David PPT Exp Ch05

Chapter 5
Strategies in Action
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2007 Prentice Hall
Ch 5 -1
Chapter Outline
Long-Term Objectives
Types of Strategies
Integration Strategies
Ch 5 -2
Chapter Outline (contd)

Intensive Strategies
Diversification Strategies
Defensive Strategies
Ch 5 -3

Michael Porters Generic Strategies
Means for Achieving Strategies
First Mover Advantages
Ch 5 -4

Outsourcing
Strategic Management in Nonprofit &

Governmental Organizations
Strategic Management in Small Firms
Ch 5 -5
Strategies in Action
Companies Embrace Strategic Planning
-- Quest for higher revenues

-- Quest for higher profits
Ch 5 -6
Results expected from pursuing certain

strategies
Strategies represent actions to accomplish
long-term objectives
Ch 5 -7
Objectives -Quantifiable
Measurable
Realistic
Understandable
Challenging
Ch 5 -8
Objectives -Hierarchical
Obtainable
Congruent
Time-line
Ch 5 -9
Strategists Should Avoid -Managing by Extrapolation
Managing by Crisis
Managing by Subjectives
Managing by Hope
Ch 5 -10
Varying Performance Measures by

Organizational Level
Ch 5 -11
Financial vs. Strategic

Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher earnings per share
Improved cash flow
Ch 5 -12
Financial vs. Strategic

Objectives
Strategic Objectives
Larger market share
Quicker on-time delivery than rivals
Quicker design-to-market times than rivals
Lower costs than rivals
Higher product quality than rivals
Wider geographic coverage than rivals
Ch 5 -13
Types of Strategies
A Large Company
Corp
Level
Division Level
Functional Level
Operational Level
Ch 5 -14
Types of Strategies
A Small Company
Company
Level
Functional Level
Operational Level
Ch 5 -15
Types of Strategies
Forward
Integration
Vertical
Integration
Strategies
Backward
Integration
Horizontal
Integration
Ch 5 -16
Vertical Integration Strategies

Gain Control Over -Distributors
Suppliers
Competitors
Ch 5 -17
Forward Integration Strategies

Gain Control Over -Distributors
Retailers
Ch 5 -18
Forward Integration Strategies

Guidelines -Current distributors expensive or unreliable
Availability of quality distributors limited
Firm competing in industry expected to grow
markedly
Firm has both capital & HR to manage new
business of distribution
Current distributors have high profit margins
Ch 5 -19
Backward Integration
Strategies
Ownership or Control -Firms suppliers
Ch 5 -20
Backward Integration
Strategies
Guidelines -Current suppliers expensive or unreliable
# of suppliers is small; # of competitors is large
High growth in industry sector
Firm has both capital & HR to manage new
business
Stable prices are important
Current suppliers have high profit margins
Ch 5 -21
Horizontal Integration
Strategies
Ownership or Control -Firms competitors
Ch 5 -22
Horizontal Integration
Strategies
Guidelines -Gain monopolistic characteristics w/o federal
government challenge
Competes in growing industry
Increased economies of scale major competitive
advantages
Faltering due to lack of managerial expertise or
need for particular resource
Ch 5 -23
Types of Strategies
Market
Penetration
Intensive
Strategies
Market
Development
Product
Development
Ch 5 -24
Intensive Efforts -Improve competitive position with
existing products
Ch 5 -25
Market Penetration Strategies
Increased Market Share -Present products/services

Present markets
Greater marketing efforts
Ch 5 -26
Market Penetration Strategies

Guidelines -Current markets not saturated
Usage rate of present customers can be increased
significantly
Shares of competitors declining; industry sales
increasing
Increased economies of scale provide major
competitive advantage
Ch 5 -27
Market Development
Strategies
New Markets -Present products/services to new
geographic areas
Ch 5 -28
Market Development
Strategies
Guidelines -New channels of distribution reliable, inexpensive,
good quality
Firm is successful at what it does
Untapped/unsaturated markets
Excess production capacity
Basic industry rapidly becoming global
Ch 5 -29
Product Development
Strategies
Increased Sales -Improving present products/services
Developing new products/services
Ch 5 -30
Product Development
Strategies
Guidelines -Products in maturity stage of life cycle
Industry characterized by rapid technological
development
Competitors offer better-quality products @
comparable prices
Compete in high-growth industry
Strong R&D capabilities
Ch 5 -31
Types of Strategies
Related
Diversification
Diversification
Strategies
Unrelated
Diversification
Ch 5 -32
Diversification
Related When their value chains posses

competitively valuable cross-business
strategic fits
Unrelated When their value chains are so
dissimilar that no competitively valuable
cross-business relationships exist
Ch 5 -33
Related Diversification Preferred

To Capitalize on:
Transferring competitively valuable expertise

Combining the related activities of separate
businesses into a single operation to lower
costs
Exploiting common use of a well-known
brand name
Cross-business collaboration to create
competitively valuable resource strengths
and capabilities
Ch 5 -34
Diversification Strategies
Less Popular -More difficult to manage diverse
business activities
However -The greatest risk of being in a single

industry is having all your eggs in one
basket
Ch 5 -35
Related Diversification May be Effective

When:
An organization competes in a no-growth or a

slow growth industry
Adding new, but related, products would
significantly enhance the sales of current
products
New, but related products could be offered at
highly competitive prices
Ch 5 -36
Related Diversification May be Effective

When:
New, but related, products have seasonal

sales levels that counterbalance an
organizations existing peaks and valleys
An organizations products are currently in
the declining stage of the products life cycle
An organization has a strong management
team
Ch 5 -37
Conglomerate Diversification
Strategies
Guidelines -Declining annual sales & profits
Capital & managerial ability to compete in new
industry
Financial synergy between acquired and acquiring
firms
Current markets for present products - saturated
Ch 5 -38
Unrelated Diversification
Favors capitalizing on a portfolio of

businesses that are capable of delivering
excellent financial performance
Entails hunting to acquire companies:
Whose assets are undervalued

That are financially distressed
With high growth potential but are short on
investment capital
Ch 5 -39
Unrelated Diversification May be Effective

When:
Revenues derived from an organizations

current products or services would increase
by adding new unrelated products
An organization competes in a highly
competitive or a no growth industry
An organizations current distribution
channels can be used to market new
products to existing customers
Ch 5 -40

When:
New products have countercyclical sales

patterns
An organizations basic industry is
experiencing declining annual sales and
profits
An organization has the capital and
managerial talent to compete successfully in
a new industry
Ch 5 -41

When:
An organization has the opportunity to

purchase an unrelated business as an
attractive investment opportunity
There exists financial synergy between the
acquired and acquiring firm
Existing markets for the present products are
saturated
Antitrust action could be charged against a
company
Ch 5 -42
Types of Strategies
Retrenchment
Defensive
Strategies
Divestiture
Liquidation
Ch 5 -43
Retrenchment Strategies
Regrouping -Cost & asset reduction to reverse

declining sales & profit
Ch 5 -44
Retrenchment Strategies
Guidelines -Failed to meet objectives & goals consistency; has
distinctive competencies
Firm is one of weaker competitors
Inefficiency, low profitability, poor employee morale,
pressure for stockholders
Strategic managers have failed
Rapid growth in size; major internal reorganization
necessary
Ch 5 -45
Divestiture Strategies
Selling a division or part of an

organization
Ch 5 -46
Divestiture Strategies
Guidelines -Retrenchment failed to attain improvements
Division needs more resources than are available
Division responsible for firms overall poor
performance
Division is a mis-fit with organization
Large amount of cash is needed and cannot be
raised through other sources
Ch 5 -47
Liquidation Strategies
Selling
Companys assets, in parts, for

their tangible worth
Ch 5 -48
Liquidation Strategies
Guidelines -Retrenchment & divestiture failed
Only alternative is bankruptcy
Minimize stockholder loss by selling firms assets
Ch 5 -49
Michael Porters Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Ch 5 -50
Ch 5 -51
Generic Strategies
Cost Leadership
(Type 1 and Type 2)
In conjunction with differentiation

Economies or diseconomies of
scale
Capacity utilization achieved
Linkages w/ suppliers & distributors
Ch 5 -52
Cost Leadership
Ways of ensuring total costs across value
chain are lower than competitors total costs
1.
2.
Perform value chain activities more efficiently

than rivals and control factors that drive costs
Revamp the firms overall value chain to
eliminate or bypass some cost-producing
activities
Ch 5 -53
Cost Leadership
Can be especially effective when:
1.
2.
3.
4.
5.
6.
7.
Price competition among rivals is vigorous

Rivals products are identical and supplies are
readily available
There are few ways to achieve differentiation
Most buyers use the product in the same way
Buyers have low switching costs
Buyers are large and have significant power
Industry newcomers use low prices to attract
buyers
Ch 5 -54
Generic Strategies
Low Cost Producer Advantage
Many price-sensitive buyers

Few ways of achieving differentiation
Buyers not sensitive to brand
differences
Large # of buyers w/bargaining power
Ch 5 -55
Generic Strategies
Differentiation (Type 3)
Greater product flexibility
Greater compatibility
Lower costs
Improved service
Greater convenience
More features
Ch 5 -56
Differentiation
1.
2.
3.
4.
There are many ways to differentiate and many

buyers perceive the value of the differences
Buyer needs and uses are diverse
Few rival firms are following a similar
differentiation approach
Technology change is fast paced and
competition revolves around evolving product
features
Ch 5 -57
Generic Strategies
Focused Strategies (Type 4 & 5)
Industry segment of sufficient size
Good growth potential
Not crucial to success of major competitors
Ch 5 -58
Focused Strategy
1.
2.
3.
4.
5.
The target market niche is large, profitable, and

growing
Industry leaders do not consider the niche crucial
Industry leaders consider the niche too costly or
difficult to meet
The industry has many different niches and
segments
Few, if any, other rivals are attempting to
specialize in the same target segment
Ch 5 -59
Ch 5 -60

Joint Venture/Partnering
Two or more companies form a temporary

partnership or consortium for purpose of
capitalizing on some opportunity
Ch 5 -61
Reasons why Mergers and Acquisitions Fail
Integration difficulties
Inadequate evaluation of target
Large or extraordinary debt
Inability to achieve synergy
Ch 5 -62

Cooperative Arrangements
R&D partnerships
Cross-distribution agreements
Cross-licensing agreements
Cross-manufacturing agreements
Joint-bidding consortia
Ch 5 -63

Why Joint Ventures Fail
Managers who must collaborate daily; not

involved in developing the venture
Benefits the company not the customers
Not supported equally by both partners
May begin to compete with one of the
partners
Ch 5 -64
Joint Ventures
Guidelines -Synergies between private and publicly held
Domestic with foreign firm, local management can
reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable
(e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
Ch 5 -65
Reasons why Mergers and Acquisitions Fail
Too much diversification

Managers overly focused on acquisition
Too large an acquisition
Difficult to integrate different organizational
cultures
Reduced employee moral due to layoffs and
relocations
Ch 5 -66

Mergers & Acquisitions
Provide improved capacity utilization

Better use of existing sales force
Reduce managerial staff
Gain economies of scale
Smooth out seasonal trends in sales
Gain new technology
Access to new suppliers, distributors, customers,
products, creditors
Ch 5 -67
Recent Mergers
Acquiring Firm
IBM
Philip Morris
U.S. Steel
Oracle
OSIM International Ltd
Adobe Systems
US Airways
United Parcel Service
Acquired Firm
Ascential Software
PT Hanjaya Mandala Samp
National Steel Corp
PeopleSoft
Brookstone
Macromedia
American West
Overnight Corp.
Ch 5 -68
Benefits a firm may achieve by entering a

new market or developing a new product or
service prior to rival firms
Ch 5 -69

Potential Advantages
Securing access to rare resources

Gaining new knowledge of key factors &
issues
Carving out market share
Easy to defend position & costly for rival
firms to overtake
Ch 5 -70
Outsourcing
Business-process outsourcing
(BPO)
Companies taking over the functional

operations of other firms
Ch 5 -71
Outsourcing
Benefits
Less expensive
Allows firm to focus on core business
Enables firm to provide better services
Ch 5 -72
For Review (Chapter 5)

Key Terms & Concepts
Acquisition
Concentric
Diversification
Backward
Integration
Conglomerate
Diversification
Bankruptcy
Cooperative
Arrangements
Combination
Strategy
Cost Leadership
Ch 5 -73

Differentiation
Focus
Diversification
Strategies
Forward Integration
Divestiture
Franchising
First Mover
Advantages
Generic Strategies
Ch 5 -74

Horizontal
Diversification
Horizontal
Integration
Joint Venture
Hostile Takeover
Leveraged Buyout
Integration
Strategies
Liquidation
Ch 5 -75

Long-Term
Objectives
Outsourcing
Market Development
Product Development
Market Penetration
Retrenchment
Merger
Vertical Integration
Ch 5 -76

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Chapter 5

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Chapter Outline (contd)

Copyright 2007 Prentice Hall

Chapter Outline (contd)

Means for Achieving Strategies

First Mover Advantages

Copyright 2007 Prentice Hall

Chapter Outline (contd)

Strategic Management in Nonprofit &

Copyright 2007 Prentice Hall

Companies Embrace Strategic Planning

-- Quest for higher revenues

Copyright 2007 Prentice Hall

Results expected from pursuing certain

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Varying Performance Measures by

Copyright 2007 Prentice Hall

Financial vs. Strategic

Financial vs. Strategic

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Vertical Integration Strategies

Copyright 2007 Prentice Hall

Forward Integration Strategies

Copyright 2007 Prentice Hall

Forward Integration Strategies

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Market Penetration Strategies

Increased Market Share -Present products/services

Copyright 2007 Prentice Hall

Market Penetration Strategies

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Related When their value chains posses

Copyright 2007 Prentice Hall

Related Diversification Preferred

Transferring competitively valuable expertise

Copyright 2007 Prentice Hall

However -The greatest risk of being in a single

Related Diversification May be Effective

An organization competes in a no-growth or a

Copyright 2007 Prentice Hall

Related Diversification May be Effective

New, but related, products have seasonal

Copyright 2007 Prentice Hall

Copyright 2007 Prentice Hall

Favors capitalizing on a portfolio of

Whose assets are undervalued

Copyright 2007 Prentice Hall

Unrelated Diversification May be Effective

Revenues derived from an organizations