Alternative Strategies

STRATEGY DEFINITION EXAMPLE

Gaining ownership or Forward Integration increased control over distributors or retailers

Tandy Corporation opens new Radio Shack stores K-Mart purchases manufacturing facility for shoes Merck, the worlds largest drug company, acquires Medco, the worlds largest marketer of discount prescription drugs

Backward Seeking ownership or Integration increased control over a

firms suppliers

Horizontal Seeking ownership or Integration increased control over

competition

Alternative Strategies
STRATEGY DEFINITION EXAMPLE

Market

Penetration

Seeking increased market share for present products or services in present markets through greater marketing efforts Introducing present product or services into new geographic area

Walt Disney pays Nancy Kerrigan $1million for appearances Corning, Inc. becomes one of Russias first major suppliers of optical fiber Rayovac develops an alkaline battery recharger

Market

Development

Product

Development

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

Alternative Strategies
STRATEGY DEFINITION EXAMPLE

Concentric Diversification

Adding new, but related, products or services

Sonoco Products Co., a maker of industrial packages, acquired Engraph, Inc., a maker of consumer packages Seagram acquires 13.1 percent of Time Warner Stratus Computer, a maker of fault-tolerant computers, acquires Shared Financial Systems, a software maker

Conglomerate Diversification Horizontal Diversification

Adding new, unrelated products or services Adding new, unrelated products or services for present customers

Alternative Strategies
STRATEGY DEFINITION EXAMPLE

Joint Venture

Two or more sponsoring firms forming a separate organization for cooperative purposes asset reduction to reverse declining sales/profits

Home Shopping Network and Sumitomo offer television shopping in Japan U.S. Surgical declares bankruptcy Ryder System, a truckleasing co, divests its aviation business

Retrenchment Regrouping through cost &

Divestiture

Selling a division or part of an organization

Liquidation Selling all of a cos assets, in The Bank of Credit and

parts, for their tangible worth Commerce Intl (BCCI) liquidates

Strategic Analysis

Products Markets Market/Product Expansion Grid

P R O D U C T S M A R K E T S

Current Markets New Markets

Current Product Market Penetration Strategy Market Development Strategy

New Product Product Development Strategy Diversification Strategy

Market Analysis / Coors

MARKET ATTRACTIVENESS
HIGH(H) H M L H M L Korea; Germany Poland Romania China; India
Brazil; Czech Republic

MEDIUM(M)

LOW(L)
L O W R I S K H I G H

Strategic Management Productivity Tree

Plant/Office, Facilities, Methods, STDS

T P
Efficiency Effectiveness Adaptive Task Technical
MGMT Plan

Feedback - Information Organize Staff Direct Control

Job Design

Leadership

P
Staff Performance

Knowledge, Skills, Ability Communications

Motivation

The Firm: Core Competencies

Technology Operating System Management System Knowledge-Base Skills / Abilities Organizational Dynamics, Culture, Climate, Motivations

Strategic Management

Work Sheet: Internal Assessment of Firms Four Characteristics

Resources-Capabilities Important in Sustaining Competitive Advantage

1.Durability 2.Transparency 3.Transferability 4.Replicability

Internal Assessment of Firms

Durability
Rate at which firms underlying resources and capabilities depreciate or become obsolete

Transparency
Speed with which other firms can understand the relationship of resources and capabilities supporting a successful firms strategy. Capability that requires a complex pattern of various resources and is more difficult to comprehend than a capability based on a single key resource.

Internal Assessment of Firms

Transferability
Ability of competitors to gather the resources necessary to support a competitive challenge. (e.g., Duplicating the primary source of Rocky Mountain spring water may be difficult. Also, brand names may be impossible to transfer with out purchase or a license.)

Replicability
Ability of competitors to use resources and capabilities to duplicate a firms success. (e.g., a brand manager from a P&G competitor may fail to identify least visible coordination mechanisms or fail to note behaviors of another companys brand manager may conflict with companys culture.)

Basic Principles of Organizations

1. 2. 3. 4. The organization plan should be developed from the point of view of the activities required to achieve the objectives of the enterprise. Group the activities according to the natural likings of the activities and the usual combinations of abilities and interests of the team members. Assign persons to natural groupings according to their abilities and interests. Personal responsibilities, authorities and relationships should be clearly understood and completely accepted not only by the individual but also by all persons affected. Delegation of authority and the freedom to act should be clearly and appropriately defined and be adequate for the responsibilities assigned.

5.

Basic Principles of Organizations

6. As many as possible of the decisions affecting specific operations and requiring approval before action should be made only one organization step (level) above the person putting the decision into effect. No person should report to more than one superior. (However, an individual may be assigned by his or her superior to serve or assist another organization unit and receive directions within the assigned sphere of service. (Span of Control) The number of persons reporting to a superior should be few enough so that he or she can give each person adequate attention and still have time for responsibilities other than direction and supervision such as investigations, planning, etc

7.

8.

Basic Principles of Organizations

9. Recognize and make good use of the informal organization: I.e., the natural groupings of persons based on friendships and like interests. Watch that cliques or gangs do not handicap the official organization. Titles should be appropriate and consistent. Keep the organization plan flexible and sensitive to changing conditions.

10. 11.

Dedicated Task Force Organization

Is a separate project organization with most or all personnel needed on the project working under the direct control of the project manager? Used for major or special projects: I.e., skunk works Hybrid matrix = a project organization with some functions directly controlled and others controlled through a matrix

Pure Project

General Manager

Project Manager

Other Operations

Marketing

Engineering Network Manufacturing

Matrix Project Management

General Manager
Marketing Project Manager A Project Manager B
p e r s o n n e l

Network
p e r s o n n e l

Engineering
p e r s o n n e l

Manufacturing
p e r s o n n e l

Within this category are three types of matrix organizations which primarily differ in the relative amount of influence/decision-making power between functional discipline managers and the project management organization. Matrix management generally increases conflict as functional managers and project management often stress different project aspects and goals.

Matrix Project Management: Descriptions

Strong or Project Matrix Balanced or Classical Matrix
Here, a project management orientation predominates: a fullfledged project office with support staff may exist Balanced influence between functional managers and project managers characterizes this arrangement. The full-time project manager has expert power and formal position power. A high level of conflict is often evident. Functional managers exert a stronger influence than the project manager who is really a coordinator and can be part or full-time. Team members may only be liaisons, linking the project to the functional department.

Weak or Functional Matrix

Matrix Management and The Team Member

The Problem of Two or More Bosses
Ground Rules for Behavior
Keep both bosses informed. As soon as a conflict emerges (or before), get the bosses together for a meeting and get one to change his or her priorities.

Project Manager

Functional Manager

Team Member

Do not make the mistake of telling each boss what he or she want to hearYou will get squeezed. Try to work out an agreement in writing that spells out your responsibilities and reporting relationships.

Influence Project Management

Weakest Project Organization
General Manager
Marketing
p e r s o n n e l

Project Activator

Network
p e r s o n n e l

Engineering
p e r s o n n e l

Manufacturing
p e r s o n n e l

Influence project management occurs in a standard functional or hierarchical management organization. A project activator (often staff member) is asked to coordinate a project. This is frequently part-time and with no formal authority. The activator merely works through the influence of the general managers position (the division manager asked that I do this for him/her.)

Matrix Project Management

General Manager

Project Manager A Project Manager B

p e r s o n n e l

p e r s o n n e l

p e r s o n n e l

p e r s o n n e l

Firm-Industry Value ChainA Model Inbound Logistics Operations, R&D, Technology, Manufacturing, Staff Outbound Logistics Marketing, Advertising, Sales Service

Strategic Management

Elements of Industry Structure:

Porters Five-Forces
Threat of New Entrants

New Entrants

S u p p l i e r s

Bargaining Power of Suppliers

Industry Competitors
Intensity of Rivalry

Bargaining Power of Buyers

B u y e r s

Threat of Substitutes

Substitutes

Adapted from Michael E. Porter, Competitive Advantage, New York, The Free Press, 1985. Reprinted by Permission.

Porters Five-Forces: Described

Barriers to Entry
Economies of Scale Brand Identification Access to Distribution Channels Access to Latest Technology Product Differentiation Switching Costs Capital Requirements Experience and Learning Effects

Government Action
Industry Protection Industry Regulation Consistency of Policies Custom Duties Foreign Exchange Foreign Ownership Capital Movements Among Countries Assistance Provided to Competitors
Adapted from Michael E. Porter, Competitive Advantage, New York, The Free Press, 1985. Reprinted by Permission.

Porters Five-Forces: Described

Rivalry Among Competitors
Concentration and Balance Among Companies Industry Growth Fixed (or Storage) Costs Product Differentiation Switching Costs Intermittent Capacity Increasing Corporate Strategic Stakes

Barriers to Exit

Asset Specialization One-Time Cost of Exit Strategic Interrelationships with other Businesses Emotional Barriers Government and Social Restrictions
Adapted from Michael E. Porter, Competitive Advantage, New York, The Free Press, 1985. Reprinted by Permission.

Porters Five-Forces: Described

Power of Suppliers
Number of Important Suppliers Availability of Substitutes for the Suppliers Products Differentiation or Switching Cost of Suppliers Products Suppliers Threat of Forward Integration Suppliers Contribution to Quality or Service of the Industry Products Total Industry Cost Contributed by Suppliers Importance of the Industry to Suppliers Profit

Adapted from Michael E. Porter, Competitive Advantage, New York, The Free Press, 1985. Reprinted by Permission.

Porters Five-Forces: Described

Power of Buyers
Number of Important Buyers Availability of Substitutes for the Industry Products Buyers Switching Costs Buyers threat of Backward Integration Industry Threat of Forward Integration Contribution to Quality or Service of Buyers Products Total Buyers Cost Contributed by the Industry Buyers Profitability Availability of Close Substitutes Users Switching Costs Substitute Producers Profitability and Aggressiveness Substitute Price-Value
Adapted from Michael E. Porter, Competitive Advantage, New York, The Free Press, 1985. Reprinted by Permission.

Availability of Substitutes

As Applied to the Pharmaceutical Industry in the early 1990s

Porters Five Forces:

New Entrants
Very Attractive

S u p p l i e r s

Very Attractive

Industry Competitors
Intensity of Rivalry Attractive

Mildly Unattractive

B u y e r s

Mildly Unattractive

Substitutes

Adapted from Michael E. Porter, Competitive Advantage, New York, The Free Press, 1985. Reprinted by Permission.

The Pharmaceutical Industry--Applied

Barriers to Entry (Very Attractive)
Steep R&D experience curve effects Large economies of scale bariers in R&D and sales force Critical mass in R&D and marketing require global scale Significant R&D and marketing costs High risk inherent in the drug development process Increasing threat of new entrants coming from biotechnology companies

Porters Five-Forces:

Bargaining Power of Suppliers (Very Attractive)

Mostly commodities Individual scientists may have some personal leverage

The Pharmaceutical Industry--Applied

Bargaining Power of Buyers (Mildly Unattractive)
Traditional purchasing process highly price insensitive: the consumer (the patient) did not buy and the buyer (the physician) did not pay Large power of buyersplan sponsors and cost containment orgsinfluence decisions to prescribe less expensive drugs Mail order pharmacies obtain large discounts on volume drugs Large aggregate buyershospital suppliers, large distributors, govt institutionsprogressively replace the role of individual customers Important influence of the government in the regulation of the buying process

Porters Five-Forces:

The Pharmaceutical Industry--Applied

Threat of Substitutes (Mildly Unattractive)
Generic and me-too drugs weakening branded, proprietary drugs More than half of the drug patent is spent in product development and approval processes Technological development makes imitation easier Consumer aversion to chemical substances erodes appeal for pharmaceutical drugs

Porters Five-Forces:

The Pharmaceutical Industry--Applied

Intensity of Rivalry (Attractive)

Porters Five-Forces:

Summary Assessment of Industry Attractiveness

Global competition concentrated among fifteen large companies Most companies focus on certain types of disease therapy Competition among incumbents limited by patent protection Competition based on price and product differentiation Government intervention and growth of me-too drugs increase rivalry Strategic alliances establish collaborative agreements among industry players Very profitable industry, however with declining margins

The Pharmaceutical Industry--Applied

Porters Five-Forces:

Attractive

Strategic Management
External Factors Diagram

Global Micro STRATEGIC MANAGEMENT FIRM

Global Macro

Availability of Substitutes

Industry Value Chain

Strategic Alternatives

External Factors Diagram--Elaboration

Global Micro
Industry Structure Competition Buyers Government action Suppliers Resources: Labor / Unions

Strategic Management

Global Macro
Economic Social / Demographics Political-Legal: Taxes / Regulations Technological: Product / Process

External Factors Diagram--Elaboration

Strategic Alternatives
Cost vs. Product Differentiation Integration: Simplification: Product / Process Forward, Backward, Horizontal Joint Venture / Alliance Retrenchment Divestiture / Liquidation Inbound Logistics Operations R&D / Technology / Manufacturing Outbound Logistics Marketing Sales / Advertising Service

Strategic Management

Industry Value Chain

Answer to 3 Key Questions Mission Statement

8 Business Objectives (Drucker)
Market Innovation Profit Societal Human Resources Financial Resources Material Resources Productivity

The Drucker Model

Strategic Planning is a Continuous Process

Product Life Cycle

Phase III Maintenance Phase II Accelerated Growth Phase IV Discontinuance

Cumulative Sales

Phase I Innovation Introduction

TIME -- Years

Strategic Management
Business Portfolio Matrix
Star Business (Invest Cash)
HIGH

Industry Attractiveness Growth Rate

Problem Child (Draw)

Average Rate of Growth

LOW

Cash Cow

Dog (But Exceptions)

LOW

HIGH

Relative Market Share (Firm vs. largest competitor)

Poker Analogy Where to Bet

Technology Portfolio Matrix
HIGH

Industry Technology Importance to Product / Service

Bet (Cash)

Draw

Cash In
LOW HIGH

Fold

Relative Technological Position (Firm vs. largest competitor)

LOW

Strategic Management
R&D Model
RESEARCH
Product/ Service Configuration

DEVELOPMENT

Pure Research

Applied Research

Pilot Intro

Full Scale Ops

INNOVATION RADICAL INCREMENTAL

STRATEGIC MANAGEMENT MODEL PORTFOLIO MANAGEMENT RESOURCE ALLOCATION

INTERNAL SUPPLY FUND

DEMAND FOR FUNDS

CASE II IRR
CASE I IRR I SURPLUS FUNDS II FUNDS DEFICIT PROGRAMS PROJECTS INVESTMENTS $

PRODUCT LIFE CYCLE MODEL SALES AND COSTS

SALES

COSTS

CUMULATIVE
RESEARCH

INNOVATION

DEVELOPMENT BE ANNUAL

SALES

CUMULATIVE

PHASE II PHASE I INTRODUCTION ACCELERATED GROWTH PHASE III MAINTENANCE PHASE IV DISCONTINUANCE BE PRODUCT

COST

TIME - YEARS