1. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 1 BUS 411 DAY 9

2. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Agenda  Question?  Assignment 2 Corrected  3 B’s & 5 C’s  Assignment 3 DUE  Assignment 4 posted  Due March 6  assignment 4 SP14.pdf assignment 4 SP14.pdf  Today   Finish Chap 5 Strategies in Action  Begin Chap 6 Strategic analysis and choice

3. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Strategies in Action Chapter Five

4. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Strategies for taking the hill won’t necessarily hold it. – Amar Bhide Strategies in Action The early bird may get the worm, but the second mouse gets the cheese. – Unknown

5. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives 1. Discuss the value of establishing long-term objectives. 2. Identify 16 types of business strategies. 3. Identify numerous examples of organizations pursuing different types of strategies. 4. Discuss guidelines when particular strategies are most appropriate to pursue. 5. Discuss Porter’s five generic strategies. 6. Describe strategic management in nonprofit, governmental, and small organizations. 7. Discuss joint ventures as a way to enter the Russian market. 5-5

6. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives (cont.) 8. Discuss the Balanced Scorecard. 9. Compare and contrast financial with strategic objectives. 10. Discuss the levels of strategies in large versus small firms. 11. Explain the First Mover Advantages concept. 12. Discuss recent trends in outsourcing. 13. Discuss strategies for competing in turbulent, high-velocity markets. 5-6

7. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall A Comprehensive Strategic- Management Model 5-7

8. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Alternative Strategies Defined and Exemplified 5-8

9. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Alternative Strategies Defined and Exemplified 5-9

10. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Integration Strategies  Forward integration  involves gaining ownership or increased control over distributors or retailers  Backward integration  strategy of seeking ownership or increased control of a firm’s suppliers  Horizontal integration  a strategy of seeking ownership of or increased control over a firm’s competitors 5-10

11. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Forward Integration Guidelines  When an organization’s present distributors are especially expensive  When the availability of quality distributors is so limited as to offer a competitive advantage  When an organization competes in an industry that is growing  When present distributors or retailers have high profit margins 5-11

12. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Backward Integration Guidelines  When an organization’s present suppliers are especially expensive or unreliable  When the number of suppliers is small and the number of competitors is large  When the advantages of stable prices are particularly important  When an organization needs to quickly acquire a needed resource 5-12

13. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Horizontal Integration Guidelines  When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government  When an organization competes in a growing industry  When increased economies of scale provide major competitive advantages  When competitors are faltering due to a lack of managerial expertise 5-13

14. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Intensive Strategies  Market penetration strategy  seeks to increase market share for present products or services in present markets through greater marketing efforts  Market development  involves introducing present products or services into new geographic areas  Product development strategy  seeks increased sales by improving or modifying present products or services 5-14

15. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Market Penetration Guidelines  When current markets are not saturated with a particular product or service  When the usage rate of present customers could be increased significantly  When the market shares of major competitors have been declining while total industry sales have been increasing  When increased economies of scale provide major competitive advantages 5-15

16. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Market Development Guidelines  When new channels of distribution are available that are reliable, inexpensive, and of good quality  When an organization is very successful at what it does  When new untapped or unsaturated markets exist  When an organization has excess production capacity 5-16

17. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Product Development Guidelines  When an organization has successful products that are in the maturity stage of the product life cycle  When an organization competes in an industry that is characterized by rapid technological developments  When major competitors offer better-quality products at comparable prices  When an organization competes in a high- growth industry 5-17

18. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Diversification Strategies  Related diversification  value chains possess competitively valuable cross- business strategic fits  Unrelated diversification  value chains are so dissimilar that no competitively valuable cross- business relationships exist 5-18

19. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Synergies of Related Diversification  Transferring competitively valuable expertise, technological know-how, or other capabilities from one business to another  Combining the related activities of separate businesses into a single operation to achieve lower costs  Exploiting common use of a well-known brand name 5-19

20. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Related Diversification Guidelines  When an organization competes in a no- growth or a slow-growth industry  When adding new, but related, products would significantly enhance the sales of current products  When new, but related, products could be offered at highly competitive prices  When an organization has a strong management team 5-20

21. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Unrelated Diversification Guidelines  When revenues derived from an organization’s current products would increase significantly by adding the new, unrelated products  When an organization’s present channels of distribution can be used to market the new products to current customers  When an organization’s basic industry is experiencing declining annual sales and profits 5-21 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

22. Unrelated Diversification Guidelines (cont.)  When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity  When existing markets for an organization’s present products are saturated  When antitrust action could be charged against an organization that historically has concentrated on a single industry 5-22

23. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Defensive Strategies  Retrenchment  occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits  also called a turnaround or reorganizational strategy  designed to fortify an organization’s basic distinctive competence 5-23

24. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Retrenchment Guidelines  When an organization is one of the weaker competitors in a given industry  When an organization is plagued by inefficiency, low profitability, and poor employee morale  When an organization has grown so large so quickly that major internal reorganization is needed 5-24

25. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Defensive Strategies  Divestiture  Selling a division or part of an organization  often used to raise capital for further strategic acquisitions or investment 5-25

26. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Divestiture Guidelines  When an organization has pursued a retrenchment strategy and failed to accomplish needed improvements  When a division needs more resources to be competitive than the company can provide  When a division is responsible for an organization’s overall poor performance  When a division is a misfit with the rest of an organization 5-26

27. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Defensive Strategies  Liquidation  selling all of a company’s assets, in parts, for their tangible worth  can be an emotionally difficult strategy 5-27

28. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Liquidation Guidelines  When an organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful  When an organization’s only alternative is bankruptcy  When the stockholders of a firm can minimize their losses by selling the organization’s assets 5-28

29. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Bankruptcy  Chapter 7 – Liquidation  Chapter 9 – Municipalities  Chapter 11 – Reorganization for Corporations  Chapter 12 – Family Farmers  Chapter 13 – Reorganization for Small Businesses and Individuals

30. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Michael Porter’s Five Generic Strategies  Cost leadership  emphasizes producing standardized products at a very low per-unit cost for consumers who are price- sensitive  Differentiation  Producing products and services considered unique industry wide and directed at consumers who are relatively price-insensitive  Focus  Producing products and service that fulfill the needs of small groups of consumers 5-30

31. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Porter’s Five Generic Strategies 5-31

32. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Michael Porter’s Five Generic Strategies  Type 1  low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market  Type 2  best-value strategy that offers products or services to a wide range of customers at the best price- value available on the market 5-32

33. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Michael Porter’s Five Generic Strategies  Type 3  Differentiation strategy aimed at producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive 5-33 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

34. Michael Porter’s Five Generic Strategies  Type 4  low-cost focus strategy that offers products or services to a niche group of customers at the lowest price available on the market  Type 5  best-value focus strategy that offers products or services to a small range of customers at the best price- value available on the market 5-34

35. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Cost Leadership Strategies  To employ a cost leadership strategy successfully, a firm must ensure that its total costs across its overall value chain are lower than competitors’ total costs  To sell a unit cheaper than the competition you must be able to produce that unit at cheaper cost 5-35

36. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Cost Leadership Strategies Two ways: 1. Perform value chain activities more efficiently than rivals and control the factors that drive the costs of value chain activities 2. Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities 5-36

37. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Cost Leadership Guidelines  When price competition among rival sellers is especially vigorous  When there are few ways to achieve product differentiation that have value to buyers  When most buyers use the product in the same ways  When buyers incur low costs in switching their purchases from one seller to another 5-37

38. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Differentiation Strategies  Differentiation strategy should be pursued only after a careful study of buyers’ needs and preferences to determine the feasibility of incorporating one or more differentiating features into a unique product that features the desired attributes 5-38

39. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Differentiation  When there are many ways to differentiate the product  When buyer needs and uses are diverse  When few rival firms are following a similar differentiation approach  When technological change is fast paced 5-39

40. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Focus Strategies  Successful focus strategy depends on an industry segment that is of sufficient size, has good growth potential, and is not crucial to the success of other major competitors  Most effective when consumers have distinctive preferences 5-40

41. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Focus Strategy Guidelines  When the target market niche is large, profitable, and growing  When industry leaders do not consider the niche to be crucial to their own success  When the industry has many different niches and segments  When few, if any, other rivals are attempting to specialize in the same target segment 5-41

42. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Strategies for Competing in Turbulent, High-Velocity Markets  Some industries change so fast that they are called turbulent, high-velocity markets. Examples include telecommunications, medical, biotechnology, pharmaceuticals, and computer hardware and software, and virtually all Internet-based industries.  High-velocity has become the rule rather than the exception, even in such industries as toys, phones, banking, defense, publishing, and communication.  Meeting the challenge of high-velocity change presents the firm with a choice of whether to react, anticipate, or lead the market in terms of its own strategies. 2-42

43. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Means for Achieving Strategies  Cooperation Among Competitors  Joint Venture/Partnering  Merger/Acquisition  Private-Equity Acquisitions  First Mover Advantages  Outsourcing 5-43

44. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Strategic Management in Nonprofit and Governmental Organizations Religious Facilities Educational Institutions Medical Organizations Governmental Agencies and Departments

45. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Strategic Management in Small Firms  Entrepreneurs are America’s role models, and almost everyone wants to own a business.  As hundreds of thousands of people have been laid off from work in the last two years, many of these individuals have started small businesses.  The strategic management process is just as vital for small companies as it is for large firms. Numerous magazine and journal articles have focused on applying strategic management concepts to small businesses. 2-45

46. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Strategy Analysis and Choice Chapter Six

47. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall “Whether it’s broke or not, fix it – make it better. Not just products, but the whole company if necessary.” – Bill Saporito Strategy Analysis & Choice “Life is full of lousy options.” – General P.X. Kelley

48. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives 1. Describe a three-stage framework for choosing among alternative strategies. 2. Explain how to develop a SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, Grand Strategy Matrix and QSPM. 3. Identify important behavioral, political, ethical, and social responsibility considerations in strategy analysis and choice. 6-48

49. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives 4. Discuss the role of intuition in strategic analysis and choice. 5. Discuss the role of organizational culture in strategic analysis and choice. 6. Discuss the role of a board of directors in choosing among alternative strategies. 6-49

50. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall A Comprehensive Strategic- Management Model 6-50

51. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 2-51

52. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Process of Generating and Selecting Strategies  A manageable set of the most attractive alternative strategies must be developed  The advantages, disadvantages, trade- offs, costs, and benefits of these strategies should be determined 6-52

53. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Process of Generating and Selecting Strategies  Identifying and evaluating alternative strategies should involve many of the managers and employees who earlier assembled the organizational vision and mission statements, performed the external audit, and conducted the internal audit. 6-53

54. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Process of Generating and Selecting Strategies  Alternative strategies proposed by participants should be considered and discussed in a series of meetings.  Proposed strategies should be listed in writing.  When all feasible strategies identified by participants are given and understood, the strategies should be ranked in order of attractiveness. 6-54

55. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Strategy-Formulation Analytical Framework 6-55 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

56. A Comprehensive Strategy- Formulation Framework  Stage 1 - Input Stage  summarizes the basic input information needed to formulate strategies  consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile Matrix (CPM) 6-56

57. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall A Comprehensive Strategy- Formulation Framework  Stage 2 - Matching Stage  focuses on generating feasible alternative strategies by aligning key external and internal factors  techniques include the Strengths-Weaknesses- Opportunities-Threats (SWOT) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix 6-57

58. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall A Comprehensive Strategy- Formulation Framework  Stage 3 - Decision Stage  involves the Quantitative Strategic Planning Matrix (QSPM)  reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies 6-58

59. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Matching Key External and Internal Factors to Formulate Alternative Strategies 6-59

60. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Matching Stage  The Strengths-Weaknesses- Opportunities-Threats (SWOT) Matrix helps managers develop four types of strategies:  SO (strengths-opportunities) Strategies  WO (weaknesses-opportunities) Strategies  ST (strengths-threats) Strategies  WT (weaknesses-threats) Strategies 6-60

61. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Matching Stage  SO Strategies  use a firm’s internal strengths to take advantage of external opportunities  WO Strategies  aim at improving internal weaknesses by taking advantage of external opportunities 6-61

62. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall The Matching Stage  ST Strategies  use a firm’s strengths to avoid or reduce the impact of external threats  WT Strategies  defensive tactics directed at reducing internal weakness and avoiding external threats 6-62

63. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall SWOT Matrix 1. List the firm’s key external opportunities 2. List the firm’s key external threats 3. List the firm’s key internal strengths 4. List the firm’s key internal weaknesses 5. Match internal strengths with external opportunities and record the resulting SO strategies 6-63

64. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall SWOT Matrix (cont.) 6. Match internal weaknesses with external opportunities, and record the resultant WO Strategies 7. Match internal strengths with external threats, and record the resultant ST Strategies 8. Match internal weaknesses with external threats, and record the resultant WT Strategies 6-64

65. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Ch 6 -65 SWOT Matrix Strengths – S List Strengths Weaknesses – W List Weaknesses Opportunities – O List Opportunities SO Strategies Use strengths to take advantage of opportunities WO Strategies Overcoming weaknesses by taking advantage of opportunities Threats – T List Threats ST Strategies Use strengths to avoid threats WT Strategies Minimize weaknesses and avoid threats

66. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall A SWOT Matrix for a Retail Computer Store 6-66

67. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall A SWOT Matrix for a Retail Computer Store 6-67

68. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall SWOT Matrix Copyright 2012, Tony Gauvin, UMFK 68 StrengthsWeaknesses 1.Sells essential items with relatively inelastic demand 2.Healthy gross profit margin 3.Accepts food stamps 4.Lower than industry average leverage ratio 5.Being able to raise its dividends 6.Better than industry average total asset turnover 7.Its return on assets of 1.84% is higher than the industry average 8.Its return on equity is 4%, higher than the industry average 9.Approximately 90% of the company's products are priced below $10 10.In the past year, the company's stock has outperformed the average retail industry 1.Does not do much advertising 2.Limited market, solely in the only 3.In the year 2008, the company's market share dropped from 1.85% to 1.75% 4.The company's EPS is only 72% of the industry average and is not growing as quickly as the industry average 5.Limited in variety of products being offered 6.For the year 2008, the company's overall sales only grew by 2.18% whereas the average industry sales grew by 5.31% 7.Does not generate enough sales from its web site due to limited technology 8.Higher than industry average quick ratio, indicating lack of long term re-investment 9.The company's long-term debt to equity ratio is only 31.4% of the industry average Opportunities S-O Strategies W-O Strategies 1.The income for the middle class is diminishing, causing them to be more cautious with their expenditures 2.The average household income is dropping due to weak economy 3.The demand for low-priced items is growing 4.The unemployment rate is increasing 5.Smaller retailers are closing their stores and some have filed for bankruptcy 1.Implement some price cuts to improve sales (S2, O1, S9, O3) 2.Advertise to improve product variety and offerings (S1, S2, S3, O4, O5) 1.Increase number of stores in low income areas (O2, O1, W3, W2) 2.Expand product offerings such fruits and other perishable products (W3, W5, O3, O4, O5) Threats S-T Strategies W-T Strategies 1.High competition among large discount retailers 2.Dollar General has higher market share compare to Family Dollar 3.Per square foot, Dollar General is creating more sales 4.The industry is sensitive to economic conditions 5.Change in demographics due to purchasing habits 6.Increase in tariffs and trade barriers 7.Lack of quality control in products due to being imported from and other countries 1.Due to better return on assets ratio, the company can invest in technology, promoting online selling (S6, T1, T5) 1.Increase advertising by offering discounts, coupons, and other special offerings (W1, W2, W3, T1, T2, T3, T4)

69. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall Limitations with SWOT Matrix  Does not show how to achieve a competitive advantage  Provides a static assessment in time  May lead the firm to overemphasize a single internal or external factor in formulating strategies  Halo Error

70. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 5-70