Copyright © 2011 Pearson Education Ch 6 -1 Copyright © 2011 Pearson Education

Strategic Management: Concepts and Cases Arab World Edition Fred R. David Abbas J. Ali Abdulrahman Y. Al-Aali Chapter 6: Strategies in Action Ch 6 -2 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Chapter Outline Long-Term Objectives The Balanced Scorecard Types of Strategies Integration Strategies Intensive Strategies Diversification Strategies Ch 6 -3 Copyright © 2011 Pearson Education

Chapter Outline (cont’d) Defensive Strategies Porter’s Five Generic Strategies Means For Achieving Strategies Strategic Management in Nonprofit and Governmental Organizations Strategic Management in Small Firms Ch 6 -4 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Strategies in Action “Strategies for taking the hill won’t necessarily hold it.” – Amar Bhide, Professor, Tufts University “When you have diversification, you are better balanced.” – Shahira Zeid, CEO, MZ Investments - Egypt Ch 6 -5 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Long-Term Objectives Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Timeline Ch 6 -6 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Varying Performance Measures by Organizational Level Ch 6 -7 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Financial vs. Strategic Objectives Financial Objectives Growth in revenues Growth in earnings Higher dividends Higher profit margins Greater return on investment Higher earnings per share Rising stock price Improved cash flow Ch 6 -8 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education 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 first you don’t succeed, then you may on the second or third try. Ch 6 -9 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education The Balanced Scorecard Robert Kaplan & David Norton Strategy evaluation & control technique Balance financial measures with nonfinancial measures Balance shareholder objectives with customer & operational objectives Ch 6 -10 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988) 40. Ch 6 -11 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Types of Strategies A Large Company Corp Level Division Level Functional Level Operational Level Ch 6 -12 Copyright © 2011 Pearson Education

Horizontal Integration Types of Strategies Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration Ch 6 -13 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Types of Strategies Market Penetration Intensive Strategies Market Development Product Development Innovation Ch 6 -14 Copyright © 2011 Pearson Education

Types of Strategies Related Diversification Unrelated Diversification Diversification Strategies Unrelated Diversification Ch 6 -15 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Types of Strategies Retrenchment Defensive Strategies Divestiture Liquidation Ch 6 -16 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education 2010 Examples Forward Integration Aramco has domestic and international refineries Backward Integration Juhayna has 59 production lines manufacturing 28 different products Horizontal Integration Almarai acquired Teeba dairy company in Jordan, Beyti in Egypt, HADCO, and Al Safwa Dairies Ch 6 -17 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education 2010 Examples (cont’d) Market Penetration Almarai secured agreements with large retailers such as Carrefour, Panda, and Al Othaim Market Development Alshaya Group’s (Kuwait) international network and profitable business partnerships Product Development Almarai introduced a variety of cheeses (e.g. full fat, light, and low salt) Innovation Apple Computer introduced the media-playing cell phone, the iPhone Ch 6 -18 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education 2010 Examples (cont’d) Related Diversification LINKdotNET, the Egypt based internet services powerhouse, acquired eight new related online businesses Unrelated Diversification UAE based Al-Futtaim Group operates more than 65 companies across sectors as diverse as commerce, industry, and services Retrenchment Nakheel, the property unit of Dubai World, cut several jobs in 2008 and 2010 Ch 6 -19 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education 2010 Examples (cont’d) Divestiture Zain sold its operations in Africa to Bharti Airtel, India Liquidation Iraqi government decided to liquidate the assets of Iraqi Airways Ch 6 -20 Copyright © 2011 Pearson Education

Michael Porter’s Generic Strategies Cost Leadership Strategies (Low-Cost & Best-Value) Differentiation Strategies Focus Strategies (Low-Cost Focus & Best-Value Focus) Ch 6 -21 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Ch 6 -22 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Ch 6 -23 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Means for Achieving Strategies Joint Venture/Partnering Mergers and Acquisitions Private Equity Acquisitions First-Mover Advantages Outsourcing Ch 6 -24 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Joint Venture/Partnering Joint venture is a popular strategy Two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. Unlike the many U.S. counterparts, Arab corporations have sought cooperative and joint venture agreements with global corporations Ch 6 -25 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Mergers and Acquisitions These are two commonly used ways to pursue strategies A merger occurs when two organizations of about equal size unite to form one enterprise A acquisition occurs when a large organization purchases a smaller firm or vice versa Ch 6 -26 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Mergers and Acquisitions (cont’d) Key reasons why mergers and acquisitions fail: Organizational integration difficulties Inadequate evaluation of target Large or extraordinary debt Inability to achieve synergy Too much diversification Ch 6 -27 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Mergers and Acquisitions (cont’d) Key reasons why mergers and acquisitions fail: Mergers overly focused on acquisitions Too large an acquisition Difficult to integrate different organizational cultures Reduced employee morale due to layoffs and relocations Ch 6 -28 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Private Equity Acquisitions Among the world’s largest 300 private equity firms in 2010, six were from the Arab world. Foreign private equity firms are expanding their activities in the Arab world. Ch 6 -29 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education First Mover Advantages First Mover Advantages Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms. Ch 6 -30 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Outsourcing Business-Process Outsourcing (BPO) Companies taking over the functional operations of other firms. Ch 6 -31 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education Global Perspective Joint Ventures Mandatory for All Foreign Firms in India The World Bank expects the Indian economy to grow by 8.7 percent in 2012 This rapid growth is transforming the lives of 1 billion people in India India is experiencing 6.6% inflation Gap between rich and poor widening Vast majority of joint ventures fail Tourism also growing Ch 6 -32 Copyright © 2011 Pearson Education

Strategic Management in Nonprofit and Governmental Organizations Educational Institutions Medical Organizations Governmental Agencies and Departments Ch 6 -33 Copyright © 2011 Pearson Education

Strategic Management in Small Firms 95% of all businesses in the Arab world region are family firms Most Arab entrepreneurs start off as owners of small and medium-sized firms Strategic management is vital for small companies Lack of strategic management knowledge is a serious obstacle for many small business owners Ch 6 -34 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education For Review (Chapter 6) Key Terms & Concepts Acquisition Combination Strategy Backward Integration Cooperative Arrangements Bankruptcy Cost Leadership Business-Processing Outsourcing (BPO) Differentiation Ch 6 -35 Copyright © 2011 Pearson Education

First-Mover Advantages For Review (Chapter 6) Key Terms & Concepts Diversification Strategies Forward Integration Divestiture Franchising First-Mover Advantages Friendly Merger Focus Generic Strategies Ch 6 -36 Copyright © 2011 Pearson Education

Horizontal Integration Integration Strategies For Review (Chapter 6) Key Terms & Concepts Horizontal Integration Joint Venture Hostile Takeover Leveraged Buyout Integration Strategies Liquidation Innovation Long-Term Objectives Ch 6 -37 Copyright © 2011 Pearson Education

Related Diversification Turbulent, High-Velocity For Review (Chapter 6) Key Terms & Concepts Market Development Related Diversification Market Penetration Retrenchment Merger Takeover Product Development Turbulent, High-Velocity Markets Ch 6 -38 Copyright © 2011 Pearson Education

Competitive Advantage Contract Manufacturing Contractual Approaches For Review (Chapter 6) Key Terms & Concepts Competitive Advantage Ethnocentric Competitive Risks Export Contract Manufacturing Franchising Contractual Approaches Geocentric Ch 6 -39 Copyright © 2011 Pearson Education

Unrelated diversification For Review (Chapter 6) Key Terms & Concepts Unrelated diversification Vertical Integration Ch 6 -40 Copyright © 2011 Pearson Education

Copyright © 2011 Pearson Education This work is protected by local and international copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. Ch 6 -41 Copyright © 2011 Pearson Education