26-May-13

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

HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS

CHOICES & TYPES OF STRATEGIES

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

TYPES OF STRATEGIES
Forward Integration Backward Integration Horizontal Integration

Integration

Market Penetration Market Development Product Development

Intensive

Concentric Diversification Horizontal Diversification Conglomerate Diversification

HILDA L. TEODORO

Diversification

Retrenchment Divestiture Liquidation

Defensive

ATENEO GRADUATE SCHOOL OF BUSINESS

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.

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

Backward Integration
Seeking ownership or increased control of firms 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

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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.

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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.
HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS

Product Development
increasing sales by improving present products or developing new ones. Nokia is constantly developing newer versions of their cell phones.

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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Related (Concentric) Diversification

adding new but related products. Telephone companies and cable firms offer Internet access.

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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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.

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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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

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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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.
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Liquidation
Selling all of a companys assets. GM liquidated its Canadian factory that made Camaros and Firebirds.

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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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.
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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.
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Michael Porters Generic Strategies

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ATENEO GRADUATE SCHOOL OF BUSINESS

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Cost Leadership Strategy

Successful cost leaders develop competitive advantage by offering of comparable quality at lower prices than most industry competitors. Seeks efficient facilities, employs tight cost controls Probably most effective in those markets where price is the most important factor (over service, technology, or product characteristics). Seek to exploit economies of scale and experience by maximizing sales volume
01/14/96 HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS

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Differentiation Strategy
Seeks to distinguish its products and services from competitors Features what is important & valuable to buyers Firms must develop strong marketing capabilities and a reputation for quality or uniqueness.
01/14/96 HILDA L. TEODORO

technical superiority quality support services guarantees image/prestige/r eliability delivery style options

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Focus Strategy
These firms seek overall cost leadership or perceived uniqueness, but they focus that advantage on a particular market segment. segment is big enough to be profitable segment has good growth potential Firm has superior ability to serve buyers in segment

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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ANALYTICAL TOOLS FOR STRATEGIC DIRECTION-SETTING

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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STRENGTHS 1 2 List 3 strengths 4 5

WEAKNESSES 1 2 List 3 weaknesses 4 5

SWOT MATRIX

OPPORTUNITIES 1 2 List 3 opportunites 4 5 THREATS 1 2 List 3 threats 4 5

SO Strategies
1 2 3 4 5
Use strength to take advantage of opportunities

WO Strategies
1 2 3 4 5 Overcome weakness by taking advantage of opportunities

ST Strategies

1 2 Use strengths 3 to avoid 4 threats 5

ATENEO GRADUATE SCHOOL OF BUSINESS

WT Strategies

1 2 Minimize 3 weaknesses & 4 avoid threats 5

Fred David
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HILDA L. TEODORO

STRENGTHS--S 1. Good editorial quality. 2. High readership ratings. 3. Market leadership. 4. Strong staff loyalty. 5. United Board of Directors

WEAKNESSESW 1. Profit margin squeeze. 2. No. 2 in classifieds. 3. Lack of a shared culture. 4. Complacency. 5. Lack of entrepreneurial spirit

SAMPLE SWOT

OPPORTUNITIESO 1. Better relations with government. 2. The youth market 3. The lower income markets. 4. Better newspaper technology. 5. Digital advertising. THREATS--T 1. Television. 2. High newsprint costs. 3. Declining readership. 4. Slowdown in the economy. 5. Internet and on-line

SO STRATEGIES 1. Introduce a new product for the youth market (S1, S2, S3,O1,O2) 2. Introduce a new product for the lower income market (S1,S2,S3, O1,O3) 3. Offer digital advertising services (S3, O4, O5). ST STRATEGIES 1. Introduce a free print medium. (S1,S2,S3, T1,T4) 2. Introduce a youth website. (S1,S3,T1,T5)

WO STRATEGIES 1. Develop a readership program involving employees (W3,W4,O2,O3). 2. Convert non-revenue earning products into a youth publication (W1,W2, O2).

WT STRATEGIES 1. Set up regional printing sites (W1, T2). 2. Merge non-revenue earning classifieds products into the main classifieds (W2,T2).
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publications. HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

Space Matrix
Internal Strategic Position
Financial Strength(6=Best,1=Worse) 1. Profit margin down 2. High receivables 3. Current ratio down 4. 24% increase in sales 5. Expenses up by 34%

y-axis=fs + es
Rating 1.0 1.0 1.0 6.0 1.0 10.0 2.0 -6.0 -5.0 -6.0 -17.0 -5.2

Total Average Environmental Stability(-1=Best,-6=Worse) 1. Broadsheet circulation decreasing 2. Decline in newspaper readership 3. Slow economic growth Total Average

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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Space Matrix Example

External Strategic Position x-axis=ca + is
Rating -1.0 -1.0 -1.0 -3.0 -1.0 Rating 6.0 6.0 4.0 6.0 6.0 28.0 5.6 Competitive Advantage(-1=Best,-6=Worse) 1. Highest readership 2. Market leadership in advertising 3. Highest credibility Total Average Industry Strength(6=Best,1=Worse) 1. Strong competition among top players 2. Effective medium for direct response advertising 3. High entry and exit costs 4. Print ads cheaper than tv ads 5. Long shelf life Total Average

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ATENEO GRADUATE SCHOOL OF BUSINESS

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External Strategic Position Internal Strategic Position

x-axis=ca(-1.0)+is(5.6)= +4.6 y-axis=es(-5.2)+fs(2.0)= -3.2

Competitive Advantage

SPACE MATRIX

Financial Strength Aggressive Conservative +6 +5 +4 +3 +2 +1 -6 -5 -4 -3 -2 -1 -2 -3 -4 -5 -6 Defensive +1+2+3+4+5+6

(+4.6, -3.2)

Competitive

The Company is competing fairly well in an unstable environment

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Industry Strength

Environmental Stability
HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS

THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX

CONSERVATIVE Stay close to core comp, No excessive risks > Market Penetration > Market Development > Product Development > Concentric Diversif FS +6 _ +5 _ +4 _ +3 _ +2 _ +1 _ 0
Fred David

AGGRESSIVE > Market Penetration > Market Development > Product Development > Integration > Diversification IS

CA

HILDA L. TEODORO

-6 -5 -4 -3 -2 -1 Rectify internal weaknesses -2 Avoid external threats -3 > Retrenchment -4 > Divestiture -5 > Liquidation -6 DEFENSIVE

_ +1 +2 +3 +4 +5 +6 _ > Integration _ > Market Penetration _ > Market Development _ > Product Development _ > Joint Venture COMPETITIVE
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ATENEO GRADUATE ES SCHOOL OF BUSINESS

Relative Market Share

(Internal Strengths)

H 1.0
H
(Industry Attractiveness)

M 0.50 QUESTION MARKS

L 0.0

STARS

Intensive strategies Integration strategies Intensive Strategies Diversification strategies Divest

M CASH COWS DOGS

Product Development Retrenchment Concentric Diversification Liquidation Divestment

L
HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

Fred David
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BCG MATRIX

BCG MATRIX
Used for Portfolio Management. Relative market share: ratio of a divisions own market share to the market share held by the largest rival firm. Dividing point is usually selected to have only the two-three largest competitors fall in the high market share region. Industry Growth Rate: Dividing point is typically the GNPs growth rate. Draws attention to the cash flow, investment characteristics and needs of the organizations various divisions.
Pearce & Robinson
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INTERNAL-EXTERNAL (IE) MATRIX

Fred David

TOTAL EFE WEIGHTED SCORES

TOTAL IFE WEIGHTED SCORES

Grow & Build HIGH 3.0-4.0 I

STRONG AVERAGE 3.0-4.0 2.0-2.99

Intensive Integrative

WEAK 1.0-1.99
III Market VI
Divestment penetration Prod. devt

Hold & Maintain

II

Intensive Integrative

MEDIUM IVIntensive 2.0-2.99 Integrative LOW 1.0-1.99 VIIMarket

penetration Prod. devt

V Market VIII

penetration Prod. devt

IX
Divestment

Divestment

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

Harvest & Divest

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SAMPLE INTERNAL-EXTERNAL (IE) MATRIX

TOTAL EFE WEIGHTED SCORE = 3.0 TOTAL IFE WEIGHTED SCORE= 3.2
Intensive Integrative

STRONG AVERAGE 3.0-4.0 2.0-2.99 I II V VIII

WEAK 1.0-1.99
III VI IX

HIGH 3.0-4.0

MEDIUM IV 2.0-2.99 LOW 1.0-1.99 VII

HILDA L. TEODORO

ATENEO GRADUATE SCHOOL OF BUSINESS

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THE GRAND STRATEGY MATRIX

W E 1. A 2. K C O M P E T I T I V E RAPID MARKET GROWTH Quadrant I Quadrant II
market development market penetration product development horizon integration divestiture liquidation

3. 4. 5. 6.

1. 2. 3. 4. 5. 6. 7.
1. 2. 3.

market development market penetration product development forward integration backward integration horizontal integration concentric diversification

S T R O N G C O M P E T I T I V E
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Quadrant III
1. 2. 3. 4. 5. 6. retrenchment concentric diversification horizontal diversification conglomerate diversification divestiture liquidation

Quadrant IV
concentric diversification horizontal diversification conglomerate diversification

4.

joint venture

HILDA L. TEODORO

SLOW MARKET GROWTH

ATENEO GRADUATE SCHOOL OF BUSINESS

Fred David

STRATEGIES SUMMARY
STRATEGY OPTIONS INTEGRATION STRATEGIES 1 Forward Integration 2 Backward Integration 3 Horizontal Integration INTENSIVE STRATEGIES 4 Market Penetration 5 Market Development 6 Product Development DIVERSIFICATION STRATEGIES 7 Concentric Diversification 8 Conglomerate Diversification 9 Horizontal Diversification DEFENSIVE STRATEGIES 10 11 12 13 Joint Venture Retrenchment Divestiture
HILDA L. TEODORO

TOWS

SPACE

IEM

GSM

TOTAL

1 1 1
1 1 1 1 1 1 1 1 1 1

1 1 1
1 1 1 1

2 2 2 0
4 3 3 0 2 1 1 0 0 0 0 0

Liquidation

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THE QSP MATRIX (QSPM)

STEPS 1. List key external opportunites/threats and internal strenths and weaknesses (identical to EFE & IFE) 2. Assign weights(identical to EFE & IFE) 3. Examine stage 2 matrices/identify alternatives choose top 3 or 4 alternatives (see Matching Strategies Summary)
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THE QSP MATRIX(QSPM)

4. determine attractiveness score (AS) - be sure not to assign the same AS in a given row. Recall that dashes should be inserted all the way across a given row when used. 1. Not attractive 2. Somewhat attractive 3. Reasonably attractive 4. Highly attractive AS: Does this factor affect the choice of strategies being made? If the answer to the above question is no then use a dash across set. If you assign an AS score to one strategy, you must assign an AS to the other strategies in the set
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SAMPLE QSP MATRIX (QSPM)

STRATEGIC ALTERNATIVES Market Penetration CRITICAL SUCCESS FACTORS OPPORTUNITIES 1. Better relations w ith the present government. 2. Reach out to the youth market. 3. Reach out to the low er income markets not reached by the broadsheet. 4. Better new spaper technology. 5. Digital advertising services. THREATS 1. Television. 2. High new sprint costs. 3. Decline in new spaper readership. 4. Slow dow n in the economy. 5. Internet and on-line publications. STRENGTHS 1. Good editorial quality. 2. High readership ratings. 3. Continued market leadership. 4. Strong loyalty of staf f to the company. 5. Uited Board of Directors and good leadership. WEAKNESSES 1. Prof it margin squeeze. 2. No. 2 in classif ieds. 3. Lack of shared corporate culture. 4. Resistance to change. TOTAL 0.15 0.05 0.10 0.05 2 1 2 0.30 0.05 0.20 3 2 3 4.90 0.45 0.10 0.30 4 3 1 0.60 0.15 0.10 0.15 0.05 0.10 0.10 0.15 3 4 4 4 0.45 0.60 0.20 0.40 4 3 3 3 0.60 0.45 0.15 0.30 2 2 2 2 0.30 0.30 0.10 0.20 0.15 0.10 0.15 0.10 0.05 3 3 3 4 0.45 0.30 0.15 0.60 4 4 2 3 0.60 0.40 0.10 0.45 2 2 1 2 0.30 0.20 0.05 0.30 0.15 0.05 0.05 4 0.60 2 0.30 3 0.45 0.10 0.10 4 3 0.40 0.30 3 4 0.30 0.40 2 2 0.20 0.20 Wgt. AS TAS Product Developm ent AS TAS Horizontal Integration AS TAS

L. TEODORO 5. HILDA Lack of Entrepreneurial Spirit

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3.45

SETTING OF STRATEGIC OBJECTIVES

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ATENEO GRADUATE SCHOOL OF BUSINESS

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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

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OBJECTIVE-SETTING
TYPES OF OBJECTIVES: STRATEGIC & FINANCIAL EXAMPLES
STRATEGIC OBJECTIVES
A bigger market share Quicker design-to-market times than rivals Higher product quality Lower costs relative to competitors Broader or more attractive product line Superior customer service Wider geographic coverage
HILDA L. TEODORO

FINANCIAL OBJECTIVES
Growth in revenues Growth in earnings Wider profit margins Higher returns on invested capital Attractive economic value added (EVA) performance Bigger cash flows A rising stock price Earnings per Share Strong bond and credit ratings
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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
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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 locallysourced ones To reduce manpower complement by 20% by integrating the Finance and HR functions, and the Marketing and Sales Units
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