1. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -1

2. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -2 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

3. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -3 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

4. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -4 Types of Strategies Vertical Integration Strategies Forward Integration Backward Integration Horizontal Integration

5. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -5 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

6. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -6 Types of Strategies Intensive Strategies Market Penetration Market Development Product Development

7. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -7 Intensive Strategies Market Penetration 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

8. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -8 Diversification Strategies Related Diversification Adding new but related products or services Unrelated Diversification Adding new, unrelated products or services

9. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -9 Defensive Strategies Retrenchment 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

10. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -10 Retrenchment Strategy Bankruptcy types  Chapter 7 – liquidation  Chapter 9 – municipalities  Chapter 11 – reorganization  Chapter 12 – family farmers  Chapter 13 – small businesses

11. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -11 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

12. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -12 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

13. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -13 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

14. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -14 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

15. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 5 -15 Means for Achieving Strategies Cooperation among competitors Joint venture / partnering Merger / acquisition First mover advantages Outsourcing