STRATEGIES IN ACTION Session 5 Professor Hilda L. Teodoro Ateneo Graduate School of Business 31-Jan-12

STRATEGIES IN ACTION Session 5

Professor Hilda L. TeodoroAteneo Graduate School of Business

31-Jan-12

ATENEO GRADUATE SCHOOL OF BUSINESS

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AGENDA: STRATEGIES

Choices/Types of StrategiesAnalytical Tools for Strategic Direction-SettingSWOT, BCG, SPACE, IE and GRAND STRATEGYSetting of Strategic Objectives

HILDA L. TEODORO


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CHOICES & TYPES OF STRATEGIES

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TYPES OF STRATEGIES

Intensive•Market Penetration•Market Development•Product Development

Defensive•Retrenchment •Divestiture•Liquidation

Diversification•Concentric Diversification•Horizontal Diversification•Conglomerate Diversification

Integration•Forward Integration•Backward Integration•Horizontal Integration

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Forward Integration

Gaining ownership or increased control over distributors.FedEx completed a buyout of Tianjin Datian's domestic express delivery network as part of the $400 million deal, giving it 89 office locations across China to help it compete with UPS, DHL and TNT in the booming Chinese logistic market.

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Backward Integration

Seeking ownership or increased control of firm’s suppliers.2007 - Symrise acquires Paris/Madagascar-based Aromatics S.A.S. Symrise, one of the world's leading manufacturers of flavors and fragrances, is continuing to expand its international business activities in the sector of natural raw materials and extracts. “This backward integration in the field of vanilla has successfully proven that it translates into first-class raw materials and a secure supply chain, as well as reliability and traceability for our customers,” said Heinrich Schaper, President Flavor & Nutrition EAME (Europe, Africa, Middle East) at Symrise

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Horizontal Integration Seeking ownership of competitors. 2000: Pfizer, the manufacturer of Viagra, boosted its market cap from $172 billion to $271 billion after acquiring rival Warner-Lambert Co. rising from global No. 20 to No. 4.2007: Pfizer has entered into an agreement to acquire Coley Pharmaceutical Group, Inc. a publicly-held biopharmaceutical company specializing in vaccine adjuvant technology and a new class of immunomodulatory drug candidates designed to fight cancers, allergy and asthma disorders, and autoimmune diseases.

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Increasing market share for present products in present markets through greater marketing efforts. In the 1960s and early 1970s, PepsiCo was a much more aggressive and innovative company than Coca Cola. When Coke finally woke up-after losing its market leadership--it did a terrific job of advertising, too. And when Pepsi's managers responded by revving up their already aggressive advertising, the result made history. Industry growth has doubled, and both companies' market shares were the highest ever.http://www.thecoca-colacompany.com/presscenter/av_advertising.html

Market Penetration

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http://www.thecoca-colacompany.com/presscenter/av_advertising.html


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Market Development

Introducing present products in new geographic area or finding new market segments for present products.. After years of speculation, last June 2007 the iPhone, perhaps the most hyped consumer electronics device ever created, started shipping in the US.Jobs said Apple plans to bring the iPhone to Europe in the fourth calendar quarter of 2007, and to Asia in 2008.

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Product Development

increasing sales by improving present products or developing new ones. Nokia is constantly developing newer versions of their cell phones.

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Related (Concentric) Diversification

adding new but related products. Telephone companies and cable firms offer Internet access.

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Unrelated Diversification

adding new unrelated products or services Amazon.com originally offered books and CDs. Now its assortment is huge with kitchen sections, auction sections etcGE makes power plants, locomotives, lightbulbs, and refrigerators; GE manages more credit cards than American Express.

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Retrenchment

Regroup through cost and asset reduction to reverse declining profit. In 2002 Club Med kicked off a cost-cutting program expected to save up to $36 million a year by merging regional offices and closing 17 of 120 resorts. "We're shrinking temporarily to face lower demand," says Bourguignon, Club Med CEO

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Divestiture

Selling a division or part of an organization. In 1997 Sara Lee embarked on a major restructuring designed to boost both profits, which had been growing by just 6 percent a year since 1992. Sara Lee aimed to shift from a manufacturing and sales orientation to one focused foremost on marketing the firm's top brands. The company sold off more than 110 manufacturing and distribution facilities over the next two years.

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Liquidation

Selling all of a company’s assets. GM liquidated its Canadian factory that made Camaros and Firebirds.

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Means For Achieving Strategies

Joint venture/Partnering – two firms form another org for cooperative purposes. Movielink is a joint venture by five major movie studios aimed at creating an Internet video-on-demand service. Merger – when two organizations of about equal size unite to form one enterprise. Equitable and PCI Bank merge.Acquisition – when a large organization purchases a smaller firm. Pfizer acquired Pharmacia for $50 billion.

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Why Is It Not Advisable To Pursue Too Many Strategies At Once?

Organizational resources are spread too thin.All organizations have limited resources. No organization can pursue all the strategies .No more than a few strategies can be financed, marketed, and managed effectively at the same time. Some practitioners say only a single strategy should be pursued at a given time by a single organization.

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Michael Porter’s Generic StrategiesT

arg

et M

arke

t

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1901/14/96

Cost Leadership Strategy

Successful cost leaders develop competitive advantage by offering of comparable quality at lower prices than most industry competitors.Seeks efficient facilities, employs tight cost controlsProbably most effective in those markets where price is the most important factor (over service, technology, or product characteristics). Seek to exploit economies of scale and experience by maximizing sales volume

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2001/14/96

Differentiation Strategy

Seeks to distinguish its products and services from competitorsFeatures what is important & valuable to buyersFirms must develop strong marketing capabilities and a reputation for quality or uniqueness.

• technical superiority

• quality• support services• guarantees• image/prestige/

reliability• delivery• style• options

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Focus Strategy

These firms seek overall cost leadership or perceived uniqueness, but they “focus” that advantage on a particular market segment.

segment is big enough to be profitablesegment has good growth potentialFirm has superior ability to serve buyers in segment

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ANALYTICAL TOOLS FOR STRATEGIC DIRECTION-SETTING

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SWOT MATRIX

STRENGTHS12 List3 strengths 45

OPPORTUNITIES12 List3 opportunites 45

SO Strategies12 Use strength3 to take advan- 4 tage of oppor-5 tunities

THREATS12 List3 threats 45

ST Strategies12 Use strengths3 to avoid 4 threats5

WT Strategies12 Minimize3 weaknesses & 4 avoid threats5

WO Strategies12 Overcome 3 weakness by 4 taking advantage5 of opportunities

WEAKNESSES12 List3 weaknesses 45

Fred DavidHILDA L. TEODORO


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SA

MP

LE

SW

OT

STRENGTHS--S1. Good editorial quality.2. High readership ratings.3. Market leadership.4. Strong staff loyalty.5. United Board of Directors

OPPORTUNITIES—O1. Better relations with government.2. The youth market3. The lower income markets.4. Better newspaper technology.5. Digital advertising.

SO STRATEGIES1. Introduce a new product for the youth market (S1, S2, S3,O1,O2)2. Introduce a new product for the lower income market (S1,S2,S3, O1,O3)3. Offer digital advertising services (S3, O4, O5).

THREATS--T1. Television.2. High newsprint costs.3. Declining readership.4. Slowdown in the economy.5. Internet and on-line

publications.

ST STRATEGIES1. Introduce a free print medium. (S1,S2,S3, T1,T4)2. Introduce a youth website. (S1,S3,T1,T5)

WT STRATEGIES1. Set up regional printing sites (W1, T2).2. Merge non-revenue earning classifieds products into the main classifieds (W2,T2).

WO STRATEGIES1. Develop a readership program involving employees (W3,W4,O2,O3).2. Convert non-revenue earning products into a youth publication (W1,W2, O2).

WEAKNESSES—W

1. Profit margin squeeze.

2. No. 2 in classifieds.

3. Lack of a shared culture.

4. Complacency.

5. Lack of entrepreneurial spirit

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Space Matrix

Internal Strategic Position y-axis=fs + es

IFE

EFE

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Space Matrix Example

CPM

External Strategic Position x-axis=ca + is

5 Forces

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SPACE MATRIX

External Strategic Position x-axis=ca(-1.0)+is(5.6)= +4.6Internal Strategic Position y-axis=es(-5.2)+fs(2.0)= -3.2

The Company is competing fairly well in an unstable environment

Ind

ustry S

treng

th

-6 -5 -4 -3 -2 -1

Conservative

Defensive Competitive

Aggressive

+1+2+3+4+5+6

+6+5+4+3+2+1

-2-3-4-5-6

(+4.6, -3.2)

Financial Strength

Environmental Stability

Co

mp

etit

ive

Ad

van

tag

e

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THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX CONSERVATIVE

+6

Stay close to core comp, +5

No excessive risks +4

> Market Penetration +3

> Market Development +2

> Product Development +1

> Concentric Diversif 0

_ AGGRESSIVE

_ > Market Penetration

_ > Market Development

_ > Product Development

_ > Integration

_ > Diversification

-6 -5 -4 -3 -2 -1

Rectify internal weaknesses -2

Avoid external threats -3

> Retrenchment -4

> Divestiture -5

> Liquidation -6

DEFENSIVE

_ +1 +2 +3 +4 +5 +6

_ > Integration

_ > Market Penetration

_ > Market Development

_ > Product Development

_ > Joint Venture

COMPETITIVE

CA

ES

IS

FS Fred David

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BCG MATRIX

H

M

L

Relative Market ShareH M L1.0 0.50 0.0

Ind

ust

ry S

ales

Gro

wth

Rat

e

STARSIntensive strategiesIntegration strategiesDiversification strategies

QUESTIONMARKSIntensive Strategies

Divest

DOGSRetrenchmentLiquidation Divestment

CASH COWSProduct DevelopmentConcentric Diversification

GrowDouble or

Quit

Hold/Harvest Divest

(Internal Strengths)(I

nd

ust

ry A

ttra

ctiv

enes

s)

Fred DavidHILDA L. TEODORO


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BCG MATRIX

Used for Portfolio Management.Relative market share: ratio of a division’s own market share to the market share held by the largest rival firm. Dividing point is usually selected to have only the two-three largest competitors fall in the high market share region.Industry Growth Rate: Dividing point is typically the GNP’s growth rate. Draws attention to the cash flow, investment characteristics and needs of the organization’s various divisions.

Pearce & Robinson

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I

INTERNAL-EXTERNAL (IE) MATRIX

IV

VII

II

VIII IX

VI

III

V

AVERAGE2.0-2.99

WEAK1.0-1.99

STRONG3.0-4.0

MEDIUM2.0-2.99

LOW1.0-1.99

HIGH3.0-4.0

Grow &Build

Harvest &Divest

Hold &Maintain

TOTAL IFE WEIGHTED SCORES

TO

TA

L E

FE W

EIG

HTED

SC

OR

ES

Intensive Integrative


Market penetrationProd. devt



Divestment

Divestment Divestment


Fred David

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SAMPLE INTERNAL-EXTERNAL (IE) MATRIX

I

IV

VII

II

VIII IX

VI

III

V

AVERAGE2.0-2.99

WEAK1.0-1.99

STRONG3.0-4.0

MEDIUM2.0-2.99

LOW1.0-1.99

HIGH3.0-4.0


TOTAL IFE WEIGHTED SCORE= 3.2

TO

TA

L E

FE W

EIG

HTED

SC

OR

E =

3.0

ABCABC

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THE GRAND STRATEGY MATRIX

Quadrant II1. market development

2. market penetration

3. product development

4. horizon integration

5. divestiture

6. liquidation

Quadrant I1. market development

2. market penetration

3. product development

4. forward integration

5. backward integration

6. horizontal integration

7. concentric diversification

Quadrant III1. retrenchment

2. concentric diversification

3. horizontal diversification

4. conglomerate diversification

5. divestiture

6. liquidation

Quadrant IV1. concentric diversification

2. horizontal diversification

3. conglomerate diversification

4. joint venture

WEAK

COMPET I T IVE

STRONG

COMPET I T IVE

RAPID MARKET GROWTH

SLOW MARKET GROWTH Fred DavidHILDA L. TEODORO


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STRATEGIES SUMMARY

STRATEGY OPTIONS TOWS SPACE IEM GSM TOTAL

INTEGRATION STRATEGIES

1 Forward Integration 1 1 2

2 Backward Integration 1 1 2

3 Horizontal Integration 1 1 2

INTENSIVE STRATEGIES 0

4 Market Penetration 1 1 1 1 4

5 Market Development 1 1 1 3

6 Product Development 1 1 1 3

DIVERSIFICATION STRATEGIES 0

7 Concentric Diversification 1 1 2

8 Conglomerate Diversification 1 1

9 Horizontal Diversification 1 1

DEFENSIVE STRATEGIES 0

10 Joint Venture 0

11 Retrenchment 0

12 Divestiture 0

13 Liquidation 0

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THE QSP MATRIX (QSPM)

STEPS

1. List key external opportunites/threats and internal strenths and weaknesses (identical to EFE & IFE)

2. Assign weights(identical to EFE & IFE)

3. Examine stage 2 matrices/identify alternatives – choose top 3 or 4 alternatives (see Matching Strategies Summary)

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THE QSP MATRIX(QSPM)

4. determine attractiveness score (AS) - be sure not to assign the same AS in a given row. Recall that dashes should be inserted all the way across a given row when used.

1. Not attractive

2. Somewhat attractive

3. Reasonably attractive

4. Highly attractiveAS: Does this factor affect the choice of strategies being made? If the answer to the above question is no then use a dash across set.

4. If you assign an AS score to one strategy, you must assign an AS to the other strategies in the set

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SAMPLE QSP MATRIX (QSPM)

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SETTING OF STRATEGIC OBJECTIVES

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Arriving at a clearer definition of where we want to go and what we want to achieve in a given planning horizon.

An Objective must be:

• Specific• Measurable• Achievable • Realistic• Time-bound

It must also be:

•Challenging•Hierarchical•Understandable

SETTING OF STRATEGIC OBJECTIVES

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OBJECTIVE-SETTING

TYPES OF OBJECTIVES: STRATEGIC & FINANCIAL

EXAMPLES

STRATEGIC OBJECTIVES

•A bigger market share•Quicker design-to-market

times than rivals•Higher product quality•Lower costs relative to

competitors•Broader or more attractive

product line•Superior customer service•Wider geographic coverage

FINANCIAL OBJECTIVES

•Growth in revenues•Growth in earnings•Wider profit margins•Higher returns on invested

capital•Attractive economic value

added (EVA) performance•Bigger cash flows•A rising stock price•Earnings per Share•Strong bond and credit

ratings

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EXAMPLE

STRATEGIC OBJECTIVE: TO DOUBLE REVENUES IN FIVE YEARS

STRATEGIES:

Improve product quality through the acquisition of new production facilities with advance/better technology

Build a strong brand image through greater advertising efforts

Strengthen sales and distribution system, and focus on the institutional outlets

Enter the low-end market through the acquisition of XYZ Company

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EXAMPLE

STRATEGIC OBJECTIVE: To improve profitability from 6% to 12% by 2008

STRATEGIES:

To rationalize product line by eliminating low-margin and slow-moving products

To move from in-house selling, warehousing and distribution to third-party distributorship system

To change packaging materials from imported to locally-sourced ones

To reduce manpower complement by 20% by integrating the Finance and HR functions, and the Marketing and Sales Units

HILDA L. TEODORO

Documents

STRATEGIES IN ACTION Session 5 Professor Hilda L. Teodoro Ateneo Graduate School of Business 31-Jan-12