Strategies in Action

Topics to be covered

Long-Term Objectives
Types of Strategies
Integration Strategies
Intensive Strategies
Diversification Strategies
Defensive Strategies
Strategies in Action

Strategies for taking the hill won’t

necessarily hold it. –
Amar Bhide

The early bird may get the worm, but the

second mouse gets the cheese. –
Unknown
Strategies in Action

Companies Embrace Strategic Planning

-- Quest for higher revenues

-- Quest for higher profits

Long-Term Objectives

• Results expected from pursuing certain

strategies
• Strategies represent actions to
accomplish long-term objectives
Long-Term Objectives

Objectives --

Quantifiable
Measurable
Realistic
Understandable
Challenging
Long-Term Objectives

Strategists Should Avoid --

Managing by Extrapolation
Managing by Crisis
Managing by Subjectives
Managing by Hope
Financial vs. Strategic Objectives

Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher earnings per share
Improved cash flow
Financial vs. Strategic Objectives

Strategic Objectives
Larger market share
Quicker on-time delivery than rivals
Quicker design-to-market times than rivals
Lower costs than rivals
Higher product quality than rivals
Wider geographic coverage than rivals
Financial vs. Strategic Objectives

Trade-Off
Maximize short-term financial objectives – harm
long-term strategic objectives
Pursue increased market share at the expense
of short-term profitability
Tradeoffs related to risk of actions; concern for
business ethics; need to preserve natural
environment; social responsibility issues
Types of Strategies
Corp
A Large Company Level

Division Level

Functional Level

Operational Level
Types of Strategies

A Small Company
Company
Level

Functional Level

Operational Level
Types of Strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

Horizontal
Integration
Vertical Integration Strategies

Gain Control Over --

Distributors
Suppliers
Competitors
Forward Integration Strategies

Gain Control Over --

Distributors
Retailers
Forward Integration Strategies

Guidelines --
Current distributors – expensive or unreliable
Availability of quality distributors – limited
Firm competing in industry expected to grow
markedly
Firm has both capital & HR to manage new
business of distribution
Current distributors have high profit margins
Backward Integration Strategies

Ownership or Control --

Firm’s suppliers
Backward Integration Strategies

Guidelines --
Current suppliers – expensive or unreliable
# of suppliers is small; # of competitors is large
High growth in industry sector
Firm has both capital & HR to manage new
business
Stable prices are important
Current suppliers have high profit margins
Horizontal Integration Strategies

Ownership or Control --

Firm’s competitors
Horizontal Integration Strategies

Guidelines --
Gain monopolistic characteristics w/o federal
government challenge
Competes in growing industry
Increased economies of scale – major competitive
advantages
Faltering due to lack of managerial expertise or
need for particular resource
Types of Strategies

Market
Penetration

Intensive Market
Strategies Development

Product
Development
Intensive Strategies

Intensive Efforts --

Improve competitive position with

existing products
Market Penetration Strategies

Increased Market Share --

Present products/services
Present markets
Greater marketing efforts
Market Penetration Strategies

Guidelines --
Current markets not saturated
Usage rate of present customers can be increased
significantly
Shares of competitors declining; industry sales
increasing
Increased economies of scale provide major
competitive advantage
Market Development Strategies

New Markets --

Present products/services to new

geographic areas
Market Development Strategies

Guidelines --
New channels of distribution – reliable, inexpensive,
good quality
Firm is successful at what it does
Untapped/unsaturated markets
Excess production capacity
Basic industry rapidly becoming global
Product Development Strategies

Increased Sales --

Improving present products/services

Developing new products/services
Product Development Strategies

Guidelines --
Products in maturity stage of life cycle
Industry characterized by rapid technological
development
Competitors offer better-quality products @
comparable prices
Compete in high-growth industry
Strong R&D capabilities
Types of Strategies

Related
Diversification

Diversification
Strategies

Unrelated
Diversification
 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
 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
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
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
• An organization has a strong management
team
 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
Conglomerate Diversification Strategies
(Adding new & unrelated product)

Guidelines --

Declining annual sales & profits

Capital & managerial ability to compete in new
industry
Current markets for present products - saturated
 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
 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
 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
 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
 Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation
 Retrenchment Strategies

Regrouping --

Cost & asset reduction to reverse

declining sales & profit
 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
 Divestiture Strategies

Selling a division or part of an

organization
 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 misfit with organization
Large amount of cash is needed and cannot be
raised through other sources
 Liquidation Strategies

Selling

Company’s assets, in parts, for

their tangible worth
Liquidation Strategies

Guidelines --

Retrenchment & divestiture failed

Only alternative is bankruptcy
Minimize stockholder loss by selling firm’s assets