Strategic Management #5 Strategies in Action Growth Planning Process Goals Long-Term Objectives Blue Ocean Strategy Types of Strategies Integration Strategies Intensive Strategies Diversification Strategies

Growth Planning Process Overview Vision Mission Values SWOT Performance Evaluation Goals Objectives Action Plans Implementation Strategic Growth Plan Method of Competition Dashboard Strategy Development Balanced Scorecard

Goals Marketing Infrastructure Profitability

Long-Term Objectives Objectives -- Quantifiable Hierarchical Results expected from pursuing certain strategies Strategies represent actions to accomplish long-term objectives Objectives -- Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line

Long-Term Objectives Strategists Should Avoid -- Managing by Extrapolation Managing by Crisis Managing by Subjectives Managing by Hope

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

Financial vs. 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

Financial vs. Strategic Objectives Trade-Off Maximize short-term financial objectives – harm long-term strategic objectives Pursue increased market share at the expense of short-term profitability Tradeoffs related to risk of actions; concern for business ethics; need to preserve natural environment; social responsibility issues

Robert Kaplan & David Norton -- The Balanced Scorecard Marketing Dashboard Robert Kaplan & David Norton -- Easy-to-use analytics and reporting tool Strategy evaluation & control technique Balance financial measures with non-financial measures Balance shareholder objectives with customer & operational objectives

Horizontal Integration Types of Strategies Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration

Vertical Integration Strategies Gain Control Over -- Distributors Suppliers Competitors

Forward Integration Strategies Gain Control Over -- Distributors Retailers 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

Backward Integration Strategies Ownership or Control -- Firm’s suppliers 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

Horizontal Integration Strategies Ownership or Control -- Firm’s competitors 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

Types of Strategies Market Penetration Market Development Intensive Strategies Market Development Product Development

Intensive Strategies Intensive Efforts -- Improve competitive position with existing products Intensive Efforts --

Market Penetration Strategies Increased Market Share -- Present products/services Present markets Greater marketing efforts 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

Market Development Strategies New Markets -- Present products/services to new geographic areas 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 http://www.letvc.com/product/217/the-history-of-apple-company History of Apple

Product Development Strategies Increased Sales -- Improving present products/services Developing new products/services 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 http://www.ted.com/talks/malcolm_gladwell_on_spaghetti_sauce.htm l Malcolm Gladwell

Unrelated Diversification Types of Strategies Related Diversification Diversification Strategies Unrelated Diversification

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 http://www.youtube.com/watch?v=AUX4As-QpdM Post it Notes

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

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

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

Related Diversification May be Effective When: New, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys An organization’s products are currently in the declining stage of the product’s life cycle An organization has a strong management team

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

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

Unrelated Diversification May be Effective When: Revenues derived from an organization’s current products or services would increase by adding new unrelated products An organization competes in a highly competitive or a no growth industry An organization’s current distribution channels can be used to market new products to existing customers

Unrelated Diversification May be Effective When: New products have counter-cyclical sales patterns An organization’s basic industry is experiencing declining annual sales and profits An organization has the capital and managerial talent to compete successfully in a new industry

Unrelated Diversification May be Effective 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

Blue Ocean Strategy What are the advantages of competing with a Blue Ocean Strategy as compared with competitors in a Red Ocean environment?