Strategic Management: Strategies in Action
Strategic Management: Strategies in Action
Strategic Management: Strategies in Action
Strategies in Action
—Eaton Corporation—
“If you don’t invest for the long term,
there is no short term.”
—George David—
“Innovate or evaporate. Particularly
in technology-driven businesses,
nothing quite recedes like success.”
—Bill Saporito—
Long-Term Objectives:
Results expected from pursuing
certain strategies
Tme frame —2 to 5 years
Stages of Strategic Management
Levels of Strategies – Large Company
Levels of Strategies –Small Company
Types of Strategies
Forward
Integration
Vertical
Backward
Integration
Strategies Integration
Horizontal
Integration
Types of Strategies
Market
Penetration
Intensive Market
Strategies Development
Product
Development
Types of Strategies
Related
Diversification
Diversification
Strategies
Unrelated
Diversification
Types of Strategies
Retrenchment
Defensive Divestiture
Strategies
Liquidation
Nature of Long-Term Objectives
Quantitative
Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent among organizational units
Nature of Long-Term Objectives (Cont’d)
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
Nature of Long-Term Objectives (Cont’d)
Objectives are the basis for:
•Designing Jobs
•Organizing Activities
•Providing Direction
•Organizational Synergy
•Standards For Evaluation
Nature of Long-Term Objectives (Cont’d)
Strategists should avoid:
•Managing by extrapolation
“If it ain’t broke, don’t fix it.”
Nature of Long-Term Objectives (Cont’d)
•Managing by crisis:
Reactive vs. proactive
Nature of Long-Term Objectives (Cont’d)
Strategists should avoid:
•Managing by subjectives:
Mystery approach to decision making
Subordinates are left to figure out what
is happening and why
Nature of Long-Term Objectives (Cont’d)
Strategists should avoid:
•Managing by hope:
Good times are just around the corner
Vertical Integration Strategies
• Forward Integration
• Backward Integration
• Horizontal Integration
Forward
Integration Example
•Motel 8 acquired a
Defined furniture
manufacturer.
•Seeking
ownership or
increased
control of a
firm’s suppliers
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
Horizontal Integration
Example
•Britain’sleading
Defined
supplier of buses,
•Introducing
Henlys PLC, acquires
Blue Bird Corp. North
present products
America’s leading
or services into
school bus maker.
new geographic
area
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
Product
Development
Defined Example
Example
Defined
• The New York
•Adding new, Yankees baseball
unrelated products team are merging
or services for with the New Jersey
present customers Nets basketball team.
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
Defensive Strategies
• Joint venture
• Retrenchment
• Divestiture
• Liquidation
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.
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
Retrenchment
Defined Example
•Regrouping
• Singer, the sewing
through cost and machine company,
asset reduction to declared
reverse declining bankruptcy.
sales and profit
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.
Divestiture
Example
Defined
• Harcourt General, the
•Sellinga division large US publisher,
or part of an is selling its Neiman
organization Marcus division.
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.
Liquidation
Defined Example
•Selling all of a • Ribol sold all its assets
company’s assets, and ceased business.
in parts, for their
tangible worth
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
Michael Porter’s Generic Strategies
Differentiation Strategies
Focus Strategies
Key Terms & Concepts
• Acquisition • Differentiation
• Backward integration • Diversification strategies
• Bankruptcy • Divestiture
• Combination strategy
• Focus
• Forward integration
• Concentric
diversification
• Franchising
• Generic strategies
• Conglomerate
diversification
• Horizontal
diversification
• Cooperative • Horizontal integration
arrangements
• Integration strategies
• Cost leadership
Key Terms & Concepts (Cont’d)
• Intensive strategies • Merger
• Joint venture • Outsourcing
• Leveraged buyout • Product development
• Liquidation • Retrenchment
• Merchant banking • Takeover
• Market development • Vertical integration
• Market penetration
Key Terms & Concepts (Cont’d)
• Product and service • Selling
planning • Social responsibility
• Production/operations • Staffing
functions • Synergy
• Profitability ratios
• Test marketing
• Research and
development