1. Concluding discussion of grand strategies
Session 13 & 14
Concluding discussion of grand strategies

2. Remember for the Case
Three Scenarios: Worst, Best, Most Likely
Long Term Objective (same for each)
Two Competitive Options
Each Containing:
Corporate Level Strategy Alternative
Business Level Strategy Alternative
Generic Theme
Package of (3-6) Grand Strategies

3. Types of Grand Strategies
Concentrated Growth
Conglomerate Diversification
Market Development
Turnaround
Product Development
Divestiture
Innovation
Liquidation
Horizontal Integration
Bankruptcy
Vertical Integration
Joint Ventures
Concentric Diversification
Strategic Alliances
Consortia

4. Concentrated Growth
Concentrated growth directs its resources to the profitable growth of a single product, in a single market, with a single dominant technology

5. Market Development
Market development commonly ranks second only to concentration as the least costly and least risky of the 15 grand strategies
It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion
Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach

6. Product Development
Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels

7. Innovation
These companies seek to reap the initially high profits associated with customer acceptance of a new or greatly improved product
Then, rather than face stiffening competition as the basis of profitability shifts from innovation to production or marketing competence, they search for other original or novel ideas
The underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make similar existing products obsolete

8. Horizontal Integration
When a firm’s long-term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production-marketing chain, its grand strategy is called horizontal integration
Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets

9. Vertical Integration
When a firm’s grand strategy is to acquire firms that supply it with inputs (such as raw materials) or are customers for its outputs (such as warehouses for finished products), vertical integration is involved
The main reason for backward integration is the desire to increase the dependability of the supply or quality of the raw materials used as production inputs

10. Vertical and Horizontal Integration

11. Concentric Diversification
Concentric diversification involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products
With this grand strategy, the selected new businesses possess a high degree of compatibility with the firm’s current businesses
The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk

12. Conglomerate Diversification
Occasionally a firm, particularly a very large one, plans acquire a business because it represents the most promising investment opportunity available. This grand strategy is commonly known as conglomerate diversification.
The principal concern of the acquiring firm is the profit pattern of the venture
Unlike concentric diversification, conglomerate diversification gives little concern to creating product-market synergy with existing businesses

13. Turnaround The firm finds itself with declining profits
Among the reasons are economic recessions, production inefficiencies, and innovative breakthroughs by competitors
Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround.
Two forms of retrenchment:
Cost reduction
Asset reduction

14. Elements of Turnaround
A turnaround situation represents absolute and relative-to-industry declining performance of a sufficient magnitude to warrant explicit turnaround actions
The immediacy of the resulting threat to company survival is known as situation severity
Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment and the recovery response
The primary causes of the turnaround situation have been associated with the second phase of the turnaround process, the recovery response

15. Divestiture
A divestiture strategy involves the sale of a firm or a major component of a firm
When retrenchment fails to accomplish the desired turnaround, or when a nonintegrated business activity achieves an unusually high market value, strategic managers often decide to sell the firm
Reasons for divestiture vary

16. Liquidation
When liquidation is the grand strategy, the firm typically is sold in parts, only occasionally as a whole—but for its tangible asset value and not as a going concern
Planned liquidation can be worthwhile

17. Two notable types of bankruptcy
Liquidation bankruptcy—agreeing to a complete distribution of firm assets to creditors, most of whom receive a small fraction of the amount they are owed
Reorganization bankruptcy—the managers believe the firm can remain viable through reorganization
Two notable types of bankruptcy
Chapter 7
Chapter 11

18. Joint Ventures
Occasionally two or more capable firms lack a necessary component for success in a particular competitive environment
The solution is a set of joint ventures, which are commercial companies (children) created and operated for the benefit of the co-owners (parents)
The joint venture extends the supplier-consumer relationship and has strategic advantages for both partners

19. Strategic Alliances
Strategic alliances are distinguished from joint ventures because the companies involved do not take an equity position in one another
In some instances, strategic alliances are synonymous with licensing agreements
Outsourcing arrangements vary

20. Consortia, Keiretsus, and Chaebols
Consortia are defined as large interlocking relationships between businesses of an industry
In Japan such consortia are known as keiretsus, in South Korea as chaebols
Their cooperative nature is growing in evidence as is their market success

21. Chapter 8
Strategic Analysis and Choice in Single- or Dominant-Product Businesses: Building Sustainable Competitive Advantages

22. Chapter 8
Concerned with Proper Selection of Business Level Generic and Grand Strategy Alternatives
Based on your SWOT analysis which of the Generic and Grand Strategies are you better equipped – resources wise – to successfully implement?

23. Key Issues: Strategic Choice in Single Businesses
1. What strategies are most effective at building sustainable competitive advantages for single business units?
2. Should dominant-product/service businesses diversify to build value and competitive advantage? What grand strategies are most appropriate?

24. Prominent Sources of Competitive Advantage
Cost leadership
Sources of competitive advantage
Differentiation
Speed
Market focus

25. Evaluating A Business’s Cost Leadership Opportunities
A. Skills and Resources Fostering Cost Leadership
Sustained capital investment and access to capital
Process engineering skills
Intense supervision of labor or core technical operations
Products or services designed for ease of manufacture or delivery
Low-cost distribution system
B. Organizational Requirements Supporting Cost Leadership
Tight cost control
Frequent, detailed control reports
Continuous improvement and benchmarking orientation
Structured organization and responsibilities
Incentives based on meeting strict, usually quantitative targets

26. Evaluating A Business’s Cost Leadership Opportunities -- C
Evaluating A Business’s Cost Leadership Opportunities -- C. Examples of Ways Businesses Achieve Competitive Advantage
Technology development
Process innovations lowering production costs
Product redesign to reduce number of components
Global, online suppliers provide automatic restocking of orders based on sales
Inbound logistics
Operations
Outbound logistics
Marketing & sales
Service
Economy of scale in plant reduces equipment costs and depreciation
Computerized routing lowers transportation expense
Cooperative advertising with distributors creates local cost advantage in buying media space and time
Subcontracted
service
technicians
repair
product
correctly
first time
or bear
costs
Reduced levels of management cuts corporate overhead
Computerized, integrated information system reduces errors and costs
Safety training for all employees reduces absenteeism, downtime, and accidents
Human resource management
General administration
Favorable long-term contracts; captive suppliers or key customer for supplier
Procurement
margin
Profit 21

27. Advantages of a Cost Leadership Strategy
Low-cost advantages reduce likelihood of pricing pressure from buyers
Sustained low-cost advantages may push rivals into other areas, lessening price competition
New entrants must face an entrenched cost leader without experience to replicate cost advantages
Low-cost advantages should lessen attractiveness of substitutes
Higher margins allow low-cost producers to withstand supplier cost increases

28. Key Risks of Cost Leadership
Many cost-saving activities are easily duplicated
Exclusive cost leadership can become a trap
Obsessive cost cutting can shrink other competitive advantages involving key product attributes
Cost differences often decline over time

29. Evaluating A Business’s Differentiation Opportunities
A. Skills and Resources Fostering Differentiation
Strong marketing abilities
Product engineering
Creative talent and flair
Strong capabilities in basic research
Corporate reputation for quality or technological leadership
Long tradition in an industry or unique combination of skills
Strong cooperation from channels and suppliers of major components
B. Organizational Requirements Supporting Differentiation
Strong coordination among functions in R&D, product development, and marketing
Subjective measurement and incentives instead of quantitative measures
Amenities to attract highly skilled labor, scientists, and creative people
Tradition of closeness to key customers
Some personnel skilled in sales and operations - technical and marketing

30. Evaluating A Business’s Differentiation Opportunities -- C
Evaluating A Business’s Differentiation Opportunities -- C. Examples of Ways Businesses Achieve Competitive Advantage
Technology development
Cutting edge production technology and product features to maintain a distinct image and actual product
Purchase superior quality, well-known components, raising quality and image of final products
Inbound logistics
Operations
Outbound logistics
Marketing & sales
Service
Careful inspection of products at each step in production to improve performance and lower defect rates
JIT coordination with buyers; use of own or captive transportation service to ensure timeliness
Expensive, informative advertising and promotion to build brand image
Allowing service
personnel
considerable
discretion to
credit
customers
for
repairs
Comprehensive, personalized database to build knowledge of customers to be used in customizing how products are sold, serviced, and replaced
Programs to ensure technical competence of sales staff and marketing orientation of service personnel
Human resource management
General administration
Quality control presence at key supplier facilities; work with suppliers’ new product development activities
Procurement
margin
Profit 21

31. Advantages of a Differentiation Strategy
Rivalry is reduced when a business successful differentiates itself
Buyers are less sensitive to prices for effectively differentiated products
Brand loyalty is hard for new entrants to overcome

32. Key Risks of Differentiation
Imitation narrows perceived differentiation, rendering differentiation meaningless
Technological changes that nullify past investments or learning
Cost difference between low-cost competitors and the differentiated business becomes too great for differentiation to hold brand loyalty

33. Creating a Competitive Advantage Based on Speed
Has become a major source of competitive advantage for many firms
Involves the availability of a rapid response to customers by
Providing current products quicker
Accelerating new product development or improvement
Quickly adjusting production processes
Making decisions quickly

34. Evaluating A Business’s Rapid Response Opportunities
A. Skills and Resources Fostering Speed
Process engineering skills
Excellent inbound and outbound logistics
Technical people in sales and customer service
High levels of automation
Corporate reputation for quality or technical leadership
Flexible manufacturing capabilities
Strong downstream partners
Strong cooperation from suppliers of major components
B. Organizational Requirements Supporting Rapid Response
Strong coordination among functions in R&D, product development, and marketing
Major emphasis on customer satisfaction in incentive programs
Strong delegation to operating personnel
Tradition of closeness to key customers
Some personnel skilled in sales and operations - technical and marketing
Empowered customer service personnel

35. Evaluating A Business’s Rapid Response Opportunities -- C
Evaluating A Business’s Rapid Response Opportunities -- C. Examples of Ways Businesses Achieve Competitive Advantage
Technology development
Use of companywide technology sharing activities and autonomous product development teams to speed new product development
Working very closely with suppliers to include their choice of warehouse location to minimize delivery time
Inbound logistics
Operations
Outbound logistics
Marketing & sales
Service
Standardize dies, components, and production equipment to allow quick changeover to new or special orders
JIT delivery plus partnering with express mail services to ensure very rapid delivery
Use of laptops linked directly to operations to speed the order process and shorten the sales cycle
Locate service
technicians
at customer
facilities that
are
geograph-
ically
close
Highly automated and integrated information processing system; include major buyers in the systems on a real-time basis
Develop self-managed work teams and decision making at lowest levels to increase responsiveness
Human resource management
General administration
Preapproved, online suppliers integrated into production
Procurement
margin
Profit 21

36. Advantages of a Speed-Based Strategy
Creates a way to lessen rivalry because firm has the availability of something a rival may not
Allows firm to charge buyers more, engender loyalty, or enhance its’ position relative to its buyers
Generates cooperation and concessions from suppliers since they benefit from increased revenues
Substitutes and new entrants are trying to keep up with the rapid changes rather than introducing them

37. Key Risks of a Speed-Based Strategy
Speeding up activities that have not been conducted in a fashion prioritizing rapid response should only be done after attention to training, reorganization, and/or reengineering
Some industries - stable, mature ones - may not offer much advantage to a firm introducing some forms of rapid response

38. Creating a Competitive Advantage Based on Market Focus
Involves building cost, differentiation, and/or speed competitive advantages targeted to a narrow, market niche
Allows a firm to
“Learn” its target customers
Build up organizational knowledge of ways to satisfy its target market better than larger rivals
Risks of focus strategies
Can attract major competitors to the segment
Believing a focus strategy, by itself, creates success, rather than a form of low cost, differentiation, or speed

39. Industry Environments and Strategy Choices
Emerging Industries
Industries Transitioning to Maturity
Mature and Declining Industries
Fragmented Industries
Global Industries

40. Characteristics of Markets in Emerging Industries
Proprietary technology and technological uncertainty
Competitor uncertainty regarding inadequate information
High initial cost structure
Few entry barriers
First-time buyers require initial inducement
Inability to easily obtain raw materials and components
Need for high-risk capital

41. Strategic Options for Emerging Industries
1. Ability to shape industry’s structure
2. Ability to rapidly improve product quality
3. Establish favorable relations with key suppliers
4. Ability to establish technology as dominant force
5. Acquire a core group of loyal customers
6. Ability to forecast future competitors

42. Characteristics of Industries Transitioning to Maturity
Intense competition for market share
Increased sales to experienced, repeat buyers
Greater emphasis on cost and service
Declining profitability

43. Strategic Options for Maturing Industries
1. Prune the product line
2. Emphasize process innovation
3. Emphasize cost reductions
4. Focus on selecting loyal buyers
5. Pursue horizontal integration
6. Expand internationally

44. Pitfalls to Avoid in Competing in Maturing Industries
A middle-ground approach to selecting a generic competitive strategy
Sacrificing market share for short-term profits
Waiting too long to respond to price reductions
Retaining unneeded excess capacity
Engaging in sporadic efforts to boost sales
Placing hopes on new products

45. Characteristics of Mature/Declining Industries
Demand grows more slowly than economy, or even declines
Slowing growth is caused by
Technological substitution
Demographic shifts
Shifts in consumer needs

46. Strategic Options for Mature/Declining Industries
1. Focus on key market segments offering growth opportunities
2. Emphasize product innovation and quality improvement
3. Emphasize production and distribution efficiency
4. Gradually harvest the business

47. Pitfalls to Avoid in Competing in Mature/Declining Industries
Being overly optimistic about prospects for an industry revival
Getting trapped in a profitless war of attrition
Harvesting from a weak position

48. Characteristics of Fragmented Industries
No firm has a significant market share
No firm can significantly influence industry outcomes
Examples
Professional services
Retailing
Wood and metal fabrication
Agricultural products
Funeral industry

49. Strategic Options for Fragmented Industries
1. Tightly managed decentralization - Intense local coordination, high personal service, local autonomy
2. Formula facilities - Standardized, efficient, low-cost facilities at multiple locations
3. Increased value added - Difficult to differentiate products/services
4. Specialization - Product type, customer type, type of order, geographic areas
5. Bare bones/no frills - Intense low margin competition (low overhead, minimum wages, tight cost controls)

50. Characteristics of Global Industries
Differences in prices and costs among countries due to
Currency exchange fluctuations
Differences in wage and inflation rates
Other economic factors
Differences in buyer needs across countries
Differences in competitors and ways of competing among countries
Differences in trade rules and governmental regulations across countries

51. Strategic Options: Pursuing Global Market Coverage
1. License foreign firms to produce and distribute a firm’s products
2. Maintain a domestic production base and export products
3. Establish foreign-based plants and distribution in foreign countries

52. Strategic Options: Choosing a Generic Competitive Strategy
1. Broad-line global competition
2. Global focus strategy
3. National focus strategy
4. Protected niche strategy

53. Grand Strategy Selection Matrix
Overcome weaknesses
Maximize strengths
External (acquisition or merger for resource capability)
Internal (redirected resources within the firm)
Turnaround or
retrenchment
Divestiture
Liquidation
Vertical integration
Conglomerate diversification
Concentrated growth
Market development
Product development
Innovation
Horizontal integration
Concentric diversification
Joint venture I II IV
III

54. Model of Grand Strategy Clusters
Rapid market growth
Slow market growth
Weak competitive position
Strong competitive position
1. Concentrated growth
2. Vertical integration
3. Concentric diversification
1. Reformulation of concentrated growth
2. Horizontal integration
3. Divestiture
4. Liquidation
1. Concentric diversification
2. Conglomerate diversification
3. Joint venture
1. Turnaround or retrenchment
2. Concentric diversification
3. Conglomerate diversification
4. Divestiture
5. Liquidation II I
III IV

55. Conclusion: Selecting a Business Strategy to Achieve a Competitive Advantage
Focusing on key sources of competitive advantage requiring total, consistent commitment
Selection of appropriate business strategie(s) involves
Weighing skills, resources, organizational requirements, and risks of each source of competitive advantage
Considering unique effects of the generic industry environment on a firm’s value chain activities