Chapter 5 Strategies in Action Strategic Management: Concepts & Cases 13th Edition Fred David Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Long Term Objectives Quantitative Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Financial vs. Strategic Objectives Financial Objectives Growth in revenues Growth in earnings Higher dividends Larger profit margins Greater ROI Higher earnings per share Rising stock price Improved cash flow Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Financial vs. Strategic Objectives Strategic Objectives Larger market share Quicker on-time delivery than rivals Shorter design-to-market times than rivals Lower costs than rivals Higher product quality than rivals Wider geographic coverage than rivals Achieving technological leadership Consistently getting new or improved products to market ahead of rivals Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Not Managing by Objectives Managing by Extrapolation – “If it ain’t broke, don’t fix it” Managing by Crisis – The true measure of a good strategist is the ability to fix problems Managing by Subjectives – “Do your own thing, the best way you know how” Managing by Hope – The future is full of uncertainty and if at first you don’t succeed, then you may on the second or third try Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

The Balanced Scorecard Robert Kaplan & David Norton – Strategy evaluation & control technique Balance financial measures with nonfinancial measures Balance shareholder objectives with customer & operational objectives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Levels of Strategies – Large Company Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Levels of Strategies – Small Company Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Horizontal Integration Types of Strategies Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Vertical Integration Strategies Forward Integration Gaining ownership or increased control over distributors or retailers Backward Integration Seeking ownership or increased control of a firm’s suppliers Horizontal Integration Seeking ownership or increased control over competitors Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Types of Strategies Market Penetration Market Development Intensive Strategies Market Development Product Development Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Intensive Strategies Market Penetration Market Development Seeking increased market share for present products or services in present markets through greater marketing efforts Market Development Introducing present products or services into new geographic areas Product Development Seeking increased sales by improving present products or services or developing new ones Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Types of Strategies Related Diversification Unrelated Diversification Diversification Strategies Unrelated Diversification Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Diversification Strategies Related Diversification Adding new but related products or services Unrelated Diversification Adding new, unrelated products or services Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Types of Strategies Retrenchment Divestiture Liquidation Defensive Strategies Divestiture Liquidation Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Defensive Strategies Retrenchment Divestiture Liquidation Regrouping through cost and asset reduction to reverse declining sales and profit Divestiture Selling a division or part of an organization Liquidation Selling all of a company’s assets, in parts, for their tangible worth Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Retrenchment Strategy Bankruptcy types Chapter 7 – liquidation Chapter 9 – municipalities Chapter 11 – reorganization Chapter 12 – family farmers Chapter 13 – small businesses Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Porter’s Five Generic Strategies Type 1 Cost Leadership – Low cost Type 2 Cost Leadership – Best value Type 3 Differentiation Type 4 Focus – Low cost Type 5 Focus – Best value Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Type 1 or 2 Cost Leadership Strategy Conditions Vigorous price competition Plentiful supply of identical products Little product differentiation Products used in same ways Low cost to switch Large buyers with power Industry newcomers use low prices to attract buyers Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Type 3 Differentiation Strategy Conditions Many ways to differentiate and buyers perceive the differences as having value Diverse buyer needs and uses Few rival firms following similar differentiation approach Fast paced technological change and evolving product features Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Type 4 or 5 Focus Strategy Conditions Large, profitable, and growing target market niche Industry leaders do not consider the niche crucial to their success Industry leaders consider it costly or difficult to meet the needs of this niche Industry has many niches and segments Few rivals are specializing on this target segment Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Means for Achieving Strategies Cooperation among competitors Joint venture / partnering Merger / acquisition First mover advantages Outsourcing Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management in Nonprofit and Governmental Organizations Educational Institutions Medical Organizations Governmental Agencies and Departments Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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