1. Competitive Technology and Business Strategy
Corporate, Competitive, Technology Strategy
Strategy: growth and development; stability, and decline

2. Business (Competitive)
Corporate, Business and Technology Strategy Hierarchy E X T. M A C R O N V I R.
Corporate Strategy E X T. M I C R O N V R.
Business (Competitive)
Strategy
Functional Strategy –
Technology Strategy
INTERNAL ENVIRONMENT

3. Five Forces Model
The level of industry attractiveness depends on five dimensions:
Buyer Power: measures the degree of power that customers have over companies in the industry
Supplier Power: measures the degree of power that suppliers have over companies in the industry
Threat of New Entrants: measures ease of entry into the industry
Threat of Substitutes: measures the likelihood that new products or services will substitute for those supplied by the industry
Degree of Rivalry: measures the degree of competition between firms in the industry

4. Five Forces Model

5. STRATEGY
Action plan by which organisations fulfill their mission and objectives.
Strategy Creation is the result of Strategic Analysis:
External analysis (micro i macro firm environment);
2. Internal analysis (resources, capabilities, competences)

6. Competitive strategy (generic)
1. Strategy of low costs;
2. Strategy of differentiation;
3. Strategy responsiveness.

7. COMBINED STRATEGY
Takes into account all the feasible and sustainable options for accomplishing competitiveness: low costs (prices), product/service differentiation (quality, variety) and responsiveness (short times, quick response to customer needs and demands, flexibility)

8. STRATEGY OF LOW COSTS (PRICES)-Example: American airline Company Sothwest Airlines
Standardized fleet;
Shorter flights, secondary airports and terminals;
Limited custormer service: no ticket reservations, checking and transfer of luggage, automated ticket issuing, no food on the plane;
Specialized maintenance;
Employees have ownership shares in the Company.

9. Strategy of differentiation-Example of Gilette Company
Creates unique, special and superior value for the customer;
Quality, special characteristics, post-sale services;
Innovative products – new models of razor blades adaptable to skin type, emitting vitamin E, etc.

10. Strategy of responsiveness- Example of Global Company Johnson Electric
Fast, flexible, reliable response to customer demand;
Short response time/speed in product development, manufacturinf and deliverance;
Global Company Johnson, central offices in Hong Kong delivers apprx. 13 milliona motors monthly that are assembled in China.

11. Strategy Options
Strategy of growth and development: company operations expansion;
Strategy of stability: unchanged existing operations;
Strategy of decline: operations reduction/ revival/revitalization

12. Possible Growth Strategies
Concentration strategy, and
Diversification strategy:
Related and unrelated;
Tangible and intangible;
Resource based (i.e.technology) and business

13. 1. Growth Strategy: Concentration
When an organization focuses on its primary line of business and looks for ways to meet its growth goals by expanding its core business
There are three concentration options
Product – market exploitation
Product development option
Market development option

14. Concentration Strategies
Product-Market exploitation
Attempt to increase sales of current products/services in current markets, might include incentives or advertizing
Product development option
Creates new products or new features on current products, which would be sold in current markets
Market development option
When selling current products in new markets

15. Concentration Strategy Options

16. Concentration Strategies - advantages
Growing the core business using different combinations of products and markets;
Organization becomes good at what it does
develops knowledge of the industry and of their competitors
functional and competitive strategies can be tuned to know what customers want and how to best provide it
Everyone can concentrate on exploiting resources, competencies, and capabilities critical to success

17. Concentration Strategies – drawbacks
The organization is vulnerable to changes in the industry and the external environment
Concentration strategy may be effective for small companies, but larger often start off by this approach and may continue using it

18. Global Perspective – example 1
Kuka Robotics is Europe’s largest manufacturer of automated industrial machines (robots)
Initially a supplier for the automotive industry, the company looked for new markets amidst a slump in the industry
The firm found lucrative markets for its robotics in a number of industries by making sure it developed robots that did not look like industrial equipment

19. Global Perspective – example 2
Navteq Corporation formerly provided navigation systems for autos
Acquired by Nokia because it is a digital mapmaker and it could be used to expand into handheld devices
Revenue growth from handhelds is expected to double over the next few years

20. 2. Growth Strategy: Diversification
Enables a company to grow by moving into a different industry.
Two types of diversification:
I. Related Diversification
Means diversifying into a different industry, but related to the company’s current business
II Unrelated diversification
Means diversifying into a completely different industry, not related to the company’s current business

21. Related Diversification
Related Diversification is an attempt at a “strategic” fit
Effort is to transfer resources, distinctive capabilities, and core competencies to the new industry
It is an attempt at synergy that seeks to enhance performance of both businesses

22. Related Diversification
Synergy occurs when shared resources, capabilities, and competencies enable greater performance by two entities when combined

23. Types of Related Diversification

24. Unrelated Diversification
Unrelated diversification is when an organization seeks growth by moving into industries in which there is no strategic fit

25. Unrelated Diversification
Unrelated diversification can occur when a company does not believe its core industry offers growth potential
This approach is challenging because of the need to develop an ability to effectively manage different businesses
An example is Fortune Brands; which owns separate business that sell liquor, padlocks, cabinets, and golf balls

26. Related vs. Unrelated Diversification
Research shows that related diversification is superior to unrelated diversification because it allows the effective use of current resources, capabilities, and core competencies
However, unrelated diversification can be a valuable strategy at times, depending on how effectively the diverse operations are managed

27. Growth strategy can be accomplished by:
VERTICAL growth: overtaking operations of suppliers and/or customers (buyers);
HORIZONTAL growth: difusion of operations into new fields and areas (geographical, new industries) and/or the broadening of product scope.

28. Vertical Integration
Strategy that grows by gaining control of its inputs (backward) or its outputs (forward)
Backward integration
The organization becomes its own supplier
Example: eBay bought an online payment business
Forward integration
The organization becomes its own distributor
Example: Apple Computer opened retail outlets

29. Vertical Integration
Vertical integration strategy is a growth strategy because an organization expands its activities and operations by becoming a source of supply or distribution
However, expanding into industries connected to its primary business means it is still a single business organization
It is taking another path to meeting growth goals by controlling different parts of the value chain

30. Horizontal Integration
This strategy is used to grow the organization by combining operations with its competitors
It keeps the organization in the same industry, but provides a way to expand market share and strengthen its competitive position
In the US, Federal Trade Commission and Department of Justice regulates such activities through antitrust laws, assessing the impact of such combinations to allow fair competition

31. Horizontal Integration
The European Union regulates efforts toward horizontal integration within member countries
As a growth strategy, horizontal integration can be appropriate if:
It enables the company to meet growth plans
It can be strategically managed to attain competitive advantage
It satisfies legal and regulatory guidelines

32. The Global Perspective
Horizontal integration knows no borders
Coca-Cola sought to buy one of China’s biggest beverage makers, Huiyuan Juice Group Ltd for $2.3 Billion
It would have given Coke a strong market presence
The deal was rejected by the Chinese Ministry of Commerce, which indicated it would have hurt competition in the local market

33. Growth Strategies – Internal vs. External Sources
Based on Internal sources (Example: Ford);
Based on External sources – collaboration with external actors:
- Mergers; Long-term contracts;
- Acquisitions; Joint venture;
- Strategic alliance; Franchising;
- Licencing; BOT, Leasing, etc.

34. Growth Strategy: Internal sources
Internal development involves creating and developing new business activities within
Rather than face risks and challenges of combining new businesses, a company seeks to develop crucial capabilities to meet desired goals

35. Growth Strategies: Mergers-Acquisitions
Involves the purchase of an organization that enables a firm to combine operations with that company it has merged with or acquired
The popularity of mergers and acquisitions go in cycles
The main feature of either effort is to implement growth strategies

36. Mergers and Acquisitions
Merger is a legal transaction in which two parties combined operations through an exchange of stock to create a new entity
Usually they take place between organizations of similar size and it is considered “friendly”, it is acceptable to all parties
Acquisition is an outright purchase of one company by another
Can be hostile and involve different sized firms

37. Example: Thinking Small at IBM
IBM was reorganized into smaller, integrated global enterprise centers of expertise focused on industries and technical skills; Rather than continuing to use massive divisions, the company create a more nimble global network that helped improve performance This effort also included decentralized decision making that was more conducive to creativity, collaboration, and innovation

38. Example: Acquisition strategy at GE
General Electric (GE) entered the airport security market by purchasing firms
These acquisitions enabled GE to leverage its brand, size, and credibility with the acquired firms technology
Why do you think GE chose acquisitions as its way to grow?

39. Mergers-Acquisitions or Internal Development

40. Strategic Alliances and Partnering
This is a grow effort that seeks to minimize the challenges and risks of buying a business or developing its own
This is a formal legal arrangement
The effort seeks to combined resources, capabilities, and core competencies for a specific business purpose

41. Strategic Partnering – examples
Partnering with suppliers, distributors, or competitors
Three main types of strategic partnering
Joint ventures
Long term contracts
Strategic alliances

42. Joint Venture (JV)
Two or more organizations form separate and equal independent organization for strategic purposes
It minimizes the financial and political/legal constraints that accompany M&A or internal development
Example: Clorox and Proctor & Gamble entered a JV to develop garbage bags and plastic wrap

43. Long term Contract Covers a specific business purpose
Viewed as variation of vertical integration between company and supplier
Both partners understand the importance of long term benefits to meet cost or quality expectations
Creates assured outlet for products

44. Strategic Alliance
Two or more organizations share different resources, capabilities, or competencies to pursue some business purpose; requires trust
Different than joint venture because there is no separate legal entity formed
The effort seeks to encourage product innovation, bring stability to cyclical businesses, expand product lines, or cement relationships with suppliers, distributors, or competitors

45. Why Alliances Make Sense
Flexibility and informality of arrangements promote efficiencies
Provide access to new markets or technologies
Less complexity when creating/disbanding
Risks and expenses are shared
Brand identification is kept and exploited
Synergies created
Avoids issues related to antitrust

46. Not all alliances work out
- Amazon.com and Toys R Us created an alliance in 2000 that combined the resources of a “bricks and mortar” business with an internet company
It failed, each party claiming to be deceived by the other
Amazon violated its promise to be only sell those toys, games, and baby products on its site
Toys R Us failed to provide certain items

47. Organizational Stability Strategy
It may seem odd for an organization to want to remain where it is
However, it may make sense when resources, capabilities, or competencies are stretched to limits and growth might risk the organization’s competitiveness

48. Stability Strategy – Example of Dell Company
Is effective only in the SHORT RUN;
Only as temporary solution or “timeout”;
Dell had introduced in stability strategy after intensive growth. It was understood as a short temporary pause needed for consolidation after the 285% growth in the previous two years

49. When is Stability an Appropriate Strategic Choice?
In period of rapid upheaval with several industry and general external forces drastically changing
This demands investment in current businesses or functions
When there is slow or no growth opportunities
Allows the firm to analyze their strategic options – diversification, vertical or horizontal integration

50. When is Stability an Appropriate Strategic Choice?
If the organization has grown rapidly and now needs “down time”
Effort is to better manage the expanded activities and operations
Large firms in a mature industry or a small firm with satisfactory results might be risk averse
If successful, do not pursue growth

51. Decline and Renewal Strategy
Decline is represented by strategies:
Dependence;
Sale/divestment;
Bankrupcy/liquidation.
Renewal, Revitalization – feasible when problems are identified and have not yet become critical.

52. Decline/Renewal trategy
When managers have not been effective and unable to develop or exploit a competitive advantage the organization will need for something to be done in order to survive Renewal strategies are used to put the organization back on the path to successfully achieving its strategic goals

53. Possible Causes of Corporate Decline

54. What Leads to Performance Declines?
While managers do not make deliberately bad decisions causing a decline in performance, they do create conditions that prevent effective performance
The primary cause of corporate decline is poor management, to which all other causes can be traced
Performance will suffer if manages are inept, incompetent, or incapable

55. What Leads to Performance Declines?
Poor management judgment is evident when:
Decisions to expand too rapidly or over-expand
Inadequate financial controls or high costs
Managers unaware of trends or changes in the external environment
Performance is declining

56. Signs of Declining Performance

57. Renewal Strategies Two main renewal strategies Retrenchment Turnaround
Short run strategy designed to address weaknesses that are leading to performance declines
Not necessary to have negative financial returns, usually occurs if unable to meet strategic goals 57

58. Renewal Strategies – retrenchment
Is a military term refers to going back to the “trenches” to stabilize, revitalize, and prepare for entering battle again
The point is to address issues before they lead to severe problems

59. Renewal Strategies – Turnaround
Is designed for situations in which the organization’s performance are more serious
Often when the organization is facing severe external and internal pressures and must make strategic changes in order to remain viable
There is no guarantee the turnaround will accomplish the desired results, but without it the organization will not survive

60. Implementing Renewal Strategies
Cost cutting
Reducing costs to bring performance results back in line with expectations
It can be across the board or selective
The effort should avoid cutting costs in those areas critical to retain or exploit competitiveness
Redundancies, inefficiencies, or waste in activities should be eliminated
Restructuring/downsizing are severe approaches

61. Restructuring
This includes refocusing on the primary businesses and involve
Selling or divestment
Spin off
Liquidation
Downsizing
Divestment might occur when the business is desired by another company and is no longer a strategic fit

62. Restructuring Spin off Liquidation
Involves removing a business unit and setting it up as a separate, independent business by distributing its shares of stock
Liquidation
When no buyer exists or there is no possible spin off, a business unit will be discontinued
This is a strategic action of last resort

63. Restructuring – downsizing
Is a quick way to cut costs by elimination jobs
It can be effective when done strategically
Table 7.3 lists some recommendations

64. Making Downsizing Effective

65. Bankruptcy & Liquidation
- Involves restructuring- reorganizes debt and protects the business from creditors until it can emerge from bankruptcy
Liquidation
All assets are sold to pay off existing debts
The company ceases to exist

66. Restructuring – summary
Regarding renewal strategies
Typically, they are not used one at a time; rather, they are often combined
The coordinated effort by strategic managers may involve selected use of any of these efforts
The key is that the organization’s competitiveness is improved or strengthened

67. Evaluating Corporate Strategies
This is an important part of the entire strategic management process
There are four main evaluation techniques
Corporate goals
Efficiency, effectiveness, productivity
Benchmarking
Portfolio analysis

68. Corporate Goals
Indicate desired end results or targets that are broader, more comprehensive, and longer term than those of functional areas or of business units
However, attaining functional goals and competitive goals are how an organization achieves its corporate goals
Thus, they are the standard against which performance is measured

69. Types of Corporate Goals

70. Efficiency, Effectiveness, and Productivity Measures
Efficiency is an organization’s ability to minimize resource use in goal attainment
Effectiveness is an organization’s ability to reach its goals
Productivity is a specific measure of how many inputs it takes to produce outputs
These three measures assess how well an organization works and achieve desired ends

71. Example: Changing the Menu
Kraft is the world’s second largest food company behind Nestle. Beginning in 1903, the company has looked for ways to grow its business.
Over time, the company has developed new products (Miracle Whip, Velveeta, Parkay)
It has diversified by merging with Dart Industries
It was bought by Philip Morris and merged with General Foods, creating the largest food maker

72. Benchmarking
Is the search for the best practices inside or outside an organization
The benchmarking process can be used to implement strategy
Specific benchmarks or best practices can be a standard against which to measure performance
Using benchmarks, strategic managers can evaluate whether an organization is being managed well or if improvements are needed

73. Changing Corporate Strategies
Strategic managers must decide whether to act and, if so, what actions to take
Changes to functional and competitive strategies might be necessary, modifications or even drastic action might be needed to achieve desired results
The key is to understand the opportunities and threats, strengths and weaknesses facing the organization and the need to design appropriate strategies to exploit resources, capabilities, and core competencies

74. Summarizing what corporate strategy is
Corporate strategy is concerned with choices of what business to be in and what to do with those businesses
Single business organization is in one industry
Multiple business organization in more than one industry
It establishes the overall direction, while functional strategies provide the means to get there

75. Summarizing what corporate strategy is – cont’d
Each type of strategy is important to what the organization does and whether it achieves its goals
The three corporate strategic directions include:
Moving it forward (growth)
Keeping it where it is (stability)
Reversing the decline (renewal)

76. Discuss organizational growth strategies
A growth strategy uses current businesses or new business to:
Expand the products offered
Increase the markets served
Expand its activities or operations
Employs one of five possible approaches

77. Discuss organizational growth strategies – cont’d
Concentration
Focuses on growth in primary line of business
Product-market exploitation that involves selling more products to current markets
Product development is selling new products to current markets
Market development is selling current products to new markets
The drawback is vulnerability to external changes

78. Discuss organizational growth strategies – cont’d
Vertical integration
Grow by gaining control of inputs (backward), outputs (forward), or both
Horizontal integration
Combining operations with competitors
Diversification
Growth by moving into a different industry
Related to current business or unrelated

79. Discuss organizational growth strategies – cont’d
International
Takes advantage of new global markets or protects core operations from global competitors
Growth can be implemented in three ways:
Merger/Acquisition
Internal development
Strategic partnering (joint venture, long term contract, strategic alliance)

80. Describe the organizational stability strategy
Stability strategy maintains current size and activities, it is short term
Includes times when industry is in period of rapid change, slow or no growth, rapid growth
When organization is large and in maturity stage of industry life cycle or small and satisfied with position

81. Describe organizational renewal strategies
Renewal strategy used when organization needs to reverse the decline to put the organization back on appropriate path to achieving its goals
Main cause of decline is management decisions
Two main renewal strategies
Retrenchment
Turnaround

82. Describe organizational renewal strategies – cont’d
Renewal strategies are implemented by:
Cutting costs
Restructuring
Restructuring includes:
Divestment = selling a business
Spin off = setting up separate business
Liquidation = shutting down
Downsizing = reducing jobs
Bankruptcy = reorganizing or closing

83. Discuss how corporate strategy is evaluated and changed
There are four techniques for evaluation
Corporate goals
Measuring efficiency (use of resources), effectiveness (ability to reach goals), productivity (how many inputs used to create outputs)
Benchmarking (best practices)
Portfolio analysis (BCG, McKinsey-GE spotlight, product/market matrices)