1. Copyright © 2011 Pearson Education
Ch 6 -1
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2. Strategic Management: Concepts and Cases
Arab World Edition
Fred R. David
Abbas J. Ali
Abdulrahman Y. Al-Aali
Chapter 6:
Strategies in Action
Ch 6 -2
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3. Copyright © 2011 Pearson Education
Chapter Outline
Long-Term Objectives
The Balanced Scorecard
Types of Strategies
Integration Strategies
Intensive Strategies
Diversification Strategies
Ch 6 -3
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4. Chapter Outline (cont’d)
Defensive Strategies
Porter’s Five Generic Strategies
Means For Achieving Strategies
Strategic Management in Nonprofit and Governmental Organizations
Strategic Management in Small Firms
Ch 6 -4
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5. Copyright © 2011 Pearson Education
Strategies in Action
“Strategies for taking the hill won’t necessarily hold it.”
– Amar Bhide, Professor, Tufts University
“When you have diversification, you are better balanced.”
– Shahira Zeid, CEO, MZ Investments - Egypt
Ch 6 -5
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6. Copyright © 2011 Pearson Education
Long-Term Objectives
Quantifiable
Measurable
Realistic
Understandable
Challenging
Hierarchical
Obtainable
Congruent
Timeline
Ch 6 -6
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Varying Performance Measures by Organizational Level
Ch 6 -7
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8. Copyright © 2011 Pearson Education
Financial vs. Strategic Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Greater return on investment
Higher earnings per share
Rising stock price
Improved cash flow
Ch 6 -8
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9. Copyright © 2011 Pearson Education
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 first you don’t succeed, then you may on the second or third try.
Ch 6 -9
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The Balanced Scorecard
Robert Kaplan & David Norton
Strategy evaluation & control technique
Balance financial measures with nonfinancial measures
Balance shareholder objectives with customer & operational objectives
Ch 6 -10
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11. Copyright © 2011 Pearson Education
Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22,
no. 3 (June 1988) 40.
Ch 6 -11
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Types of Strategies
A Large Company
Corp Level
Division Level
Functional Level
Operational Level
Ch 6 -12
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13. Horizontal Integration
Types of Strategies
Forward Integration
Vertical Integration Strategies
Backward Integration
Horizontal Integration
Ch 6 -13
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Types of Strategies
Market Penetration
Intensive Strategies
Market Development
Product Development
Innovation
Ch 6 -14
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15. Types of Strategies Related Diversification Unrelated Diversification
Diversification Strategies
Unrelated
Diversification
Ch 6 -15
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Types of Strategies
Retrenchment
Defensive Strategies
Divestiture
Liquidation
Ch 6 -16
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17. Copyright © 2011 Pearson Education
2010 Examples
Forward Integration
Aramco has domestic and international refineries
Backward Integration
Juhayna has 59 production lines manufacturing 28 different products
Horizontal Integration
Almarai acquired Teeba dairy company in Jordan, Beyti in Egypt, HADCO, and Al Safwa Dairies
Ch 6 -17
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18. Copyright © 2011 Pearson Education
2010 Examples (cont’d)
Market Penetration
Almarai secured agreements with large retailers such as Carrefour, Panda, and Al Othaim
Market Development
Alshaya Group’s (Kuwait) international network and profitable business partnerships
Product Development
Almarai introduced a variety of cheeses (e.g. full fat, light, and low salt)
Innovation
Apple Computer introduced the media-playing cell phone, the iPhone
Ch 6 -18
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19. Copyright © 2011 Pearson Education
2010 Examples (cont’d)
Related Diversification
LINKdotNET, the Egypt based internet services powerhouse, acquired eight new related online businesses
Unrelated Diversification
UAE based Al-Futtaim Group operates more than 65 companies across sectors as diverse as commerce, industry, and services
Retrenchment
Nakheel, the property unit of Dubai World, cut several jobs in 2008 and 2010
Ch 6 -19
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20. Copyright © 2011 Pearson Education
2010 Examples (cont’d)
Divestiture
Zain sold its operations in Africa to Bharti Airtel, India
Liquidation
Iraqi government decided to liquidate the assets of Iraqi Airways
Ch 6 -20
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21. Michael Porter’s Generic Strategies
Cost Leadership Strategies
(Low-Cost & Best-Value)
Differentiation Strategies
Focus Strategies (Low-Cost Focus &
Best-Value Focus)
Ch 6 -21
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22. Copyright © 2011 Pearson Education
Ch 6 -22
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23. Copyright © 2011 Pearson Education
Ch 6 -23
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Means for Achieving Strategies
Joint Venture/Partnering
Mergers and Acquisitions
Private Equity Acquisitions
First-Mover Advantages
Outsourcing
Ch 6 -24
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25. Copyright © 2011 Pearson Education
Joint Venture/Partnering
Joint venture is a popular strategy
Two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity.
Unlike the many U.S. counterparts, Arab corporations have sought cooperative and joint venture agreements with global corporations
Ch 6 -25
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26. Copyright © 2011 Pearson Education
Mergers and Acquisitions
These are two commonly used ways to pursue strategies
A merger occurs when two organizations of about equal size unite to form one enterprise
A acquisition occurs when a large organization purchases a smaller firm or vice versa
Ch 6 -26
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Mergers and Acquisitions (cont’d)
Key reasons why mergers and acquisitions fail:
Organizational integration difficulties
Inadequate evaluation of target
Large or extraordinary debt
Inability to achieve synergy
Too much diversification
Ch 6 -27
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28. Copyright © 2011 Pearson Education
Mergers and Acquisitions (cont’d)
Key reasons why mergers and acquisitions fail:
Mergers overly focused on acquisitions
Too large an acquisition
Difficult to integrate different organizational cultures
Reduced employee morale due to layoffs and relocations
Ch 6 -28
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Private Equity Acquisitions
Among the world’s largest 300 private equity firms in 2010, six were from the Arab world.
Foreign private equity firms are expanding their activities in the Arab world.
Ch 6 -29
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First Mover Advantages
First Mover Advantages
Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.
Ch 6 -30
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Outsourcing
Business-Process Outsourcing (BPO)
Companies taking over the functional operations of other firms.
Ch 6 -31
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32. Copyright © 2011 Pearson Education
Global Perspective
Joint Ventures Mandatory for All Foreign Firms in India
The World Bank expects the Indian economy to grow by 8.7 percent in 2012
This rapid growth is transforming the lives of 1 billion people in India
India is experiencing 6.6% inflation
Gap between rich and poor widening
Vast majority of joint ventures fail
Tourism also growing
Ch 6 -32
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33. Strategic Management in Nonprofit and Governmental Organizations
Educational Institutions
Medical Organizations
Governmental Agencies and Departments
Ch 6 -33
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34. Strategic Management in Small Firms
95% of all businesses in the Arab world region are family firms
Most Arab entrepreneurs start off as owners of small and medium-sized firms
Strategic management is vital for small companies
Lack of strategic management knowledge is a serious obstacle for many small business owners
Ch 6 -34
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35. Copyright © 2011 Pearson Education
For Review (Chapter 6)
Key Terms & Concepts
Acquisition
Combination Strategy
Backward Integration
Cooperative
Arrangements
Bankruptcy
Cost Leadership
Business-Processing
Outsourcing (BPO)
Differentiation
Ch 6 -35
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36. First-Mover Advantages
For Review (Chapter 6)
Key Terms & Concepts
Diversification
Strategies
Forward Integration
Divestiture
Franchising
First-Mover Advantages
Friendly Merger
Focus
Generic Strategies
Ch 6 -36
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37. Horizontal Integration Integration Strategies
For Review (Chapter 6)
Key Terms & Concepts
Horizontal Integration
Joint Venture
Hostile Takeover
Leveraged Buyout
Integration Strategies
Liquidation
Innovation
Long-Term Objectives
Ch 6 -37
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38. Related Diversification Turbulent, High-Velocity
For Review (Chapter 6)
Key Terms & Concepts
Market Development
Related Diversification
Market Penetration
Retrenchment
Merger
Takeover
Product Development
Turbulent, High-Velocity
Markets
Ch 6 -38
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39. Competitive Advantage Contract Manufacturing Contractual Approaches
For Review (Chapter 6)
Key Terms & Concepts
Competitive Advantage
Ethnocentric
Competitive Risks
Export
Contract Manufacturing
Franchising
Contractual Approaches
Geocentric
Ch 6 -39
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40. Unrelated diversification
For Review (Chapter 6)
Key Terms & Concepts
Unrelated diversification
Vertical Integration
Ch 6 -40
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41. Copyright © 2011 Pearson Education
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Ch 6 -41
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