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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