TOPIC FIVE- STRATEGIES IN ACTION

1.1 LONG-TERM OBJECTIVES

They represent the results expected from pursuing certain strategies. Strategies represent action
to be taken in order to achieve long-term objectives. The time frame for objectives and strategies
should be consistent usually from two to five years
Strategic managers recognize that short run profit maximization is rarely the best approach to
achieving corporate growth and profitability. To achieve long term prosperity, strategic planners
commonly establish long-term objectives in six areas:
1. Profitability – The ability of a firm to operate in the long run depends on its ability to
attain an acceptable level of profits.
2. Productivity – Strategic managers constantly try to increase the productivity of their
systems.
3. Competitive position – Larger firms often establish an objective of market share
dominance as a measure of their competitive position.
4. Employee development – Employees value education and training because they lead to
increased compensation and job security. Strategic planners hence normally include
employee development in their long term goals.
5. Technological leadership – Firms must decide whether they want to be market leaders or
market followers. Many firms seek technological leadership in the market as their key
objective.
6. Public responsibility – Managers recognize their responsibility to their customers and to
the society at large. Many strategic managers strive to exceed public expectation.
Qualities of Long Term Objectives
1. Acceptable – Objectives must be consistent to managers preferred.
2. Flexible – Objectives must be adaptable to environmental uncertainty.
3. Measurable – Objectives must be clearly and concretely stated so that it is known when
they have been achieved or not.
4. Motivating – People are most productive when given attainable objectives. They are
motivated by goal attainment.
5. Relevant – Objectives must be suited to the broad aims of the firm.
6. Achievable – Objectives should be challenging but achievable. Employees work best
with achievable than impossible objectives.

Clearly established objectives offers many benefits

1. Provide direction by revealing expectations
2. Allow synergy
3. Aid in evaluation by serving as standards
4. Establish priority
5. Reduce uncertainty
6. Minimize conflict
7. Stimulate exertion
8. Aid in resource allocation
9. Aid in job design
10. Provide basis for consistent decision making

Objectives serve as standard by which individuals, groups, departments, divisions and the entire
organization can be evaluated. long term objectives are needed at the cooperate ,divisional and
functional, level of an organization. They are important measure of management performance.
Without long-term objectives an organization would rift aimlessly towards some unknown end.
It is hard to imagine an organization or individual being successful without clear objectives.
The balanced score card is an evaluation and control technique, the overall aim of the balance
score card is to balance shareholders objectives with the customers and operation objectives. the
set of objectives interrelate and many even conflict.

1.1.1 THE BALANCED SCORE

The balanced score card is a set of measures that are directly linked to the company’s strategy. It
was developed by Robert S. Kaplan and David P. Norton to enable managers to evaluate the
corporate performance from four perspectives;

(i) Financial performance

(ii) Customer knowledge
 (iii) Internal business processes
(iv) Learning and growth

Financial

To success how
should we appear to
our stakeholders

Customers Strategy and Internal business processes

visions
To achieve our vision how should To satisfy our shareholders and
we appear to our customers customers what business
processes must we excel at

Learning and
growth

To achieve our
vision how should
we sustain our
ability to change
and improve
 1) The financial performance box answers the question “to succeed financially how should
we appear to our shareholders?
2) The internal business process box addresses the question “to satisfy our shareholders and
customers what business processes must we excel at?”
3) The learning and growth box answer the question “to achieve our vision how will we
sustain our ability to change and improve?”
4) The customer perspective box answers the question “to achieve our vision, how should
we appear to our customers?”
All of the boxes are connected by arrows to illustrate that the objectives and measures of the four
perspectives are linked by cause and effect relationships that lead to successful implementation
of the strategy.

A properly constructed scorecard is balanced between short and long term measures, financial
and non financial measures and internal and external performance perspectives.

The Pros of Using the Balanced Score Card

(i) Basis of evaluation of performance
(ii) Provides a comprehensive picture of business goals
(iii) Attainment of objectives helps motivate the stakeholders

The Cons of Using the Balanced Score Card

(i) May lead to overemphasis of goal attainment
(ii) Results in rigidity
(iii) Requires trained planners for successful implementation

We can simply say that a balanced scorecard for any firm is a listing of all key objectives to
work toward, along with the associated time dimension of when each objective is to be
accomplished as well as a primary responsibility or contact person, department or division for
each objective.
1.1.2 LEVELS OF STRATEGY
Strategy making is not just a task for the top executives. Middle level mangers and lower level
mangers too must be involved in strategic planning process

Strategies exist at different levels in an organization. There are three basic levels:
1. Corporate level strategy

2. Business level strategy

3. Functional level strategy

Corporate Level Strategy

(i) Corporate level strategy is concerned with the overall purpose and scope of an organization
and how value will be added to the different parts (business units) of the organization.
(ii) Strategy at this level is executed by the CEO, the Board and other senior staff.
(iii) At this level, strategy defines the organizational missions and goals.
(iv)Corporate strategy allocates resources to each business unit and further defines the
organization structure.
(v) This level of strategy concerns itself with appreciating how it can add value to the separate
business units of the company.
(vi)Corporate level strategy also aims at meeting expectations of owners or shareholders and
stock market.
Business or Competition Level- A business can be defined as an operating unit or planning
focus that sells distinct set of products or services to identifiable group of customers in
competition with a well defined set of competitors.
-Business unit strategy is a set of well coordinated action programmes aimed at securing a long
term sustainable competitive advantage in particular markets.
-A Strategic Business Unit (SBU) is part of an organization for which there is distinct external
market for goods or for services that is different from another SBU. Rothschild (1980) considers
the following criteria essential for an organizational component to be classified as an SBU:
i) An SBU must serve an external rather than internal market
ii) It should have a clear set of external competitors
iii) It should have control over its destiny i.e. must be able to decide what products to
offer.
 iv) Its performance must be measurable in terms of profits and losses i.e. it must be a
true profit-centre.
-At this level, management concerns itself with how to gain advantage over competitors, what
new opportunities can be created in the market and the extent to which these meet customer
needs in such a way as to achieve the objectives of the organization.
-Competitive level strategy lays emphasis on the SBU and the head of the SBU is largely
involved in its formulation and execution.
-For a business organization, an SBU is often defined in terms of different organizational
structures (departments) who target different markets e.g retail department, wholesale
department, export department, institutions department etc.
-Generally the business level strategy translates corporate definitions into individual businesses.

Strategic questions at the business level

1. What product or service do we offer based on competition?
2. How should we finance proposed SBU?
3. How do we modernize our plant and processes?
4. Should we be technology leaders?
5. Should we re-invest profit or share out to shareholders?
NB: These are called business strategies. An SBU is therefore a unit of an organization for
strategy making purposes.

Operational or Functional Level- Operational strategies are concerned with how the
component parts of the organization deliver effectively the corporate and business level
strategies in terms of resources, processes and people.
-They specify how functional activities at the shop floor contribute to the business and corporate
strategies. For example, the financial function provides information above some of funds to
strategy formulation and evaluation. Let’s now look at different types of strategies

1.1.3 GENERIC STRATEGIES

According to Porter (1980) two completive dimensions are the key to business level strategy.
The first dimensions a firm’s source of competitive advantage. The dimensions involve whether
a firm tries to gain an edge on rivals by keeping costs down or by offering something unique in
the market. The second dimension is the firm scope of operations. This dimension involves
whether a firm tries to target customers in general or whether it seeks to address to attract just a
segment of customers. Four generic business level strategies energy from these decisions; a) Cost
leadership; b) Differentiation; c) Focused cost leadership d) Focus Differentiation

Competitive Advantage

Lower Cost Differentiation

Broad Target COST LEADERSHIP DIFFERENTIATION

Competitive Scope
Focus Differentiation
Focused cost leadership

Narrow Target

Understanding the differences that underlie generic strategies is important because different
generic strategies offer different value proposition to customers. A firm focusing on cost
leadership will have a different value chain configuration than a firm whose strategy focused on
differentiations. Let’s now look at different generic strategies.
1. Overall Cost Leadership Strategies- Low cost producers usually excel at cost reduction
and efficiencies. They maximize economies of scale, implement cost cutting technologies and
stress reduction in overhead and administrative expenses.

A low-cost producer employs intense supervision of labour force and seeks low-cost distribution
systems. They have tight cost controls, frequent audits and detailed control reports.
Under cost leadership, incentives are based on meeting strict broad quantitative targets. A low-
cost leader is able to use its cost advantage to charge lower prices or to enjoy higher profit
margins.
Low-cost leadership enables a firm to effectively defend itself in price wars, attach competitors
on price, gain market share if already dominant in the industry and benefits from supernormal
profits.
2. Differentiation Strategies- Differentiation strategies require that a firm strives to create
and market unique product features.
-Differentiation strategies are designed to appeal to customers with a special sensitivity for a
particular product attribute.
-By stressing product attributes above other product qualities, the firm attempts to build strong
customer loyalty. Often such loyalty translates into a firm’s ability to charge a premium price
for its product e.g True Worths , General Motors, Standard Chartered Bank, etc.
-The product attribute can also be a marketing channel through which it is delivered, its image of
excellence, etc. As a result of the importance of these attributes, competitors often face
perceptual barriers to entry when customers of a successfully differentiated firm fail to see any
product identical to the ones they currently buy e.g General Motors hopes its customers will
accept nothing less of the genuine GM replacement parts.
-Differentiation strategies are often supported by long traditions (cultures) in the organization
that are difficult to change.
3. Cost Focus Strategies- A focus strategy, whether anchored in a low cost base or a
differentiation base, attempts to attend to the needs of a particular market segment. Likely
segments are those ignored by other leading firms. A firm pursuing a cost focus strategy will
employ niche marketing approaches, to: (a) Service isolated geographic areas. (b) Satisfy needs
of a particular customer segment (c) Tailor products to somehow unique demands
The cost focus firms profit from their willingness to serve otherwise ignored or underappreciated
customer segments and the minimal cost possible. E.g. I & M Bank.

4. Focused Differentiation Strategies- This strategy allows a firm to identifying a unique

market segment that is willing to purchase its market offer at whatever price.The firms’ effort is
directed at selling items that are either of premium price, but appeals to a particular (narrow)
market segment only. E.g. Sir Henry’s suite, Mercedes Benz, Safari Park Hotel etc.

A generic strategy is away of positioning a firm within an industry .focusing on generic strategy
allows executives to concentrate on the core elements of the firms’ business level strategies.
Despite its importance this strategies have the following limitations.

Limitations of Generic Strategies

1. Porter focused on cutting down production cost to the lowest in the industry or lower than
any other competitor. But there are other strategies of cutting cost such as economies of
scale, buying power, and experience effect which he does not explore.
2. Porter thinks that cost leadership will result into lower prices than competitors but in the
long run, firms may need larger margins to be able to sustain its marketing and research
and development efforts.
3. With differentiation, Porter thinks that a unique product can be sold at a higher price than
any competing offer. But differentiated products can be offered at a lower price to
increase market share.
4. Cost leadership is not sustainable, in the long run, competitors imitate the product,
technology or any other core competence of the organization.
5. Differentiation is also unsustainable in the long run as competing firms produce very
similar products to those of the firm and the basis of competition becomes unclear to the
buyer.