Topic Outline

Topic 5
Long-Term Objectives
Formulating Long-Term Generic Strategies
Grand Strategies
Objectives and Grand Corporate Combinations
Strategies Selection of Long-Term Objectives & Grand
Strategy Sets
Sequence of Objectives & Strategy Selection
Prof. Niki Lukviarman, SE, MBA, DBA, Akuntan

Qualities of Long-Term Objectives

Types of Long-Term Objectives

Profitability Achievable Acceptable

Productivity
Criteria used
Competitive position in preparing
Understandable Flexible
objectives
Employee development
Employee relations
Suitable Measurable
Technological leadership
Motivating
Public responsibility

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 The Four Perspectives in a
What is the Balanced Scorecard?
Balanced Scorecard

Financial performance
The Balanced Scorecard is a set of measures that
are directly linked to the companys strategy. Customer knowledge
It directs a company to link its own long-term Internal business processes
strategy with tangible goals and actions. Learning and growth

The Balanced Scorecard Generic Strategies

Financial
To succeed financially,
how should we appear to
our shareholders?
Internal
Customer Business A core Idea about how a firm can best
Process
To achieve
our vision,
Vision
To satisfy our
compete in the market place
and
how should shareholders
Strategy and customers,
we appear to
our what business
customers? processes must
Learning and Growth we excel at?
To achieve our vision,
how will we sustain our
ability to change and
improve?

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Michael Porters Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies

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Generic Strategies Cost Leadership

Cost Leadership
(Type 1 and Type 2) Ways of ensuring total costs across value
chain are lower than competitors total
In conjunction with differentiation costs
Economies or diseconomies of scale 1. Perform value chain activities more efficiently
than rivals and control factors that drive costs
Capacity utilization achieved 2. Revamp the firms overall value chain to
Linkages w/ suppliers & distributors eliminate or bypass some cost-producing
activities

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 Cost Leadership Generic Strategies

Can be especially effective when: Low Cost Producer Advantage

1. Price competition among rivals is vigorous
2. Rivals products are identical and supplies Many price-sensitive buyers
are readily available
3. There are few ways to achieve differentiation
Few ways of achieving differentiation
4. Most buyers use the product in the same way Buyers not sensitive to brand differences
5. Buyers have low switching costs
Large # of buyers w/bargaining power
6. Buyers are large and have significant power
7. Industry newcomers use low prices to attract
buyers Copyright 2007 Prentice Hall Ch 5 -14
Copyright 2007 Prentice Hall Ch 5 -13

Generic Strategies Differentiation

Differentiation (Type 3) Can be especially effective when:
1. There are many ways to differentiate and
Greater product flexibility
many buyers perceive the value of the
Greater compatibility differences
Lower costs 2. Buyer needs and uses are diverse
3. Few rival firms are following a similar
Improved service
differentiation approach
Greater convenience 4. Technology change is fast paced and
More features competition revolves around evolving product
features
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 Generic Strategies Focused Strategy
Can be especially effective when:
Focused Strategies (Type 4 & 5) 1. The target market niche is large, profitable,
and growing
Industry segment of sufficient size 2. Industry leaders do not consider the niche
Good growth potential crucial
3. Industry leaders consider the niche too costly
Not crucial to success of major competitors or difficult to meet
4. The industry has many different niches and
segments
5. Few, if any, other rivals are attempting to
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specialize in the same target segment
Copyright 2007 Prentice Hall Ch 5 -18

Requirements for Generic

Competitive Strategies
Generic Commonly Required Skills Common
Strategy and Resources Organizational
Requirements
Overall Cost Sustained capital investment Tight cost control
Leadership and access to capital Frequent, detailed
Process engineering skills control reports
Intense supervision of labor Structured
Products designed for ease in organization and
manufacture responsibilities
Low-cost distribution system Incentives based on
meeting strict
quantitative targets
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 Requirements for Generic
Risks of the Generic Strategies
Competitive Strategies
Generic Commonly Required Skills Common Risks of Cost Risks of Risks of Focus
Strategy and resources Organizational Leadership Differentiation
Requirements Cost leadership is not Differentiation is not Focus strategy is
Differentiation Product engineering Strong coordination sustained sustained imitated
Creative flare among functions in Competitors imitate Competitors imitate Target segment becomes
Strong capability in basic research R&D, product unattractive
Technology changes Bases for differentiation
Corporate reputation for quality or development, and
Other bases for cost become less important to Structure erodes
technological leadership marketing buyers
leadership erode Demand disappears
Unique combination of skills Subjective measurement
Proximity in Cost proximity is lost Broadly target
Strong cooperation from channels and incentives instead of
differentiation is lost Differentiation focusers competitors overwhelm
Strong marketing abilities quantitative measures
Cost focusers achieve achieve greater segments
Amenities to attract highly
even lower cost in differentiation in segments Segments differences
skilled labor, scientists, or
creative people segments from others narrow
Focus Combination of above policies directed Combination of above Advantages of broad
at the particular strategic target policies directed at the line increase
particular strategic target

Grand Strategies Types of Grand Strategies

Concentrated growth Conglomerate

Market development diversification
A master long term plan that provide basic Product development Turnaround
direction for major actions directed toward Innovation Divestiture
achieving long term business objectives Horizontal integration Liquidation
Vertical integration Bankruptcy
Concentric Joint ventures
diversification Strategic alliances
Consortia

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 Characteristics of a Concentrated Conditions Favoring a
Growth Strategy
Concentrated Growth Strategy
Involves focusing resources on the profitable growth of Firms industry is resistant to major technological
a single product, in a single market, with a single advancements
dominant technology Firms target markets are not product saturated
Rationale Firm develops and exploits its expertise in a Firms markets are sufficiently distinctive to dissuade
delimited competitive arena competitors in adjacent markets from entering firms segment
Determinants of competitive market success Firms inputs are stable in price and quantity and available in
Ability to assess market needs the amounts and at the times needed
Knowledge of buyer behavior Firms industry is stable
Customer price sensitivity Firms competitive advantages are based on efficient
Effectiveness of promotion production or distribution channels
Success of market generalists

Strategies of Market and Specific Options for Selected

Product Development Grand Strategies
Concentration
Market development (Increasing use of present products in present markets)
Consists of marketing present products, often with only cosmetic
modifications to customers in related market areas by 1. Increasing present customers rate of use
Adding channels of distribution or a. Increasing size of purchase
Changing content of advertising or promotion b. Increasing the rate of product obsolescence
c. Advertising other uses
d. Giving price incentives for increased use
Product development
2. Attracting competitors customers
Involves substantial modification of existing products or creation a. Establishing sharper brand recognition
of new but related products
b. Increasing promotional effort
Based on penetrating existing market by c. Initiating price cuts
Incorporating product modifications into existing items or 3. Attracting nonusers to buy the product
Developing new products connected to existing products a. Introducing trial use thru sampling, price incentives, etc.
b. Pricing up or down
c. Advertising new uses

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 Specific Options for Selected Specific Options for Selected
Grand Strategies Grand Strategies
Product Development
Market Development
(Developing new products for present markets)
(Selling present products in new markets)
1. Developing new product features
1. Opening additional geographic markets a. Adapt (to other ideas, developments)
a. Regional expansion b. Modify (change color, motion, sound, odor, form, shape)
b. National expansion c. Magnify (stronger, longer, thicker, extra value)
c. International expansion d. Minify (smaller, shorter, lighter)
e. Substitute (other ingredients, process, power)
2. Attracting other market segments f. Rearrange (other patterns, layout, sequence, components)
a. Developing product versions to appeal to other g. Reverse (inside out)
segments h. Combine (blend, alloy, assortment, ensemble, combine units, etc.)
b. Entering other channels of distribution 2. Developing quality variations
c. Advertising in other media 3. Developing additional models and sizes (product proliferation)

Horizontal and Vertical

Integration Strategies
Innovation Strategy
Horizontal Integration
Based on growth via acquisition of one or more similar
firms operating at the same stage of the production-
Involves creating a new product life marketing chain
cycle, thereby making similar existing
products obsolete Vertical Integration
Involves acquiring firms
That supply acquiring firm with inputs (backward
integration) or
Are customers for firms outputs (forward integration)

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 Example: Motivations for Diversification
Vertical and Horizontal Integrations
Increase firms stock value
Increase growth rate of firm
Textile producer Textile producer Investment is better use of funds than using them for
internal growth
Improves stability of earnings and sales
Shirt manufacturer Shirt manufacturer Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Clothing store Clothing store Achieve tax savings
Increase efficiency and profitability
Acquisitions or mergers of suppliers or customer businesses are vertical integration
Acquisitions or mergers of competing businesses are horizontal integrations

Diversification Strategies
Concentric Diversification
Turnaround Strategy
Involves acquisition of businesses related to acquiring
firm in terms of technology, markets, or products

Conglomerate Diversification Involves a concerted effort over a period

Involves acquisition of a business because it represents
of time to fortify a firms distinctive
a promising investment opportunity (primary motivation competencies, returning it to profitability
is profit pattern of venture)

Difference between the approaches

Concentric diversification emphasizes commonality
whereas conglomerate diversification emphasizes profits
for each individual unit

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 Turnaround Strategy Terms Used in Turnaround Strategy
A turnaround situation represents absolute
A turnaround strategy is done and relative-to-industry declining performance of
through a sufficient magnitude to warrant explicit
turnaround actions
The immediacy of the resulting threat to
company survival posed by the turnaround
situation is known as situation severity
Cost reduction Asset reduction
Turnaround responses typically include two
stages of strategic activities
Retrenchment
Recovery response

Divestiture and Liquidation Strategies The Strategy of Bankruptcy

Divestiture Strategy Two approaches

Involves selling a firm or a major component of a firm Liquidation Involves complete distribution of a firms assets to
Reasons for divestiture creditors, most of whom receive a small fraction of amount owed
Partial mismatches between acquired firm and parent firm Reorganization Involves creditors temporarily freezing their
claims while a firm reorganizes and rebuilds its operations more
Corporate financial needs profitably
Government antitrust action

Advantage of a reorganization bankruptcy

Liquidation Strategy
Proactive option offering maximum repayment of a firms debt
Involves selling parts of a firm, usually for its tangible in the future if a recovery strategy is successful
asset value and not as a going concern

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Corporate Combination Strategies Corporate Combination Strategies
Joint Ventures Consortia are defined as large interlocking relationships
between businesses of an industry. In Japan such
Involves establishing a third company (child), operated consortia are known as keiretsus, in South Korea as
for the benefit of the co-owners (parents) chaebols
A Japanese keiretsu is an undertaking involving up to
Strategic Alliance 50 different firms that are joined around a large trading
company or bank and are coordinated through
Involves creating a partnership between two or more interlocking directories and stock exchanges
companies that contribute skills and expertise to a Chaebols are typically financed through government
cooperative project banking groups and largely are run by professional
Exists for a defined period managers trained by participating firms expressly for the
Does not involve the exchange of equity job

The Top Five

Strategic Reasons for Outsourcing

1. Improve business focus

2. Access to world-class capabilities
3. Accelerated reengineering benefits
4. Shared risks
5. Free resources for other purposes

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