1. Types of Strategies Level of strategies Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

2. Strategy hierarchy
Corporate strategy: 1) growth strategy, 2) stability strategy, 3) retrenchment strategy.
Business unit strategy: 1) cost leadership, 2) differentiation, 3) focus, 4) mixed.
Functional strategy.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

3. Types of Strategies A Large Company Corp Level Division Level
Functional Level
Operational Level

4. Types of Strategies A small Company company Functional Level
Operational Level
company
A small Company

5. Corporate strategies
Top level management formulate for overall organization
The question at the corporate level we should answer when design strategies: In what industry should we be operating?
It depends on the outcome of SWOT analysis.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

6. Growth strategies Growth strategies:
They result increase in sales, market share and profit: the types:
Internal growth: Increase internal capacity of organization without acquiring other firms.
Conglomerate Diversification: Acquiring unrelated business.
Merger: Two roughly similar size firms combine into one. To benefit of synergy.
Strategic alliance: Temporary partnerships
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

7. Corporate Restructuring
The change in a broad set of actions and decisions, e.g., changing relationships and organization of work.
The aim of restructuring is to improve effectiveness.
Restructuring could be growth, stability or retrenchment. This depends on why we use it.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

8. Retrenchment strategies
Types:
1- Turnaround:
Eliminating unprofitable outputs, pruning/cutting assets, reducing size of work force, rethinking firm’s products lines and customer groups.
2- Divestment: sell one of business units
3- Liquidation: last resort strategy
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

9. Strategies in Action Vertical Integration Strategies
Forward integration
Backward integration
Horizontal integration
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

10. Strategies in Action Forward Integration Example Defined
General Motors is acquiring 10% of its dealers.
Forward Integration
Defined
Gaining ownership or increased control over distributors or retailers
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

11. Guidelines for Forward Integration
Strategies in Action
Guidelines for Forward Integration
Present distributors are expensive, unreliable, or incapable of meeting firm’s needs
Availability of quality distributors is limited
When firm competes in an industry that is expected to grow markedly
Advantages of stable production are high
Present distributor have high profit margins
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

12. Strategies in Action Backward Integration Example Defined
Motel 8 acquired a furniture manufacturer.
Backward Integration
Defined
Seeking ownership or increased control of a firm’s suppliers
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

13. Guidelines for Backward Integration
Strategies in Action
Guidelines for Backward Integration
When present suppliers are expensive, unreliable, or incapable of meeting needs
Number of suppliers is small and number of competitors large
High growth in industry sector
Firm has both capital and human resources to manage new business
Advantages of stable prices are important
Present supplies have high profit margins
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

14. Horizontal Integration
Strategies in Action
Horizontal Integration
Example
Palestinian Islamic Bank acquired Cairo-Amman Bank Islamic transaction branch.
Defined
Seeking ownership or increased control over competitors
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

15. Guidelines for Horizontal Integration
Strategies in Action
Guidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by federal government
Competes in growing industry
Increased economies of scale provide major competitive advantages
Faltering/losing due to lack of managerial expertise or need for particular resources
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

16. Strategies in Action Intensive Strategies Market penetration
Market development
Product development
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

17. Strategies in Action Market Penetration Example Defined
Ameritrade, the on-line broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions.
Defined
Seeking increased market share for present products or services in present markets through greater marketing efforts
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

18. Guidelines for Market Penetration
Strategies in Action
Guidelines for Market Penetration
Current markets not saturated
Usage rate of present customers can be increased significantly
Market shares of competitors declining while total industry sales increasing
Increased economies of scale provide major competitive advantages
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

19. Strategies in Action Market Development Example Defined
Khuzendar Tiles maker introduce his product to Gulf markets.
Defined
Introducing present products or services into new geographic area
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

20. Guidelines for Market Development
Strategies in Action
Guidelines for Market Development
New channels of distribution that are reliable, inexpensive, and good quality
Firm is very successful at what it does
Untapped or unsaturated markets
Capital and human resources necessary to manage expanded operations
Excess production capacity
Basic industry rapidly becoming global
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

21. Strategies in Action Product Development Example Defined
Apple developed the G4 chip that runs at 500 megahertz.
Khuzendar Tiles maker introduce Ceramic as a new product.
Defined
Seeking increased sales by improving present products or services or developing new ones
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

22. Guidelines for Product Development
Strategies in Action
Guidelines for Product Development
Products in maturity stage of life cycle
Competes in industry characterized by rapid technological developments
Major competitors offer better-quality products at comparable prices
Compete in high-growth industry
Strong research and development capabilities
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

23. Strategies in Action Diversification Strategies
Concentric diversification
Conglomerate diversification
Horizontal diversification
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

24. Concentric Diversification
Strategies in Action
Concentric Diversification
Example
National Westminister Bank PLC in Britain bought the leading British insurance company, Legal & General Group PLC.
Defined
Adding new, but related, products or services
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

25. Guidelines for Concentric Diversification
Strategies in Action
Guidelines for Concentric Diversification
Competes in no- or slow-growth industry
Adding new & related products increases sales of current products
New & related products offered at competitive prices
Current products are in decline stage of the product life cycle
Strong management team
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

26. Conglomerate Diversification
Strategies in Action
Conglomerate Diversification
Example
Consultant Construction Engineering acquired Bisects factory.
Defined
Adding new, unrelated products or services
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

27. Guidelines for Conglomerate Diversification
Strategies in Action
Guidelines for Conglomerate Diversification
Declining annual sales and profits
Capital and managerial talent to compete successfully in a new industry
Financial synergy between the acquired and acquiring firms
Exiting markets for present products are saturated
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

28. Horizontal Diversification
Strategies in Action
Horizontal Diversification
Example
The El-Awda Co. provide ice-cream product to present customer
Defined
Adding new, unrelated products or services for present customers
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

29. Guidelines for Horizontal Diversification
Strategies in Action
Guidelines for Horizontal Diversification
Revenues from current products/services would increase significantly by adding the new unrelated products
Highly competitive and/or no-growth industry w/low margins and returns
Present distribution channels can be used to market new products to current customers
New products have counter cyclical sales patterns compared to existing products
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

30. Strategies in Action Defensive Strategies Joint venture Retrenchment
Divestiture
Liquidation
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

31. Strategies in Action Joint Venture Defined Example
Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones.
Defined
Two or more sponsoring firms forming a separate organization for cooperative purposes
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

32. Guidelines for Joint Venture
Strategies in Action
Guidelines for Joint Venture
Combination of privately held and publicly held can be synergistically combined
Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks
Distinctive competencies of two or more firms are complementary
Overwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline)
Two or more smaller firms have trouble competing with larger firm
A need exists to introduce a new technology quickly
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

33. Strategies in Action Retrenchment (turnaround) Defined Example
A company sold off a land and 4 apartments to raise cash needed. It introduce expense effective control system.
Defined
Regrouping through cost and asset reduction to reverse declining sales and profit. Sometimes it is called turnaround or reorganizational strategy.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

34. Guidelines for Retrenchment
Strategies in Action
Guidelines for Retrenchment
Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies
Firm is one of the weaker competitors
Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.
When an organization’s strategic managers have failed
Very quick growth to large organization where a major internal reorganization is needed.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

35. Strategies in Action Divestiture Defined Example
Harcourt General, the large US publisher, is selling its Neiman Marcus division.
Defined
Selling a division or part of an organization
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

36. Guidelines for Divestiture
Strategies in Action
Guidelines for Divestiture
When firm has pursued retrenchment but failed to attain needed improvements
When a division needs more resources than the firm can provide
When a division is responsible for the firm’s overall poor performance
When a division is a misfit with the organization
When a large amount of cash is needed and cannot be obtained from other sources.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

37. Strategies in Action Liquidation Defined Example
El-Ameer Block factory sold all its assets and ceased business.
Defined
Selling all of a company’s assets, in parts, for their tangible worth
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

38. Guidelines for Liquidation
Strategies in Action
Guidelines for Liquidation
When both retrenchment and divestiture have been pursued unsuccessfully
If the only alternative is bankruptcy, liquidation is an orderly alternative
When stockholders can minimize their losses by selling the firm’s assets
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

39. Michael Porter’s Generic Strategies
Cost Leadership Strategies
(Low-Cost & Best-Value)
Differentiation Strategies
Focus Strategies (Low-Cost Focus &
Best-Value Focus)
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

40. Business Unit Strategies
Here we answer the question:
How should we compete in the chosen industry?
Cost leadership
Differentiation (real or perceived).
Mixed
Focus
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

41. Business Strategy
Focuses on improving competitive position of company’s products or services within the specific industry or market segment
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

42. Generic Competitive Strategies --
Porter’s Competitive Strategies
Generic Competitive Strategies --
Lower Cost strategy
Greater efficiencies than competitors
Differentiation strategy
Unique/superior value, quality, features, service
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

43. Competitive Advantage --
Porter’s Competitive Strategies
Competitive Advantage --
Determined by Competitive Scope
Breadth of the target market
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

44. Porter’s Competitive Strategies
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

45. Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

46. Cost Leadership -- Low-cost competitive strategy Broad mass market
Porter’s Competitive Strategies
Cost Leadership --
Low-cost competitive strategy
Broad mass market
Efficient-scale facilities
Cost reductions
Cost minimization
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

47. Michael Porter’s Generic Strategies
Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive.
There are two types of cost leadership strategies.
a. A low-cost strategy offers products to a wide range of customers at the lowest price available on the market.
b. A best-value strategy offers products to a wide range of customers at the best price-value available on the market.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

48. Cost leadership
Striving to be the low-cost producer in an industry can be especially effective when the market is composed of many price-sensitive buyers, when there are few ways to achieve product differentiation, when buyers do not care much about differences from brand to brand, or when there are a large number of buyers with significant bargaining power.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

49. Cost leadership
The basic idea behind a cost leadership strategy is to underprice competitors or offer a better value and thereby gaindriving some competitors out market share and sales, of the market entirely.
To successfully employ a cost leadership strategy, firms must ensure that total costs across the value chain are lower than that of the competition. This can be accomplished by:
a. performing value chain activities more efficiently than competition, and
b. eliminating some cost-producing activities in the value chain.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

50. Benefits Provides a defense against competitors
Provides a barrier to entry
Generates increased market share
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

51. Corporate Value Chain
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

52. Differentiation – Broad mass market Unique product/service
Porter’s Competitive Strategies
Differentiation –
Broad mass market
Unique product/service
Premiums charged
Less price sensitivity
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

53. Differentiation
Differentiation is aimed at producing products that are considered unique. This strategy is most powerful with the source of differentiation is especially relevant to the target market
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

54. Differentiation
A successful differentiation strategy allows a firm to charge higher prices for its products to gain customer loyalty because consumers may become strongly attached to the differentiation features.
3. A risk of pursuing a differentiation strategy is that the unique product may not be valued highly enough by customers to justify the higher price.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

55. Differentiation
Common organizational requirements for a successful differentiation strategy include strong coordination among the R&D and marketing functions and substantial amenities/incentives to attract scientists and creative people.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

56. Benefits Lowers customers sensitivity to price Increases buyer loyalty
Barrier to entry
Can generate higher profits
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

57. Focus
1. Focus means producing products and services that fulfill the needs of small groups of consumers.
2. There are two types of focus strategies.
a. A low-cost focus strategy offers products or services to a small range (niche) of customers at the lowest price available on the market.
b. A best-value focus strategy offers products to a small range of customers at the best price-value available on the market. This is sometimes called focused differentiation.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

58. Focus
Focus strategies are most effective when the niche is profitable and growing, when industry leaders are uninterested in the niche, when industry leaders feel pursuing the niche is too costly or difficult, when the industry offers several niches, and when there is little competition in the niche segment.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

59. Cost-Focus – Low-cost competitive strategy Focus on market segment
Porter’s Competitive Strategies
Cost-Focus –
Low-cost competitive strategy
Focus on market segment
Niche focused
Cost advantage in market segment
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

60. Differentiation Focus –
Porter’s Competitive Strategies
Differentiation Focus –
Specific group or geographic market focus
Differentiation in target market
Special needs of narrow target market
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

61. Stuck in the middle – No competitive advantage
Porter’s Competitive Strategies
Stuck in the middle –
No competitive advantage
Below-average performance
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

62. Prentice Hall, Inc. ©2012

63. Risks of Generic Strategies
Risks of Cost Leadership
Cost leadership is not sustained:
• Competitors imitate.
• Technology changes.
• Other bases for cost leadership erode.
Proximity in differentiation is lost.
Cost focusers achieve even lower cost in segments.
Risks of Differentiation
Differentiation is not sustained:
• Competitors imitate.
• Bases for differentiation become less important to buyers.
Cost proximity is lost.
Differentiation focusers achieve even greater differentiation in segments.
Risks of Focus
The focus strategy is imitated:
The target segment becomes structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors overwhelm the segment:
• The segment’s differences from other segments narrow.
• The advantages of a broad line increase.
New focusers subsegment the industry.
Risks of Differentiation
Differentiation is not sustained:
• Competitors imitate.
• Bases for differentiation become less important to buyers.
Cost proximity is lost.
Differentiation focusers achieve even greater differentiation in segments.
Risks of Focus
The focus strategy is imitated:
The target segment becomes structurally unattractive:
• Structure erodes.
• Demand disappears.
Broadly targeted competitors overwhelm the segment:
• The segment’s differences from other segments narrow.
• The advantages of a broad line increase.
New focusers subsegment the industry.
Risks of Cost Leadership
Cost leadership is not sustained:
• Competitors imitate.
• Technology changes.
• Other bases for cost leadership erode.
Proximity in differentiation is lost.
Cost focusers achieve even lower cost in segments.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17
Prentice Hall 2006

64. Level of Strategy Functional/operational Strategies:
Concern with org. internal resources and processes which effectively deliver the corporate and business strategic direction.
Functional strategies are interrelated.
Functional strategies e.g.: purchasing & materials management, production, finance, R&D, HR, IT, and marketing.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

65. purchasing & materials management (as example)
Buying materials in quantity, quality and cost which correspond with the corp. generic strategies (Business Unit strategies).
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

66. Hyper-competition and Competitive Advantage Sustainability
Competitive advantage in a hyper-competitive market is characterized by a continuous series of multiple short- term initiatives that replace current products with new products before competitors can do so.
Leads to an over emphasis on short-term tactics
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67. Competitive Tactics
Tactic- a specific operating plan that details how a strategy is going to be implemented in terms of when and where it is to be put into action
Narrower in scope and shorter in time horizon than strategies
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68. Timing Tactics: When to Compete
Timing Tactics- when a company implements a strategy
First movers
Late movers
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69. Cooperative Strategies- used to gain a competitive advantage within an industry by working with other firms
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70. Collusion- the active cooperation of firms/ suppliers within an industry to reduce output and raise prices to avoid economic law of supply and demand
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71. Obtain or learn new capabilities Obtain access to specific markets
Strategic Alliances- a long-term cooperative arrangement between two or more independent firms or business units that engage in business activities for mutual economic gain Used to:
Obtain or learn new capabilities
Obtain access to specific markets
Reduce financial risk
Reduce political risk
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72. Types of Cooperative Agreements
Mutual Service Consortia
Joint Venture
Licensing Arrangements
Value-Chain Partnerships
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73. What industry forces might cause a favorable niche to disappear?
Is it possible for a company or business unit to follow
a cost leadership and a differentiation strategy
simultaneously? Why or why not?
3. Why are strategic alliances temporary?
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74.  What kind of internal factors help managers determine whether a firm should emphasize the production and sales of a large number of low-priced products or a small number of high-priced products?
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

75.  The most important factors can be brought out by going through each functional area. For example, under marketing, a strong market research group may be able to identify the kinds of niches available to the products or services under consideration.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

76.  low-priced products suggests a large capital intensive manufacturing facility.
In order to produce high-quality products, a fairly sophisticated applied R&D effort may be needed. An expensive engineering staff may be needed,
In terms of human resource management, a fairly unskilled and low paid workforce cannot normally be expected to produce a high quality
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

77. Is it possible for a company or business unit to follow a cost leadership strategy and a differentiation strategy simultaneously? Why or why not?
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

78. Michael Porter argues that a business unit which is unable to achieve one of the competitive strategies is likely to be "stuck in the middle" of the competitive marketplace with no competitive advantage. That unit, according to Porter, is doomed to below-average performance.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

79. Research by Greg Dess and Peter Davis as well as by Rod White, suggests however, that this may not be the case. Examples can be found of businesses which have been able to jointly follow overall low cost and high quality differentiation strategy. Japanese companies such as Toyota in automobiles and Matsushita (Panasonic and National) in consumer electronics are good examples. Their offer of low price and high quality created serious problems for those companies following only cost leadership in the U.S.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

80. How can a company overcome the limitations of being in a fragmented industry?
 Businesses tend to be local and oriented to market segments. This may occur because the industry is relatively new - based upon a product in the early stage of its product life cycle.
Entry barriers are probably low and new entrants are constantly moving into the industry as others leave or go bankrupt. Often, the trick to be a successful firm in this kind of industry is to find the key to standardization which allows economies.
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17

81. How can a company overcome the limitations of being in a fragmented industry?
  Domino's Pizza achieved success in fast food by providing standardized pizza throughout North America and by guaranteeing delivery time faster than competition. Before Pizza Hut and Domino's settled upon standardized pizza appealing to a wide variety of tastes across North American, the pizza business was a fragmented industry characterized by many small pizza "parlors" serving small market segments in cities throughout America .
Prof. Dr. Majed El-Farra 2012
15 نيسان، 17