1. Chapter 2 Understanding Strategies

2. Chapter Objectives
To study and understand the goals in any organization
To understand strategies at two levels-
The corporate level and
The business unit level

3. GOALS - Profitability Profitability- most important goal, broadest
is a product of two ratios:
1. profit margin percentage X
2. investment turnover i.e.
(revenues-expenses/revenues) X
(revenues/investment)
Result is Return on Investment (ROI)=
((revenue-expenses)/investment)

4. Q) Profitability refers to profits in long run
What does profitability depict?
Does the company’s goal, change its interpretation of profitability equation?

5. GOALS - Maximizing Shareholder Value Q)
Maximizing Shareholder Value means what?
Is earning maximum and increasing profitability same?
Maximizing shareholder value may be a major goal but not the only goal

6. GOALS- Risk Risk also means POSSIBILITIES
The risk-taking varies from company to company, among personalities and managers
Some companies make it very clear that the primary responsibility is to preserve company’s assets

7. GOALS -Multiple Stakeholder Approach
Organizations deal in – capital market, product market, factor market
The firm has responsibilities to all these multiple stakeholders

8. The Concept of Strategy
Strategies describe the general direction in which an organization plans to move to attain its goals
Core Competencies Industry Opportunities
Strategies

9. Corporate Level Strategy
Two Levels Of Strategy
Corporate Level
Business Unit Level
Corporate Level Strategy
Is about being in the right mix of businesses
Concerns of questions like where to compete than how

10. Corporate-level Strategies
McDonald’s
High
P&G
Degree of
Relatedness
Textron
Low
High
Extent of Diversification

11. Contd… Single Industry Firms Unrelated Diversified Firms

12. Business Unit Strategies
Depends on two interrelated aspects:
Its mission
Its competitive advantage
Business Unit Mission
The BCG Model
build, hold, harvest, divest
Business Unit Competitive Advantage
Porter’s Five Force Model
Value Chain for Business