00:01

Dear students, welcome to the second last lecture of the business policy course. Strategy is
concerned with making choices among two or more alternatives. When choosing a strategy, the firm
decides to pursue one course of action instead of others. The choices are influenced by opportunities
and threats in the firm's external environment, as well as the nature and quality of the resources,
capabilities, and core competencies in its internal organization.

00:31

Strategies are purposeful, proceed the taking of actions to which they apply and demonstrate a
shared understanding of the firm's vision and mission. An effectively formulated strategy, Marshall's
integrates and allocates the firm's resources, capabilities and competencies so that it may be
properly aligned with its external environment. A properly developed strategy also rationalizes the
firm's vision and mission along with the actions taken to achieve them.

00:59

Information about a host of variables, including markets, customers, technology, worldwide finance,
and the changing world economy, must be collected and analyzed to properly form and use
strategies. In the final analysis, sound strategic choices that reduce uncertainty regarding outcomes
are the foundation for building successful strategies.

01:22

Strategy is also about positioning an organization, whether it's a business, a government, or a not-
for-profit entity relative to its competitors. All organizations have competitors, for customers, for
staff, for funds, for resources.

01:45

How does Mercedes-Benz position itself for customers against its competitors such as BMW, Ford,
and General Motors? It does this on the strategic factors relevant to customer choice, such as
product range, product design, price, customer service, brand, and so on. But organizations also
position themselves to attract other key stakeholders, such as employees or suppliers.

02:11

Google, for example, is renowned for being highly selective about the staff it hires. The strategic
factors for attracting the best employees are pay, promotional prospects, working conditions,
organizational culture, and the like.

02:26
You might think that government departments or NGOs do not have competitors. They do.
Government departments compete for funds with every other department and agency, while NGOs
scramble for grants. They also compete for employees with other government bodies and NGOs, and
they compete for supplies with just about every other organization. And they compete for critical
supplies and resources with other organizations that have the same needs, from transportation to
software, albeit often for different services.

02:56

Dalving deep into stakeholder relationship is important, but it's only one part of strategic planning,
which is also about mapping connections between stakeholders.

03:07

For instance, doing well with the employees not only propels competitiveness in attracting the best
staff, in turn it also entices customers to improve employee performance. And this brings us to the
definition of strategic planning, which is designing a system whereby the various key stakeholders of
an organization interact to produce a virtuous cycle that is in turn a source of sustainable competitive
advantage.

03:34

Let me repeat, strategic planning is all about designing a system whereby the various key
stakeholders of an organization interact to produce a virtuous circle that is in turn a source of
sustainable competitive advantage. Competitive advantage refer to a firm's ability to outperform its
rivals. Most of us can recognize competitive advantage when we see it. Walmart in discount retailing,

04:00

Google in online search, and Tesla in electric vehicles. Yet defining competitive advantage is
troublesome. Competitive advantage can be defined broadly in terms of a firm's superiority in
creating value for its stakeholders or more narrowly in terms of profitability. Because of the
difficulties in identifying and mining total value creation, I shall take the simple approach and define
competitive advantage as a firm's potential to earn a higher rate of profit

04:29

than its direct competitors. I emphasize the potential for superior profitability rather than actual
superior profitability to take account of the fact that competitive advantage may not be revealed in
higher profitability. A firm may forego current profit in favor of investing in market share technology,
customer loyalty, or executive parks.

04:55
For example, over the 10 year period from 1998 to 2007, Amazon earned a net loss despite its
obvious competitive advantage in online retailing. Amazon had foregone profit in favor of sales
growth in viewing competitive advantage as the result of matching internal strengths to external
success factors.

05:18

I may have conveyed the notion of competitive advantage as something static and stable. The notion
of competition can be defined as a process of creative destruction. Let me repeat. The notion of
competition can be defined as a process of creative destruction. Competitive advantage is a
disequilibrium phenomenon. It is created by change. And once established, it sets in motion the
competitive process.

05:47

that leads to its destruction. The changes that generate competitive advantage can be either internal
or external strategic factors.

06:00

One desired outcome of analyzing strategic factor is identifying a niche where an organization can
use its core competencies to take advantage of a particular market opportunity. What is a niche in a
market? A niche is a need in the marketplace that is currently unsatisfied. The goal is to find a
propitious niche because customers are the foundation of successful business level strategies and
should never be taken for granted. In terms of customers, when selecting a business level strategy,
the firm determines

06:29

who will be served, what needs those target customers have that it will satisfy, and how those needs
will be satisfied. Selecting customers and deciding which of their needs the firm will try to satisfy, as
well as how it will do so are challenging tasks. Global competition has created many attractive
options for customers, thus making it difficult to determine the strategy to best serve them.

06:56

Effective global competitors have become adept at identifying the needs of customers in different
cultures and geographic regions, as well as learning how to quickly and successfully adapt the
functionality of a firm's good or services service to meet those needs.

07:19

The business level strategies that are also known as competitive strategies as these strategies directly
deal with competition.
07:29

Business strategy focuses on improving the competitive position of a company's or a business unit's
products or services within the specific industry or market segment itself. The aims of business level
strategy are to better position against rivals and influence the nature of industry competition through
innovations. These strategies focus on how to satisfy the customer needs better than your rivals
either by doing similar activities in different ways or performing different activities altogether.

07:55

These decisions include strategic positioning, trade-offs, and fests. Although each of Porter's generic
competitive strategies may be used in an industry, certain strategies are more likely to succeed than
others in some instances. In a fragmented industry, for example, where many small and medium-
sized local companies compete for relatively small shares of the total market, focused strategies will
likely predominate. Fragmented industries are typical for products in the early stages of their life
cycles.

08:24

If few economies are to be gained through size, no large firms will emerge and entry barriers will be
low, allowing a stream of new entrants into the industry. Chinese Thai restaurants, veterinary care,
used car sales and corner grocery stores are examples. If a company is able to overcome the
limitations of a fragmented market, then it can reap the benefits of a broadly targeted cost
leadership or differentiation strategy.

08:49

Until Pizza Hut was able to use advertising to differentiate itself from local competitors, the pizza fast
food business was a fragmented industry composed primarily of locally owned pizza parlors, each
with its own distinctive product and service offer. Subsequently, Domino's used the cost leadership
strategy to achieve the national market share in the USA. So probably it gave us a stimulus to
understand the industry dynamics and the respective competitive strategies

09:17

of the fast food providers in the Pakistani context.

09:29

Differentiation strategy is the ability of a company or a business unit to provide a unique or superior
value to the buyer in terms of product quality. Special features are after sale service.
09:51

Whereas the low cost strategy is the ability of a company or a business unit to design, produce, and
market a comparable product more efficiently than its competitors. A low cost competitive strategy
that aims at the broad mass market requires efficient scale facilities, cost reductions, cost and
overhead control, and it tries to avoid marginal customers.

10:13

cost minimization in R&D service, sales force and advertising. And it provides a defense against
competitor, provides a barrier to entry and generates increased market share. So these are the
important drivers when it comes to the low cost strategy. And these are the important drivers or the
important aspects of your activities at the functional level or the business unit level, which are going
to help you to drive the value in a differentiation strategy.

10:46

The hybrid strategy may become even more important and more popular as global competition rises.
Compared to firms relying on a single generic strategy, firms that integrate the generic strategies may
position themselves to improve their ability to adapt quickly to environmental changes. Successfully
pursuing the cost leadership and differentiation strategies simultaneously use additive benefits.
Differentiation enables a firm to charge premium prices. Cost leadership enables a firm to charge the
lowest competitive price.

11:15

The firm is thus able to achieve a competitive advantage by delivering value to customers based on
both product features and low price. Also, a variety of other factors may enable firms to gain a
competitive advantage and earn above average returns from an integrated cost leadership and
differentiation strategy.

11:35

Concentrating on the needs of its core customer group, higher income fashion conscious discount
shoppers, Target stores uses an integrated cost leadership differentiation strategy as shown by its
expect more pay less grand promise. Target's annual report described the strategy, our enduring
expect more pay less grand promise help us to deliver greater convenience, increased savings and a
more personalized shopping experience. Firms like Dell, engaging TQM system,

12:05

just in time and information networks. So how are you going to categorize Al-Fattah, Jalal Suns,
Carrefour, Metro and other rival firms, including Ishaji in the Pakistani context?
12:29

Hybrid strategy is a risky strategy and is difficult for firms to perform primary and sport activities in
ways that allow them to produce relatively inexpensive products with levels of differentiation that
create value for the target customers. Moreover, to properly use this strategy across time, firms must
be able to simultaneously reduce costs incurred to produce products as required by the cost
leadership strategy while increasing products differentiation as required by the differentiation
strategy.

12:57

Firms pursuing this strategy usually can stuck in the middle. What is meant by stuck in the middle? It
implies that the firms will not be able to manage successfully the five competitive forces and will not
achieve strategic competitiveness. In fact, these firms can only earn average profits when industry
structure is favorable or when other firms in the industry are also stuck in the middle. Alliances and
acquisitions can facilitate to pursue this strategy at a global scale.

13:28

Research suggests that firms using pure strategies, either cost leadership or differentiation, often
outperform firms attempting to use a hybrid strategy. That is integrated cost leadership and
differentiation strategy. This research suggests the risky nature of using an integrated strategy.
However, the integrated strategy is becoming more common and perhaps necessary in many
industries because of technological advances and global competition.

13:55

This strategy often necessitates a long-term perspective to make it work effectively and therefore
requires dedicated owners that allow the implementation of a long-term strategy that can require
several years to produce positive returns.

14:13

Although the capitalist economy is frequently referred to as a market economy, it actually comprises
two forms of economic organization. One is the market mechanism, where individuals and firms
guided by market prices make independent decisions to buy and sell goods and services. The other is
the administrative mechanism of firms where decisions concerning production and resource
allocation are made by managers carried out through hierarchies.

14:42

The market mechanism was characterized by Adam Smith as the invisible hand because its
coordinating rule does not require conscious planning. Alfred Chandler referred to the administrative
mechanism of firms as the visible hand because it involves active planning and direction. Firms and
markets may be viewed as alternative institutions for organizing productions.
15:05

Firms are distinguished by the fact they comprise a number of individuals bound by employment
contracts with a central contracting authority. However, production can also be organized through
market transactions. The relative rules of firms and markets vary between countries, industries, and
segments within an industry. Some countries are dominated by a few diversified business groups.
Samsung and LG in South Korea.

15:41

Gouch and Sabanji in Turkey. In the US computer industry, the production of mainframes is organized
very differently from that of PCs. IBM Systems-Z mainframe computers are assembled by IBM using
IBM microprocessors and IBM-Z operating system and run IBM application software. IBM also
undertakes distribution marketing and customer support.

16:05

HP's laptop computers are manufactured by FlexTronics, Quanta, and other companies using
components produced by firms such as Intel, Seagate, NVIDIA, and Samsung. Customer support is
also outsourced. What determines the relative rules of firms and markets? Ronald Quest answered
was the relative cost of organizing within firms as compared to organizing within markets. Markets
are not costless. The transaction cost of markets includes

16:34

the cost of search, negotiation, drying up contracts, and monitoring and enforcing contracts,
including the cost of litigation, should a dispute arise. Conversely, if an activity is internalized within a
firm, then the firm incurs certain administrative cost. If the transaction cost of organizing an activity
through the market are more than the administrative cost of organizing it within a firm, we can
expect that activity to be encompassed within a firm.

17:03

With regard to vertical scope, which is a more efficient way to produce electric cars, three separate
companies, one supplying batteries, another producing drive trains, a third undertaking assembly, as
in the case of Ford Focus Electric, or a single company undertaking all three stages, as in the case of
Tesla. Tesla is highly integrated. About 80% of the value of its cars are produced internally.

17:30

Ford's Focus Electric was heavily outsourced. Its entire drivetrain was supplied by Magna and its
batteries by LG. In relation to product scope, it is more efficient for video games, consumer electronic
products, and movies to be produced by a single firm such as Sony, or for each product to be
produced by a separate company.

17:53

In the case of geographical scope, is it better to have banking services provided by separate banks in
each country or by a single multinational bank such as HSBC that operates across multiple countries?
The answer to these questions have changed over the past 200 years. These shift of corporate
strategy can be linked to the factors that have influenced the relative efficiencies of firms relative to
markets. For most of the 19th and 20th centuries,

18:22

New technologies including innovations in management and organizations have favored large firms.
Around the mid-1970s, this trend went into reverse. A more turbulent business environment and a
new information and communication technologies favored more focused enterprises coordinated
through markets.

18:45

Diversification must do more for a company than simply separate its business risk across various
industries. In principle, diversification cannot be considered wise or justifiable unless it results in
inedited long-term economic value for shareholders. Value that shareholders cannot capture on their
own by purchasing stock in companies in different industries or investing in mutual funds to separate
their investment across several industries. A move to diversify into a new business

19:15

stands little chance of building shareholder value without passing the following three tests of
corporate advantage. Number one, the industry attractiveness test. Number two, the cost of entry
test. And number three, the background test. Creating added value for shareholders via
diversification requires building a multi-business company in which the whole is greater than the
sum of its parts such as one plus one is equal to three effects are called synergies.

19:43

For example, let's say that company A diversifies by purchasing company B in another industry. If A
and B's consolidated profits in the years to come prove no greater than that, what each could have
earned on its own, then A's diversification won't provide its shareholders with any added value.
Company A's shareholders could have achieved the same one plus one is equal to two, the result by
merely purchasing stock in company B.

20:10
Diversification does not result in added long-term value for shareholders unless it produces a one
plus one is equal to three effect, whereby the business perform better together as part of the same
firm than they could have performed as independent companies. Diversification moves must satisfy
all three tests to grow shareholder value over the long-term. Diversification moves that can pass only
one or two tests are suspect.

20:43

So by keeping in view these three tests of corporate advantage when it comes to the diversification,
the idea of corporate strategy is actually concerned with where a firm competes, and business
strategy is actually concerned with how a firm competes within a particular area of business. In
regards to the corporate strategy, we are concerned with broad decisions about the total
organization's scope and direction.

21:08

Basically, we consider what changes should be made in our growth objective and strategy for
achieving it, the lines of businesses we are in and how these lines of businesses fit together. It is
useful to think of three components of corporate level strategy, growth or directional strategy, what
should be our growth objective ranging from retrenchment through stability to varying degree of
growth, and how do we accomplish this?

21:33

Portfolio strategy, what should be our portfolio of lines of business, which implicitly requires
reconsidering how much concentration or diversification we should have. And parenting strategy,
how we allocate resources and manage capabilities and activities across the portfolio, where do we
put special emphasis and how much do we integrate our various lines of business.

22:02

In this discussion, we will be discussing the directional strategy in greater detail.

00:02

Vertical growth can be achieved by taking over a function previously provided by a supplier or by a
distributor. The company, in effect, grows by making its own supplies and or by distributing its own
products. This may be done in order to reduce costs, gain control over a scarce resource, guarantee
quality of a key input, or obtain access to potential customers.

00:27

And this is where we will be discussing in greater detail about the idea of forward and backward
integrations. Horizontal growth, a firm can achieve horizontal growth by expanding its operations
into other geographic locations and or by increasing the range of products and services offered to
current markets. Research indicates that firms that grow horizontally by broadening their product
lines have high survival rates.

00:53

Horizontal growth results in horizontal integration, the degree to which a firm operates in multiple
geographic locations at the same point on an industry's value chain. For example, Procter & Gamble
continually adds additional sizes and multiple variations to its existing product lines to reduce
possible niches competitors may enter. In addition, it introduces successful products from one part of
the world to other regions.

01:18

Procten Gamble has been introducing it into China, a steady stream of popular American brands such
as Head and Shoulders, Crass, Ole, Tide, Pampers, and Whisper. By 2007, it had 6,300 employees in
China and the extensive distribution network, it needed to prosper in the world's fastest growing
market. So how did Procten Gamble's, started their operations in Pakistan?

01:42

We will have a thorough discussion in this particular regard to actually emphasize the idea of
horizontal growth. According to strategist Richard Rimmel, companies began thinking about
diversification when their growth has plateaued and opportunities for growth in the original business
have been depleted. This often occurs when an industry consolidates, becomes mature, and most of
the surviving firms have reached the limits of growth using vertical and horizontal growth strategies.

02:11

Unless the competitors are able to expand internationally into less mature markets, they may have
no choice but to diversify into different industries if they want to continue growing. Tobacco industry
can be an interesting example in this particular regard. And moreover, you people can recall our
initial discussion related to the telecommunication industry in Pakistan. So is it heading towards
diversification?

02:35

The two basic diversification strategies are concentric, related diversification, and conglomerate,
unrelated diversification. General electric power and water, oil and gas, aviation and healthcare,
transportation, and capital is an example of your conglomerate. 3M sold more than 60,000 products
worldwide. In the Pakistani context, we can talk about Fogi Foundation Group, Angro Fertilizer, and
you can say Mianmansha's group in this particular regard.

03:07
A corporation may choose stability over growth by continuing its current activities without any
significant change in direction. Although sometimes viewed as a lack of strategy, the stability family
of corporate strategies can be appropriate for a successful corporation operating in a reasonably
predictable environment. They are very popular with small business owners who have found a niche
and are happy with their success and the manageable size of their funds.

03:36

Stability strategies can be very useful in the short run, but they can be dangerous if followed for too
long. Some of the more popular of these strategies are the pause and proceed with caution, no
change, and finally, the profit strategies. A pause and proceed with caution strategy is, in fact, a time
out and opportunity to rest before continuing a growth or retrenchment strategy. It is a very
deliberate attempt to make only incremental improvements until a particular environmental
situation

04:05

or firm consolidates its growth efforts. This was the strategy Dell followed after its growth strategy
had resulted in more growth than it could handle. Explained CEO Michael Dell, we grew 285% in two
years, and we are having some growing pains. Selling personal computers by mail enabled Dell to
under price competitors, but it could not keep up with the needs of the 2,000,500,600 employee
companies selling PCs in 95 countries.

04:36

Dell did not give up on its growth strategy. It merely put it temporarily in limbo until the company
was able to hire new managers, improve the structure, and build new facilities. This was a popular
strategy in late 2008 during the US financial crisis when banks were freezing their lending and
awaiting a rescue package from the federal government. So can this strategy be relevant in the post-
COVID-19 times and especially in the current economic times where...

05:05

a lot of predictions are being made about the global recession.

05:11

A no change strategy is a decision to do nothing new, a choice to continue current operations and
policies for the foreseeable future. Really articulated as a definite strategy, a no change strategy
success depends on lack of significant change in a corporation situation. The relative stability created
by the firm's modest competitive position in an industry facing little or no growth encourages the
company to continue on its current course, making only small adjustment for inflation.
05:39

in its sales and profit objectives. There are no obvious opportunities or threats, nor is there much in
the way of significant threats or weaknesses. Few aggressive new competitors are likely to enter in
this type of industry. Generally, the small or mid-sized firms catering to the needs of a niche market,
which is limited in scope, rely on the no-change strategy. The stability strategy is suitable until new
threats emerge in the market.

06:06

and the firms feel the need to alter its present position. A profit strategy is a decision to do nothing
new in a worsening situation, but instead to act as though the company's problems are only
temporary. The profit strategy is an attempt to artificially support profits when a company's sales are
declining by reducing investment and short-term discretionary expenditures. Rather than announce
the company's poor position to shareholders and the investment community at large, top
management may be tempted to follow this very seductive strategy.

06:36

It may also be a way to boost the value of a company in preparation of going public via an initial
public offering IPO. Unfortunately, the strategy is seductive. And if continued long enough, it will lead
to a serious deterioration in a corporation's competitive position. The profit strategy is typically top
management's passive, short-term, and often self-serving response to a difficult situation. In such
situation, it is often better to face the problem directly by choosing a retrenchment strategy.

07:05

So what are the retrenchment strategies? Number one is the turnaround strategy. So in the
turnaround strategy, the emphasis is on the improvement of operational efficiency. And it is probably
most appropriate when a corporation's problems are pervasive but not yet critical. Research shows
that poorly performing firms in mature industries have been able to improve their performance by
cutting costs and expenses and by selling off assets.

07:32

So in this regard, we can talk about Pakistan International Airlines and we'll further elaborate in this
particular context. The second retrenchment strategy is a captive company strategy. This strategy
involves giving up independence in exchange for security. For example, to become the sole supplier
of an auto part to General Motors, Simpson Industries of Birmingham, Michigan agreed to let a
special team from GM inspect its engine parts facilities and books and interviewed

08:02
In return, nearly 80% of the company's production was sold to GM through long-term contracts.
Apple itself also, you can say, encourages their suppliers to become its captive companies. The sell-
out strategy makes sense if the management can still obtain

08:23

a good price for its shareholders, and the employees can keep their job by selling the entire company
to another firm. So Jazz and Vavaret can be an interesting example in this particular regard. If the
corporation has multiple business lines and it chooses to sell off a Devin with low growth potential,
this is called a diverse spend. So there is a difference between sellout and diverse spend strategy.
This was the strategy Ford used when it sold its struggling Jaguar and Land Rover units to Tata
Motors in 2008 for $2 billion.

08:53

Ford has spent $10 billion trying to turn around Jaguar after spending $2.5 billion to buy it in 1990. In
addition, Ford has paid $2.8 billion for Land Rover in 2000. Ford's management hope to use the
proceeds of the sale to help the company reach profitability in 2009. Even today, Tata is struggling to
manage the GLV and a number of speculations are being made about Zert's murky future.

09:20

Bankruptcy involves giving up management of the firm to the course in return from some settlement
of the corporation's obligations. Top management hopes that once the court decides the claims on
the company will be stronger and better able to compete in a more attractive industry. For instance,
at least 30 airlines went bankrupt during the first half of 2008. Airlines falling is nothing new, of
course. There is an old adage that the best way to become a millionaire is to start an airline as a
billionaire.

09:48

But the pandemic has been more damaging to the aviation sector than recessions, wars, or terrorist
incidents. Since 2020, no fewer than 64 airlines have seized operations, according to the CNN.
Liquidation is the termination of the firm. When the industry is unattractive and the company too
weak to be sold as a going concern, management may choose to convert as many saleable assets as
possible to cash, which is then distributed to the shareholders after all obligations are paid.

10:18

Liquidation is a prudent strategy for distressed firms with a small number of choices, all of which are
problematic.

10:29
Functional strategy is the approach a functional area takes to achieve corporate and business unit
objectives and strategies by maximizing resource productivity. It is concerned with developing and
nurturing a distinctive competence to provide a company or business unit with a competitive
advantage. The orientation of a functional strategy is dictated by its parent business unit strategy. For
example, a business unit or product line following a competitive strategy of differentiation through
high quality

10:56

needs a manufacturing functional strategy that emphasizes expensive quality assurance processes
over cheaper. High volume production, a human resource functional strategy that emphasizes the
hiring and training of a high skilled but costly workforce. And a marketing functional strategy that
emphasizes distribution channel pull using advertising to increase consumer demand over push using
promotional allowances to retailers.

11:22

Just as competitive strategies may need to vary from one region of the world to another, functional
strategies may need to vary from one region to another. When Mr. Donut expanded into Japan, for
example, it had to market donuts not as a breakfast but as a snack food, because the Japanese had
no breakfast coffee and donut custom. They preferred to eat the donuts in the afternoon or evening.
Mr. Donut restaurants were thus located near railroad stations and supermarkets. All signs were in
English to appeal to the Western interest of the Japanese.

11:52

The functional strategies can be seen from the following slide that I'm putting in front of you. And I
hope you people would have done the dedicated courses during your undergraduate and
postgraduate degree program, which cover all of these different types of functional strategies. To
integrate these functions, the ERP is the best tool available.

12:18

Enterprise resource planning is an information system used to identify and plan the resources
required across the firm to receive, record, produce, and ship customer orders. For example,
salespeople for aircraft parts distributor, AVL, use handheld equipment to scan barcode labels on
bins in customers' facilities to determine when parts need to be restocked. Data gathered through
this procedures are uploaded via the web to the AVL back-end replenishment and ERP system.

12:46

allowing the order fulfillment process to begin within minutes of scanning. Growth in ERP
applications, such as the one used at AVL, has been significant. Full installations of an ERP system are
expensive, running into the tens of millions of dollars for large-scale applications. Improving
efficiency on a company-wide basis is a primary objective of using an ERP system.

13:09

The transfer of sales data from AVL salespeople to the order entry point at the firm's manufacturing
facility demonstrate the rapid movement of information from one function to another. Integrating
data processes across parties that are involved with detailing product specifications, and then
manufacturing those products and distributing them in ways that are consistent with the customer's
unique needs and able the firm to respond with flexibility to customer preferences relative to cost
and differentiation.

13:38

competitive strategies of firms. As a result of it, efficiency improvements result from the use of
systems through which financial and operational data are moved rapidly from one department to
another.

13:55

Managers who have made poor analysis or lack creativity may be trapped in the following strategy.
Number one, they are going to follow the leader. Imitating a leading competitor's strategy might
seem to be a good idea, but it ignores a firm's particular strands and weaknesses and the possibility
that the leader may be wrong. Fujitsu Limited, the world's second largest computer maker had been
driven since the 1960s by the sole ambition of catching up to IBM. Like IBM, Fujitsu competed
primarily as a mainframe computer maker.

14:24

In doing so, it failed to notice that the mainframe business had reached maturity by 1990 and was no
longer growing.

14:35

The second strategy to avoid is hit another home run. If a company is successful because it pioneered
an extremely successful product, it tends to search for another super product that will ensure growth
and prosperity. Polaroid spent a lot of money developing an instant movie camera, but the public
ignored it in the favor of camcorder. The third strategy that needs to be avoided is arms race.
Entering into a spirited battle with another

15:04

a firm for increased market share might increase sales revenue. But that increase will probably be
more than offset by increases in advertising, promotion, R&D, and manufacturing costs. In the
deregulation of airlines, price wars and rate specials have contributed to the low profit margins and
bankruptcies of many major airlines, such as Eastern, Pan-American, Continental, and United.

15:34

The fourth strategy that needs to be avoided is do everything. When faced with several integrating
opportunities, management might tend to leap at all of them. At first, a corporation might have
enough resources to develop each idea into a project, but money, time, and energy are soon
exhausted as the many projects demand large infusion of resources. The Walt Disney Company's
expertise in the entertainment industry led it to acquire the ABC Network.

16:02

As the company churned out new motion pictures and television programs such as, Who Wants to Be
a Millionaire? It spent $750 million to build new theme parks and buy a cruise line and a hockey
team. By 2000, even though corporate sales had continued to increase, net income was falling. The
last strategy that needs to be avoided is losing time. A corporation might have invested so much in a
particular strategy that the top management is unwilling to accept its failure.

16:30

Believing that it has too much invested to quit, management may continue to throw good money
after bad. Pan American Airlines, for example, choose to sell its Pan Am building and intercontinental
hotels, the most profitable parts of the corporation, to keep its money losing airline fly. Continue to
suffer losses, the company followed this profit strategy of shedding assets for cash until it had sold
off everything and went bankrupt.

17:01

During the class discussion, we will review and understand the relationship among businesses,
corporate, and functional strategies of a model.