurementcosts,handling,transactioncosts,stocks);- Waythatthetransactionsaredone(governanceforms,likecontracts,marketsandotherforms).
MarketAnalysisofMajorInputs- Numberofsuppliers,products,brands,channels,prices;- Concentrationofsuppliers;- Sellingbehaviorofsuppliers(transactions);- Servicesofferedbysuppliers;- Locations;- Majormacro-environmentalrisks.
DiagnosisofEachInputofCompany´sIntegratedSupplyChain- Companyacquiresxmarketcharacteristics;- Resourcesgivenxbenefits;- Singlesupplierxmultiplesuppliers- Degreeofsophisticationoftherelationships;- Vulnerabilitiesandrisks;- Degreeofdependenceonspecificsuppliers;- Prioritylistforinterventions;- LongtermgoalsoftheCompanyandtraditions;- Internalresistancetochange(culturalaspectsandbarriers).
Step 2
Step 3
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
Step 4
ProposalofaGovernanceStructureforEachInput- Analyzeeconomicsandmargins andvaluecapturepossibilities;- Specializationgains;- Reversibilityifneeded(technologyswitch) andadaptability;- Buildingentrybarriersforcompetitors;- Promotedevelopmentandinclusionsandwiththisaccessingpubliccreditlines
BuildingtheContract(Relationship)- Negotiationandhowtoconsidermacro-environmentalchanges;- Regulationofproducts,services,communications,paymentandinformationflows;- Analysisofspecificinvestmentsneededandtherisksassociatedtotheseinvestments- Howtopromoteincentivesandshareresultsofcompetitivenessgains.
ManagementoftheRelationship- Governanceforms,withboardsandexternalevaluationcommittees;- Searchforcontinuoustransactionscostsreductions;- Sharingbenefitsofexperiencecurve andinnovationgainsandsharing;- Continuousbenchmarkprocessandevaluationofalternatives;- Bringingmotivationandavoidingtheriskofaccommodation;- Sharingopencommunicationplatforms;- Flexibilityandresponsiveness improvingservicesandsupport;- Promotingnetworkingandcooperationforlearningandbenchmarking;- Permanentlyincreasingtrust.
Step 5
Step 6
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
ProductsandServicesinContracts
Function ResponsibilityAnalysis(whodoesitandhow)
Possibleimprovement(proposals)
Products and services functions
Inventorymanagementanditslevels
Product delivery
Productmodification
Productlinesandvariety
Newproductevaluation
Salesvolume(performance)forecast
Userhelp/installationtechnicalservice
AftersalesserviceandSalesservicesupply(team)
Training:rangeandcosts
Productmaintenance
Package/specificationsissues
Exclusivity and Territorialrights
Marketcoverageexpected
Exportsaspectsexpected
Timeframe(periodtocarryouttheflows)
Adaptationforspecificlegislations
Others
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
Function ResponsibilityAnalysis(whodoesitandhow)
Possibleimprovement(proposals)
Products and services functions
Exclusivityand Territorialrights
Marketcoverageexpected
Exportsaspectsexpected
Timeframe(periodtocarryouttheflows)
Adaptationforspecificlegislations
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
ProductsandServicesinContracts
Function ResponsibilityAnalysis(whodoesitandhow)
Possibleimprovement(proposals)
CommunicationFunctions
Advertisement(allforms)
Salespromotion(all)
Publicrelationsactions(all)
Directmarketingactions
Informationabouttheproducts
Participationinthecommunicationbudget
Newmediaformsofcommunication
Packageinformation
Others…
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
CommunicationsinContracts
Function ResponsibilityAnalysis(whodoesitandhow)
Possibleimprovement(proposals)
InformationFunctions
Shareinfo.abouttheconsumermarket
Shareinfo.aboutthecompetition
Shareinfo.aboutthechangesintheenvironment
Participationintheplanningprocess
Frequencyandqualityoftheinformation
Shareinformationaboutcomplaints
Electronicorders
Others(fillin)
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
InformationinContracts
Function ResponsibilityAnalysis(whodoesitandhow)
Possibleimprovement(proposals)
VariablesofPaymentsandRequests
Frequencyofproductorders
Policiesforpricesandpayments
Marginanalysis
Commissions(volumeandfrequency)
Grantcredittothefinalconsumer
Billingconsumers
Searchforsourcesoffinance
Priceguarantees
Others(fillin)
Source:MarcosFavaNeves:TheFutureofFoodBusiness,WorldScientific,2014
PaymentsandRequestsinContracts
v Marcos Fava Neves, nascido em Lins (SP), é professor em tempo parcial das Faculdades de Administração da Universidade de São Paulo emRibeirão Preto e da EAESP/FGV em São Paulo. Engenheiro Agrônomo formado pela Escola Superior de Agricultura Luiz de Queiroz (Esalq/USP)em 1991 e fez toda a carreira de pós graduação (mestrado, doutorado e livre-docência) em estratégias empresariais na FEA/USP e chegou aprofessor titular da USP aos 40 anos, tendo sido Chefe do Departamento de Administração da USP em duas gestões e Vice-Chefe em outrasduas gestões.v Complementou sua pós graduação em temas de planejamento e gestão aplicados ao agronegócio na França (1995 – no IGIA) e na Holanda (1998/99 –na Universidade de Wageningen). Fez também cursos de curta duração em Harvard (2008/2009/2010), Purdue (2013/2017), Sevilla (2017) e Florida (2018);
v Desde 2006 é Professor Visitante da Universidade de Buenos Aires e desde 2013 da Purdue University, Indiana, EUA, onde lecionou no ano de 2013;
v É especializado em planejamento e gestão estratégica, tendo realizado mais de 200 projetos no agronegócio brasileiro e mundial. Trabalhou ou foi membro de Conselhos das seguintesorganizações: Botucatu Citrus, Vallée, Lagoa da Serra (CRV); Renk Zanini, Inova, Embrapa, Serviço de Informação da Carne, Associação Mundial de Agronegócios, Cooperativa Coplana, CooperativaHolambra, Ouro Fino, Canaoeste e Orplana (Organização dos Plantadores de Cana). Ajudou a montar e é acionista de 3 empresas, sendo 2 startups;
v É autor e organizador de 67 livros publicados no Brasil, Argentina, Estados Unidos, África do Sul, Uruguai, Inglaterra, Cingapura, Holanda e China, por 10 editoras diferentes. Escreveu tambémdois casos para a Universidade de Harvard (2009/2010) e para a Purdue University (2013);
v Publicou mais de 200 artigos em periódicos científicos internacionais e nacionais indexados, tendo recebido 4.000 citações de acordo com o Google Acadêmico, um dos cientistas brasileiros maiscitados em sua área; Foi articulista do jornal China Daily de Pequim e da Folha de S. Paulo, além de escrever artigos para O Estado de S. Paulo e Valor Econômico, entre outros, tendo mais de 600artigos de análises de conjunta publicados em revistas e jornais;
v Participou de 335 Congressos no Brasil e no Exterior, tendo organizado tambémmais de 30 Congressos nacionais e internacionais;
v Na formação de discípulos e de talentos humanos orientou 29 Teses, sendo 4 de Doutorado e 25 de Mestrado e 133 Monografias. Ajudou, como professor, a formar mais de 1.200administradores de empresas, tendo oferecido 127 disciplinas de graduação e 22 cursos de Mestrado e Doutorado na USP;
v Na avaliação de cientistas, participou de 176 Bancas, sendo 52 de Doutoramento e 124 de Mestrado no Brasil e exterior;
v Realizou 1.060 palestras em 22 países, sendo um dos brasileiros mais conhecidos no exterior na área de agronegócios.