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1
Chapter 5Strategies in Action
-- Quest for higher revenues
-- Quest for higher profits
Companies Embrace Strategic Planning
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Ch 5 -2
CORPORATE STRATEGY
MISSION & VISION
OBJECTIVES
STRATEGY
Strategists Should
Avoid --
Managing by ExtrapolationManaging by Crisis
Managing by Subjectives
Managing by Hope
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Ch 5 -3
Chapter Outline
A. Long-Term Objectives
B. Types of Strategies
1. Integration Strategies
2. Intensive Strategies3. Diversification Strategies
4. Defensive Strategies
5. Michael Porters Generic Strategies
6. Means for Achieving Strategies7. First Mover Advantages
8. Outsourcing
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Ch 5 -4
Results expected from pursuing certain
strategies. Strategies represent actions to accomplish
long-term objectives.
Long-Term Objectives
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Long-Term Objectives
Objectives --
Quantifiable
Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent
Time-line
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Ch 5 -6
Long-Term Objectives
Objectives Necessary --
Corporate LevelDivisional Level
Functional Level
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Ch 5 -7
Varying Performance Measuresby Organizational Level
OrganizationalLevel
Basis for Annual Bonus/Merit Pay
Corporate 75% on long-term objectives25% on annual objectives
Division 50% on long-term objectives50% on annual objectives
Function 25% on long-term objectives75% on annual objectives
Long-Term Objectives
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Ch 5 -8
Financial vs. Strategic
Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher Earnings per share
Improved cash flow
Larger market share
Quicker on-time delivery thanrivals
Quicker design-to-market times
than rivals
Lower costs than rivalsHigher product quality than rivals
Wider geographic coverage than
rivals
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Ch 5 -9
Financial vs. Strategic
Objectives
Trade-Off
Maximize short-term financial objectives harm
long-term strategic objectivesPursue increased market share at the expense
of short-term profitability
Tradeoffs related to risk of actions; concern for
business ethics; need to preserve natural
environment; social responsibility issues
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Ch 5 -10
Strategy in Action
A. Long-Term Objectives
B. Types of Strategies1. Integration Strategies
2. Intensive Strategies3. Diversification Strategies
4. Defensive Strategies
5. Michael Porters Generic Strategies
6. Means for Achieving Strategies7. First Mover Advantages
8. Outsourcing
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Ch 5 -11
Strategy in Action
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Ch 5 -12
Types of Strategies
Operational Level
Functional Level
Division Level
CorpLevelA Large Company
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Ch 5 -13
Types of Strategies
Operational Level
Functional Level
Company
Level
A Small Company
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Ch 5 -14
The Balanced Scorecard
Robert Kaplan & David Norton --
Strategy evaluation & control techniqueBalance financial measures with non-financial
measures
Balance shareholder objectives with customer &
operational objectives
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Ch 5 -15
Types of Strategies
IntegrationStrategies
Forward
Integration
BackwardIntegration
Horizontal
Integration
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Vertical Integration
Strategies
Gain Control Over
Distributors
Suppliers
Competitors
Forward Integration
Strategies
Gain Control Over
Distributors
Retailers
Backward Integration
Strategies
Ownership or Control
Firms suppliers
Horizontal Integration
Strategies
Ownership or Control
Firms competitors
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Types of Strategies
IntensiveStrategies
Market
Penetration
MarketDevelopment
Product
Development
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Intensive Strategies
Intensive Efforts
Improve competitive
position with existing
products
Market Penetration
Strategies
Increased Market Share
Present products/services
Present markets
Greater marketing efforts
Market Development
Strategies
New Markets
Present products/services
to new geographic areas
Product Development
Strategies
Increased Sales
Improving presentproducts/services
Developing new
products/services
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Ch 5 -19
Types of Strategies
DiversificationStrategies
Concentric
Diversification
ConglomerateDiversification
Horizontal
Diversification
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Diversification
Strategies
More difficult to
manage diverse
business activities
Concentric
Diversification
Strategies
New & related
products/services
Conglomerate
Diversification
Strategies
New & unrelated
products/services
Horizontal
Diversification
Strategies
New & unrelated
products/services for
current customers
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Ch 5 -21
Types of Strategies
DefensiveStrategies
Retrenchment
Divestiture
Liquidation
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Retrenchment
Strategies
RegroupingCost & asset reduction to
reverse declining sales &
profit
Divestiture Strategies
Selling a division or part
of an organization.
Liquidation Strategies
Selling
Companys assets, inparts, for their tangible
worth
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Ch 5 -23
Michael Porters Generic Strategies
Cost Leadership Strategies
DifferentiationStrategies
Focus Strategies
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Ch 5 -24
Generic Strategies
In conjunction with
differentiation
Economies ordiseconomies of scale
Capacity utilization
achieved
Linkages w/ suppliers
& distributors
Cost Leadership
Many price-sensitive
buyers
Few ways of achievingdifferentiation
Buyers not sensitive to
brand differences
Large # of buyers
w/bargaining power
Low Cost Producer Advantage
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Ch 5 -25
Generic Strategies
Greater product flexibility
Greater compatibility
Lower costs
Improved service
Greater convenience
More features
Differentiation
Industry segment of
sufficient size
Good growth potential
Not crucial to success of
major competitors
Focus
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Ch 5 -26
Means for Achieving Strategies
Two or more companies
form a temporary
partnership or consortium
for purpose of capitalizing
on some opportunity.
Joint
Venture/Partnering R&D partnerships Cross-distribution agreements
Cross-licensing agreements
Cross-manufacturing
agreements Joint-bidding consortia
Cooperative Arrangements
Provide improved capacity utilization
Better use of existing sales force Reduce managerial staff
Gain economies of scale
Smooth out seasonal trends in sales
Gain new technology
Access to new suppliers, distributors, customers, products, creditors
Mergers & Acquisitions
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Means for Achieving Strategies
Managers who must collaborate daily; notinvolved in developing the venture
Benefits the company not the customers
Not supported equally by both partners
May begin to compete with one of the
partners
Why Joint Ventures Fail -
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First Mover Advantages
Benefits a firm may achieve by entering a
new market or developing a new product orservice prior to rival firms.
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First Mover Advantages
Securing access to rare resources
Gaining new knowledge of key factors &issues
Carving out market share
Easy to defend position & costly for rivalfirms to overtake
Potential Advantages
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Outsourcing
Companies taking over the functionaloperations of other firms
Business-process outsourcing(BPO)
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Outsourcing
Less expensive Allows firm to focus on core business
Enables firm to provide better services
Benefits