Strategic Management

Concepts & Cases

Fred R. David
Chapter 5:B
Strategies in Action
PowerPoint Slides By:
Anthony F. Chelte
Western New England College

Ch. 5-1
© 2001 Prentice Hall
Strategies in Action

Intensive Strategies

• Market penetration
• Market development
• Product development

Ch. 5-2
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 Strategies in Action
Market
Penetration
Example

Defined • Ameritrade, the on-

line broker, tripled its
• Seeking increased annual advertising
market share for expenditures to $200
present products or million to convince
services in present people they can make
markets through their own investment
greater marketing decisions.
efforts
Ch. 5-3
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 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

Ch. 5-4
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 Strategies in Action
Market
Development
Example

Defined • Britain’s leading

supplier of buses,
Henlys PLC, acquires
• Introducing
Blue Bird Corp. North
present products
America’s leading
or services into
school bus maker.
new geographic
area

Ch. 5-5
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 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 (untouched) or unsaturated markets
 Capital and human resources necessary to manage
expanded operations
 Excess production capacity
 Basic industry rapidly becoming global

Ch. 5-6
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 Strategies in Action
Product
Development

Defined Example

• Seeking increased • Apple developed the

sales by improving G4 chip that runs at
present products 500 megahertz.
or services or
developing new
ones
Ch. 5-7
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 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

Ch. 5-8
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 Strategies in Action

Diversification Strategies

• Concentric diversification
• Conglomerate (company) diversification
• Horizontal diversification

Ch. 5-9
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 Strategies in Action
Concentric
Diversification
Example

Defined • National Westminister

Bank PLC in Britain
• Adding new, but bought the leading
related, products British insurance
or services company, Legal &
General Group PLC.

Ch. 5-10
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 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

Ch. 5-11
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 Strategies in Action
Conglomerate
Diversification
Example

Defined • H&R Block, the top tax

preparation agency,
said it will buy
• Adding new, discount stock
unrelated products brokerage Olde
or services Financial for $850
million in cash.

Ch. 5-12
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 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

Ch. 5-13
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 Strategies in Action
Horizontal
Diversification

Example
Defined
• The New York Yankees
• Adding new, baseball team are
unrelated products merging with the New
or services for Jersey Nets basketball
present customers team.

Ch. 5-14
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 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

Ch. 5-15
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Strategies in Action

Defensive Strategies

• Joint venture
• Retrenchment
• Divestiture
• Liquidation

Ch. 5-16
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 Strategies in Action

Joint Venture

Example
Defined
• Lucent Technologies
• Two or more and Philips Electronic
sponsoring firms NV formed Philips
forming a separate Consumer
organization for Communications to
cooperative make and sell
purposes telephones.

Ch. 5-17
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 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 (crushing) 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 Ch. 5-18
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 Strategies in Action

Retrenchment

Defined Example
• Regrouping • Singer, the sewing
through cost and machine company,
asset reduction to declared bankruptcy.
reverse declining
sales and profit

Ch. 5-19
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 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 organization’s strategic managers have failed
 Very quick growth to large organization where a major
internal reorganization is needed.

Ch. 5-20
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 Strategies in Action

Divestiture

Example
Defined
• Harcourt General, the
• Selling a division large US publisher, is
or part of an selling its Neiman
organization Marcus division.

Ch. 5-21
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 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 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.

Ch. 5-22
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 Strategies in Action

Liquidation

Defined Example
• Selling all of a • Ribol sold all its assets
company’s assets, and ceased business.
in parts, for their
tangible worth

Ch. 5-23
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 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 firm’s assets

Ch. 5-24
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Michael Porter’s Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies

Ch. 5-25
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