1. Copyright 2005 Prentice Hall1 Bus 411 Day 9

2. Copyright 2005 Prentice Hall Ch 3 -2 Agenda Assignment 2 corrected  5 A’s, 1 B and 2 non-submits Assignment 3 Due Assignment 4 posted Assignment 5 (last one) will be due after break No lecture on March 3  Possible alternatives (check BlackBoard) Disney SWOT posted with class slides Finish Discussion on Strategies in Action

3. Assignment 4 For assignment 4, complete Experiential Exercise 5A on page 181 of your text.  A three page (single-spaced) report is about 1300-1500 words, so if you are double-spacing your report, I expect about five to six pages.  Refer to the strategies listed in table 5-3 (page 147) and/or to Porter’s five generic strategies (figure 5-3 on page 161) when selecting and justifying strategies for Disney.  This assignment will be due on March 3 at 9:35 AM.  Make sure you provide the sources of your information (source attribution does not count towards the length requirement). Copyright 2005 Prentice Hall Ch 3 -3

4. Copyright 2005 Prentice Hall Ch 3 -4 Types of Strategies Diversification Strategies Related Diversification Unrelated Diversification

5. Copyright 2005 Prentice Hall Ch 3 -5 Diversification Related – When their value chains posses competitively valuable cross-business strategic fits Unrelated – When their value chains are so dissimilar that no competitively valuable cross-business relationships exist

6. Copyright 2005 Prentice Hall Ch 3 -6 Related Diversification Preferred To Capitalize on: Transferring competitively valuable expertise Combining the related activities of separate businesses into a single operation to lower costs Exploiting common use of a well-known brand name Cross-business collaboration to create competitively valuable resource strengths and capabilities

7. Copyright 2005 Prentice Hall Ch 3 -7 Diversification Strategies Less Popular --  More difficult to manage diverse business activities However --  The greatest risk of being in a single industry is having all your eggs in one basket

8. Copyright 2005 Prentice Hall Ch 3 -8 Related Diversification May be Effective When: An organization competes in a no-growth or a slow growth industry Adding new, but related, products would significantly enhance the sales of current products New, but related products could be offered at highly competitive prices

9. Copyright 2005 Prentice Hall Ch 3 -9 Related Diversification May be Effective When: New, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys An organization’s products are currently in the declining stage of the product’s life cycle An organization has a strong management team

10. Copyright 2005 Prentice Hall Ch 3 -10 Conglomerate (Unrelated) Diversification Strategies Guidelines --  Declining annual sales & profits  Capital & managerial ability to compete in new industry  Financial synergy between acquired and acquiring firms  Current markets for present products - saturated

11. Copyright 2005 Prentice Hall Ch 3 -11 Unrelated Diversification Favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance Entails hunting to acquire companies:  Whose assets are undervalued  That are financially distressed  With high growth potential but are short on investment capital

12. Copyright 2005 Prentice Hall Ch 3 -12 Unrelated Diversification May be Effective When: Revenues derived from an organization’s current products or services would increase by adding new unrelated products An organization competes in a highly competitive or a no growth industry An organization’s current distribution channels can be used to market new products to existing customers

13. Copyright 2005 Prentice Hall Ch 3 -13 Unrelated Diversification May be Effective When: New products have countercyclical sales patterns An organization’s basic industry is experiencing declining annual sales and profits An organization has the capital and managerial talent to compete successfully in a new industry

14. Copyright 2005 Prentice Hall Ch 3 -14 Unrelated Diversification May be Effective When: An organization has the opportunity to purchase an unrelated business as an attractive investment opportunity There exists financial synergy between the acquired and acquiring firm Existing markets for the present products are saturated Antitrust action could be charged against a company

15. Copyright 2005 Prentice Hall Ch 3 -15 Types of Strategies Defensive Strategies Retrenchment Divestiture Liquidation

16. Copyright 2005 Prentice Hall Ch 3 -16 Retrenchment Strategies Regrouping --  Cost & asset reduction to reverse declining sales & profit

17. Copyright 2005 Prentice Hall Ch 3 -17 Retrenchment Strategies Guidelines --  Failed to meet objectives & goals consistency; has distinctive competencies  Firm is one of weaker competitors  Inefficiency, low profitability, poor employee morale, pressure for stockholders  Strategic managers have failed  Rapid growth in size; major internal reorganization necessary

18. Copyright 2005 Prentice Hall Ch 3 -18 Divestiture Strategies  Selling a division or part of an organization

19. Copyright 2005 Prentice Hall Ch 3 -19 Divestiture Strategies Guidelines --  Retrenchment failed to attain improvements  Division needs more resources than are available  Division responsible for firm’s overall poor performance  Division is a mis-fit with organization  Large amount of cash is needed and cannot be raised through other sources

20. Copyright 2005 Prentice Hall Ch 3 -20 Liquidation Strategies  Company’s assets, in parts, for their tangible worth Selling

21. Copyright 2005 Prentice Hall Ch 3 -21 Liquidation Strategies Guidelines --  Retrenchment & divestiture failed  Only alternative is bankruptcy  Minimize stockholder loss by selling firm’s assets

22. Copyright 2005 Prentice Hall Ch 3 -22 Bankruptcy Chapter 7 – Liquidation Chapter 9 – Municipalities Chapter 11 – Reorganization for Corporations Chapter 12 – Family Farmers Chapter 13 – Reorganization for Small Businesses and Individuals

23. Ch 5 -23 Natural Environment Perspective Songbirds and Coral Reefs in Trouble Songbirds – 76 songbird species have dramatically declined in numbers Coral Reefs – Trawl fishing destroys coral reefs  Total area of fully protected marine habitats in the US is only 50 square miles (93 million acres of national wildlife refuges and national parks)

24. Ch 5 -24 2007 Examples Forward Integration Southwest Airlines selling tickets through Galileo Backward Integration Hilton Hotels could acquire a large furniture manufacturer Horizontal Integration Huntington Bancshares and Sky Financial Group merged

25. Ch 5 -25 2007 Examples Market Penetration McDonald’s selling millions of “Shrek the Third” items to promote a healthier image Market Development Burger King opened its first restaurant in Japan Product Development Google introduced “Google Presents” to compete with PowerPoint

26. Ch 5 -26 2007 Examples Related Diversification MGM Mirage is opening its first non- casino luxury hotel Unrelated Diversification Ford Motor Company entered the industrial bank business Retrenchment Discovery Channel closed 103 mall- based and stand-alone stores

27. Ch 5 -27 2007 Examples Divestiture Whirlpool sold its struggling Hoover floor-care business to Techtronic Industries Liquidation Follow Me Charters sold all of its assets and ceased doing business

28. Ch 5 -28 Michael Porter’s Generic Strategies Cost Leadership Strategies (Low-Cost & Best-Value) Differentiation Strategies Focus Strategies (Low-Cost Focus & Best-Value Focus)

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30. Copyright 2005 Prentice Hall Ch 3 -30 Generic Strategies  In conjunction with differentiation  Economies or diseconomies of scale  Capacity utilization achieved  Linkages w/ suppliers & distributors Cost Leadership (Type 1 and Type 2)

31. Copyright 2005 Prentice Hall Ch 3 -31 Cost Leadership Ways of ensuring total costs across value chain are lower than competitors’ total costs 1. Perform value chain activities more efficiently than rivals and control factors that drive costs 2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities

32. Copyright 2005 Prentice Hall Ch 3 -32 Cost Leadership Can be especially effective when: 1. Price competition among rivals is vigorous 2. Rival’s products are identical and supplies are readily available 3. There are few ways to achieve differentiation 4. Most buyers use the product in the same way 5. Buyers have low switching costs 6. Buyers are large and have significant power 7. Industry newcomers use low prices to attract buyers

33. Copyright 2005 Prentice Hall Ch 3 -33 Generic Strategies  Many price-sensitive buyers  Few ways of achieving differentiation  Buyers not sensitive to brand differences  Large # of buyers w/bargaining power Low Cost Producer Advantage

34. Copyright 2005 Prentice Hall Ch 3 -34 Generic Strategies  Greater product flexibility  Greater compatibility  Lower costs  Improved service  Greater convenience  More features Differentiation (Type 3)

35. Copyright 2005 Prentice Hall Ch 3 -35 Differentiation Can be especially effective when: 1. There are many ways to differentiate and many buyers perceive the value of the differences 2. Buyer needs and uses are diverse 3. Few rival firms are following a similar differentiation approach 4. Technology change is fast paced and competition revolves around evolving product features

36. Copyright 2005 Prentice Hall Ch 3 -36 Generic Strategies  Industry segment of sufficient size  Good growth potential  Not crucial to success of major competitors Focused Strategies (Type 4 & 5)

37. Copyright 2005 Prentice Hall Ch 3 -37 Focused Strategy Can be especially effective when: 1. The target market niche is large, profitable, and growing 2. Industry leaders do not consider the niche crucial 3. Industry leaders consider the niche too costly or difficult to meet 4. The industry has many different niches and segments 5. Few, if any, other rivals are attempting to specialize in the same target segment

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39. Copyright 2005 Prentice Hall Ch 3 -39 Means for Achieving Strategies  Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity Joint Venture/Partnering -

40. Ch 5 -40 Global Perspective Joint Ventures Mandatory for All Foreign Firms in India India’s experiencing fastest growth in over 18 years Second fastest (behind China) growth rate at 10.7% Also experiencing 6.6% inflation Gap between rich and poor widening Joint venture mandatory Vast majority of joint ventures fail Tourism also growing

41. Copyright 2005 Prentice Hall Ch 3 -41 Means for Achieving Strategies  R&D partnerships  Cross-distribution agreements  Cross-licensing agreements  Cross-manufacturing agreements  Joint-bidding consortia Cooperative Arrangements -

42. Copyright 2005 Prentice Hall Ch 3 -42 Means for Achieving Strategies  Managers who must collaborate daily; not involved in developing the venture  Benefits the company not the customers  Not supported equally by both partners  May begin to compete with one of the partners Why Joint Ventures Fail -

43. Copyright 2005 Prentice Hall Ch 3 -43 Joint Ventures Guidelines --  Synergies between private and publicly held  Domestic with foreign firm, local management can reduce risk  Complementary distinctive competencies  Resources & risks where project is highly profitable (e.g. Alaska Pipeline)  Two or more smaller firms competing w/larger firm  Need to introduce new technology quickly

44. Copyright 2005 Prentice Hall Ch 3 -44 Reasons why Mergers and Acquisitions Fail Too much diversification Managers overly focused on acquisition Too large an acquisition Difficult to integrate different organizational cultures Reduced employee moral due to layoffs and relocations

45. Copyright 2005 Prentice Hall Ch 3 -45 Means for Achieving Strategies  Provide improved capacity utilization  Better use of existing sales force  Reduce managerial staff  Gain economies of scale  Smooth out seasonal trends in sales  Gain new technology  Access to new suppliers, distributors, customers, products, creditors Mergers & Acquisitions

46. Copyright 2005 Prentice Hall Ch 3 -46 Recent Mergers Acquiring FirmAcquired Firm IBMAscential Software Philip MorrisPT Hanjaya Mandala Samp U.S. SteelNational Steel Corp OraclePeopleSoft OSIM International LtdBrookstone Adobe SystemsMacromedia US AirwaysAmerican West United Parcel ServiceOvernight Corp.

47. Copyright 2005 Prentice Hall Ch 3 -47 First Mover Advantages  Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms

48. Copyright 2005 Prentice Hall Ch 3 -48 First Mover Advantages  Securing access to rare resources  Gaining new knowledge of key factors & issues  Carving out market share  Easy to defend position & costly for rival firms to overtake Potential Advantages

49. Copyright 2005 Prentice Hall Ch 3 -49 Outsourcing  Companies taking over the functional operations of other firms Business-process outsourcing (BPO)

50. Copyright 2005 Prentice Hall Ch 3 -50 Outsourcing  Less expensive  Allows firm to focus on core business  Enables firm to provide better services Benefits

51. Ch 5 -51 Strategic Management in Nonprofit and Governmental Organizations  Educational Institutions  Medical Organizations  Governmental Agencies and Departments