STRATEGIES IN ACTION

Session 5
Professor Hilda L. Teodoro
Ateneo Graduate School of Business
 AGENDA: STRATEGIES

• Choices/Types of Strategies
➢Analytical Tools for Strategic Direction-Setting
➢SWOT,
➢BCG,
➢SPACE,
➢IE and
➢GRAND STRATEGY
• Setting of Strategic Objectives

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 2
 CHOICES & TYPES OF
STRATEGIES

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 3
 TYPES OF STRATEGIES

Integration Intensive
•Forward Integration •Market Penetration
•Backward Integration •Market Development
•Horizontal Integration •Product Development

Diversification Defensive
•Concentric •Retrenchment
Diversification •Divestiture
•Horizontal •Liquidation
Diversification
•Conglomerate
Diversification

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 4
 Forward Integration

• Gaining ownership or
increased control over
distributors.
• FedEx completed a buyout of
Tianjin Datian's domestic
express delivery network as
part of the $400 million deal,
giving it 89 office locations
across China to help it
compete with UPS, DHL and
TNT in the booming Chinese
logistic market.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 5
 Backward Integration
• Seeking ownership or increased control of firm’s
suppliers.
• 2007 - Symrise acquires Paris/Madagascar-based
Aromatics S.A.S. Symrise, one of the world's leading
manufacturers of flavors and fragrances, is
continuing to expand its international business
activities in the sector of natural raw materials and
extracts. “This backward integration in the field of
vanilla has successfully proven that it translates into
first-class raw materials and a secure supply chain,
as well as reliability and traceability for our
customers,” said Heinrich Schaper, President Flavor
& Nutrition EAME (Europe, Africa, Middle East) at
Symrise

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 6
 Horizontal Integration
• Seeking ownership of competitors.
• 2000: Pfizer, the manufacturer of Viagra, boosted its
market cap from $172 billion to $271 billion after
acquiring rival Warner-Lambert Co. rising from global
No. 20 to No. 4.
• 2007: Pfizer has entered into an agreement to acquire
Coley Pharmaceutical Group, Inc. a publicly-held
biopharmaceutical company specializing in vaccine
adjuvant technology and a new class of
immunomodulatory drug candidates designed to fight
cancers, allergy and asthma disorders, and autoimmune
diseases.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 7
 Market Penetration
• Increasing market share for present products in
present markets through greater marketing efforts.
• In the 1960s and early 1970s, PepsiCo was a
much more aggressive and innovative
company than Coca Cola. When Coke finally
woke up-after losing its market leadership--it
did a terrific job of advertising, too. And when
Pepsi's managers responded by revving up
their already aggressive advertising, the
result made history. Industry growth has
doubled, and both companies' market shares
were the highest ever.
• http://www.thecoca-colacompany.com/presscenter/av_advertising.html

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 8
 Market Development
• Introducing present products in
new geographic area or finding
new market segments for
present products..
• After years of speculation, last
June 2007 the iPhone, perhaps
the most hyped consumer
electronics device ever created,
started shipping in the US.
• Jobs said Apple plans to bring
the iPhone to Europe in the
fourth calendar quarter of 2007,
and to Asia in 2008.
ATENEO GRADUATE SCHOOL
HILDA L. OF BUSINESS 9
 Product Development

• increasing sales by improving

present products or
developing new ones.
• Nokia is constantly developing
newer versions of their cell
phones.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 10
 Related (Concentric) Diversification

• adding new but related products.

• Telephone companies and cable firms offer
Internet access.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 11
 Unrelated Diversification

• adding new unrelated products or services

• Amazon.com originally offered books and CDs.
Now its assortment is huge with kitchen
sections, auction sections etc
• GE makes power plants, locomotives,
lightbulbs, and refrigerators; GE manages more
credit cards than American Express.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 12
 Retrenchment

• Regroup through cost and asset reduction to reverse

declining profit.
• In 2002 Club Med kicked off a cost-cutting program
expected to save up to $36 million a year by merging
regional offices and closing 17 of 120 resorts. "We're
shrinking temporarily to face lower demand," says
Bourguignon, Club Med CEO

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 13
 Divestiture

• Selling a division or part of an

organization.
• In 1997 Sara Lee embarked on a
major restructuring designed to
boost both profits, which had
been growing by just 6 percent a
year since 1992. Sara Lee aimed
to shift from a manufacturing and
sales orientation to one focused
foremost on marketing the firm's
top brands. The company sold
off more than 110 manufacturing
and distribution facilities over the
next two years.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 14
 Liquidation

• Selling all of a company’s assets.

• GM liquidated its Canadian factory that made Camaros
and Firebirds.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 15
 Means For Achieving Strategies

• Joint venture/Partnering – two firms

form another org for cooperative
purposes. Movielink is a joint venture
by five major movie studios aimed at
creating an Internet video-on-demand
service.
• Merger – when two organizations of
about equal size unite to form one
enterprise. Equitable and PCI Bank
merge.
• Acquisition – when a large
organization purchases a smaller
firm. Pfizer acquired Pharmacia for
$50 billion.
ATENEO GRADUATE SCHOOL
HILDA L. OF BUSINESS 16
 Why Is It Not Advisable To Pursue Too
Many Strategies At Once?

• Organizational resources are spread too thin.

• All organizations have limited resources. No
organization can pursue all the strategies .
• No more than a few strategies can be financed,
marketed, and managed effectively at the same
time.
• Some practitioners say only a single strategy
should be pursued at a given time by a single
organization.

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 17
 Michael Porter’s Generic Strategies

Market
Target

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 18
 ANALYTICAL TOOLS FOR
STRATEGIC DIRECTION-SETTING

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 22
 STRENGTHS--S WEAKNESSES—W
1. Good editorial quality. 1. Profit margin squeeze.
2. High readership ratings. 2. No. 2 in classifieds.
3. Market leadership.
3. Lack of a shared culture.
4. Strong staff loyalty.
4. Complacency.
5. United Board of Directors
5. Lack of entrepreneurial spirit
SAMPLE SWOT

OPPORTUNITIES—O SO STRATEGIES WO STRATEGIES

1. Better relations with 1. Introduce a new product for 1. Develop a readership
government. the youth market (S1, S2, program involving employees
2. The youth market S3,O1,O2) (W3,W4,O2,O3).
3. The lower income 2. Introduce a new product for 2. Convert non-revenue
markets. the lower income market earning products into a youth
4. Better newspaper (S1,S2,S3, O1,O3) publication (W1,W2, O2).
technology. 3. Offer digital advertising
5. Digital advertising. services (S3, O4, O5).

THREATS--T ST STRATEGIES WT STRATEGIES

1. Television. 1. Introduce a free print 1. Set up regional printing sites
2. High newsprint costs. medium. (S1,S2,S3, T1,T4) (W1, T2).
3. Declining readership. 2. Introduce a youth website. 2. Merge non-revenue earning
4. Slowdown in the (S1,S3,T1,T5) classifieds products into the
economy. main classifieds (W2,T2).
5. Internet and on-line
publications. ATENEO GRADUATE SCHOOL
HILDA L. OF BUSINESS 24
 Space Matrix
Internal Strategic Position y-
axis=fs + es

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 25
 Space Matrix Example
External Strategic Position x-axis=ca + is

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 26
 THE STRATEGIC POSITION AND
ACTION EVALUATION (SPACE) MATRIX
FS Fred David
CONSERVATIVE +6 _ AGGRESSIVE
Stay close to core comp, _ > Market Penetration
+5 _ > Market Development
No excessive risks +4 _ > Product Development
> Market Penetration _ > Integration
+3 _ > Diversification
> Market Development +2
CA > Product Development +1 IS
-6 -5 -4 -3 -2 -1 _ +1 +2 +3 +4 +5 +6
> Concentric Diversif 0
Rectify internal weaknesses -2 _ > Integration
Avoid external threats -3 _ > Market Penetration
> Retrenchment -4 _ > Market Development
> Divestiture -5 _ > Product Development
> Liquidation -6 _ > Joint Venture
DEFENSIVE COMPETITIVE
HILDA L. ES
ATENEO GRADUATE SCHOOL
OF BUSINESS 28
 STRATEGIES SUMMARY

STRATEGY OPTIONS TOWS SPACE IEM GSM TOTAL

INTEGRATION STRATEGIES
1 Forward Integration 1 1 2
2 Backward Integration 1 1 2
3 Horizontal Integration 1 1 2
0
INTENSIVE STRATEGIES
4 Market Penetration 1 1 1 1 4
5 Market Development 1 1 1 3
6 Product Development 1 1 1 3
DIVERSIFICATION STRATEGIES 0
7 Concentric Diversification 1 1 2
8 Conglomerate Diversification 1 1
9 Horizontal Diversification 1 1
0
DEFENSIVE STRATEGIES
1
Joint Venture 0
0
1
Retrenchment 0
1
1
Divestiture 0
2
1
Liquidation 0
3 ATENEO GRADUATE SCHOOL
HILDA L. OF BUSINESS 34
 SAMPLE QSP MATRIX (QSPM)

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 37
 SETTING OF STRATEGIC
OBJECTIVES

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 38
 SETTING OF STRATEGIC
OBJECTIVES
Arriving at a clearer definition of where we want to go
and what we want to achieve in a given planning horizon.

An Objective must be:

• Specific
• Measurable
• Achievable
• Realistic
• Time-bound
It must also be:
• Challenging
• Hierarchical
• Understandable

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 39
 OBJECTIVE-SETTING
TYPES OF OBJECTIVES: STRATEGIC & FINANCIAL
EXAMPLES
STRATEGIC OBJECTIVES FINANCIAL OBJECTIVES
• A bigger market share • Growth in revenues
• Quicker design-to-market • Growth in earnings
times than rivals • Wider profit margins
• Higher product quality • Higher returns on invested
• Lower costs relative to capital
competitors • Attractive economic value
• Broader or more attractive added (EVA) performance
product line • Bigger cash flows
• Superior customer service • A rising stock price
• Wider geographic • Earnings per Share
coverage • Strong bond and credit
ratings

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 40
 EXAMPLE

STRATEGIC OBJECTIVE: TO DOUBLE REVENUES IN FIVE

YEARS
STRATEGIES:
• Improve product quality through the acquisition of new
production facilities with advance/better technology
• Build a strong brand image through greater advertising
efforts
• Strengthen sales and distribution system, and focus on the
institutional outlets
• Enter the low-end market through the acquisition of XYZ
Company

ATENEO GRADUATE SCHOOL

HILDA L. OF BUSINESS 41
 EXAMPLE

STRATEGIC OBJECTIVE: To improve profitability from 6% to

12% by 2008
STRATEGIES:
• To rationalize product line by eliminating low-margin and
slow-moving products
• To move from in-house selling, warehousing and
distribution to third-party distributorship system
• To change packaging materials from imported to locally-
sourced ones
• To reduce manpower complement by 20% by integrating
the Finance and HR functions, and the Marketing and
Sales Units
ATENEO GRADUATE SCHOOL
HILDA L. OF BUSINESS 42