2001 Prentice Hall

Ch. 5-1
Strategic Management
Concepts & Cases
8
th
edition
Fred R. David
Chapter 5:
Strategies in Action

2001 Prentice Hall
Ch. 5-2
Comprehensive Strategic Management Model
Vision
&
Mission
Statements

Chapter 2
External
Audit

Chapter 3
Internal
Audit


Chapter 4
Strategies
In
Action

Chapter 5
Generate,
Evaluate,
Select
Strategies

Chapter 6
Implement
Strategies:
Mgmt Issues

Chapter 7
Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS
Chapter 8
Measure &
Evaluate
Performance

Chapter 9

2001 Prentice Hall
Ch. 5-3
Strategies in Action
Planning. Doing things today to make us
better tomorrow. Because the future
belongs to those who make the hard
decisions today.

Eaton Corporation

2001 Prentice Hall
Ch. 5-4
Strategies in Action
If you dont invest for the long term,
there is no short term.

George David

2001 Prentice Hall
Ch. 5-5
Strategies in Action
Innovate or evaporate. Particularly in
technology-driven businesses, nothing
quite recedes like success.

Bill Saporito

2001 Prentice Hall
Ch. 5-6
Strategies in Action
Companies embrace strategic planning.

Quest for higher revenues and profits



2001 Prentice Hall
Ch. 5-7
Strategies in Action
Long-Term Objectives:

Results expected from pursuing
certain strategies
Tme frame 2 to 5 years

2001 Prentice Hall
Ch. 5-8
Strategies in Action
Nature of Long-Term Objectives

Quantitative
Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent among organizational units

2001 Prentice Hall
Ch. 5-9
Strategies in Action
Nature of Long-Term Objectives (Contd)

Objectives are associated with a time line and stated in terms:
Growth in assets
Growth in sales
Profitability
Market share
Diversification
Integration
EPS
Social responsibility

2001 Prentice Hall
Ch. 5-10
Strategies in Action
Nature of Long-Term Objectives (Contd)

Objectives are the basis for:

Designing jobs
Organizing activities
Providing direction
Organizational synergy
Standards for evaluation


2001 Prentice Hall
Ch. 5-11
Strategies in Action
Nature of Long-Term Objectives (Contd)

Strategists should avoid:

Managing by extrapolation
If it aint broke, dont fix it.

2001 Prentice Hall
Ch. 5-12
Strategies in Action
Nature of Long-Term Objectives (Contd)

Strategists should avoid:

Managing by crisis:
Reactive vs. proactive

2001 Prentice Hall
Ch. 5-13
Strategies in Action
Nature of Long-Term Objectives (Contd)

Strategists should avoid:

Managing by subjectives:
Mystery approach to decision making
Subordinates are left to figure out what
is happening and why

2001 Prentice Hall
Ch. 5-14
Strategies in Action
Nature of Long-Term Objectives (Contd)

Strategists should avoid:

Managing by hope:
Good times are just around the corner

2001 Prentice Hall
Ch. 5-15
Strategies in Action
Vertical Integration Strategies

Forward integration
Backward integration
Horizontal integration


2001 Prentice Hall
Ch. 5-16
Strategies in Action
Defined

Gaining
ownership or
increased control
over distributors
or retailers
Example

General Motors is
acquiring 10% of its
dealers.


Forward
Integration

2001 Prentice Hall
Ch. 5-17
Strategies in Action
Guidelines for Forward Integration

Present distributors are expensive, unreliable, or
incapable of meeting firms needs
Availability of quality distributors is limited
When firm competes in an industry that is expected
to grow markedly
Advantages of stable production are high
Present distributor have high profit margins

2001 Prentice Hall
Ch. 5-18
Strategies in Action
Defined

Seeking
ownership or
increased control
of a firms
suppliers
Example

Motel 8 acquired a
furniture
manufacturer.


Backward
Integration

2001 Prentice Hall
Ch. 5-19
Strategies in Action
Guidelines for Backward Integration

When present suppliers are expensive, unreliable, or
incapable of meeting needs
Number of suppliers is small and number of
competitors large
High growth in industry sector
Firm has both capital and human resources to
manage new business
Advantages of stable prices are important
Present supplies have high profit margins

2001 Prentice Hall
Ch. 5-20
Strategies in Action
Defined

Seeking
ownership or
increased control
over competitors
Example

Hilton recently
acquired Promus.


Horizontal
Integration

2001 Prentice Hall
Ch. 5-21
Strategies in Action
Guidelines for Horizontal Integration

Firm can gain monopolistic characteristics without
being challenged by federal government
Competes in growing industry
Increased economies of scale provide major
competitive advantages
Faltering due to lack of managerial expertise or need
for particular resources

2001 Prentice Hall
Ch. 5-22
Strategies in Action
Intensive Strategies

Market penetration
Market development
Product development


2001 Prentice Hall
Ch. 5-23
Strategies in Action
Defined

Seeking increased
market share for
present products
or services in
present markets
through greater
marketing efforts



Example

Ameritrade, the on-
line broker, tripled its
annual advertising
expenditures to $200
million to convince
people they can make
their own investment
decisions.


Market
Penetration

2001 Prentice Hall
Ch. 5-24
Strategies in Action
Guidelines for Market Penetration

Current markets not saturated
Usage rate of present customers can be increased
significantly
Market shares of competitors declining while total
industry sales increasing
Increased economies of scale provide major
competitive advantages

2001 Prentice Hall
Ch. 5-25
Strategies in Action
Defined

Introducing
present products
or services into
new geographic
area



Example

Britains leading
supplier of buses,
Henlys PLC, acquires
Blue Bird Corp. North
Americas leading
school bus maker.


Market
Development

2001 Prentice Hall
Ch. 5-26
Strategies in Action
Guidelines for Market Development

New channels of distribution that are reliable,
inexpensive, and good quality
Firm is very successful at what it does
Untapped or unsaturated markets
Capital and human resources necessary to manage
expanded operations
Excess production capacity
Basic industry rapidly becoming global

2001 Prentice Hall
Ch. 5-27
Strategies in Action
Defined

Seeking increased
sales by improving
present products
or services or
developing new
ones



Example

Apple developed the
G4 chip that runs at
500 megahertz.


Product
Development

2001 Prentice Hall
Ch. 5-28
Strategies in Action
Guidelines for Product Development

Products in maturity stage of life cycle
Competes in industry characterized by rapid
technological developments
Major competitors offer better-quality products at
comparable prices
Compete in high-growth industry
Strong research and development capabilities


2001 Prentice Hall
Ch. 5-29
Strategies in Action
Diversification Strategies

Concentric diversification
Conglomerate diversification
Horizontal diversification


2001 Prentice Hall
Ch. 5-30
Strategies in Action
Defined

Adding new, but
related, products
or services



Example

National Westminister
Bank PLC in Britain
bought the leading
British insurance
company, Legal &
General Group PLC.
Concentric
Diversification

2001 Prentice Hall
Ch. 5-31
Strategies in Action
Guidelines for Concentric Diversification

Competes in no- or slow-growth industry
Adding new & related products increases sales of
current products
New & related products offered at competitive prices
Current products are in decline stage of the product
life cycle
Strong management team

2001 Prentice Hall
Ch. 5-32
Strategies in Action
Defined

Adding new,
unrelated products
or services



Example

H&R Block, the top tax
preparation agency,
said it will buy
discount stock
brokerage Olde
Financial for $850
million in cash.
Conglomerate
Diversification

2001 Prentice Hall
Ch. 5-33
Strategies in Action
Guidelines for Conglomerate Diversification

Declining annual sales and profits
Capital and managerial talent to compete
successfully in a new industry
Financial synergy between the acquired and
acquiring firms
Exiting markets for present products are saturated


2001 Prentice Hall
Ch. 5-34
Strategies in Action
Defined

Adding new,
unrelated products
or services for
present customers



Example

The New York Yankees
baseball team are
merging with the New
Jersey Nets basketball
team.
Horizontal
Diversification

2001 Prentice Hall
Ch. 5-35
Strategies in Action
Guidelines for Horizontal Diversification

Revenues from current products/services would
increase significantly by adding the new unrelated
products
Highly competitive and/or no-growth industry w/low
margins and returns
Present distribution channels can be used to market
new products to current customers
New products have counter cyclical sales patterns
compared to existing products

2001 Prentice Hall
Ch. 5-36
Strategies in Action
Defensive Strategies

Joint venture
Retrenchment
Divestiture
Liquidation


2001 Prentice Hall
Ch. 5-37
Strategies in Action
Defined

Two or more
sponsoring firms
forming a separate
organization for
cooperative
purposes



Example

Lucent Technologies
and Philips Electronic
NV formed Philips
Consumer
Communications to
make and sell
telephones.
Joint Venture

2001 Prentice Hall
Ch. 5-38
Strategies in Action
Guidelines for Joint Venture

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


2001 Prentice Hall
Ch. 5-39
Strategies in Action
Defined

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



Example

Singer, the sewing
machine company,
declared bankruptcy.
Retrenchment

2001 Prentice Hall
Ch. 5-40
Strategies in Action
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 organizations strategic managers have failed
Very quick growth to large organization where a major
internal reorganization is needed.

2001 Prentice Hall
Ch. 5-41
Strategies in Action
Defined

Selling a division
or part of an
organization



Example

Harcourt General, the
large US publisher, is
selling its Neiman
Marcus division.
Divestiture

2001 Prentice Hall
Ch. 5-42
Strategies in Action
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 firms 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.

2001 Prentice Hall
Ch. 5-43
Strategies in Action
Defined

Selling all of a
companys assets,
in parts, for their
tangible worth



Example

Ribol sold all its assets
and ceased business.
Liquidation

2001 Prentice Hall
Ch. 5-44
Strategies in Action
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 firms assets

2001 Prentice Hall
Ch. 5-45
Michael Porters Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

2001 Prentice Hall
Ch. 5-46
Key Terms & Concepts
Acquisition
Backward integration
Bankruptcy
Combination strategy
Concentric
diversification
Conglomerate
diversification
Cooperative
arrangements
Cost leadership




Differentiation
Diversification strategies
Divestiture
Focus
Forward integration
Franchising
Generic strategies
Horizontal
diversification
Horizontal integration
Integration strategies



2001 Prentice Hall
Ch. 5-47
Key Terms & Concepts (Contd)
Intensive strategies
Joint venture
Leveraged buyout
Liquidation
Merchant banking
Market development
Market penetration



Merger
Outsourcing
Product development
Retrenchment
Takeover
Vertical integration


2001 Prentice Hall
Ch. 5-48
Key Terms & Concepts (Contd)
Product and service
planning
Production/operations
functions
Profitability ratios
Research and
development



Selling
Social responsibility
Staffing
Synergy
Test marketing