Week 8

Business Strategies

1
 Session Objectives

1. Setting your dominant long term

objective.
2. Define the 3 generic (drivers) of effective
competitive strategies.
3. Define and clarify 15 recurring grand
strategies.

2
 Long-Term Objectives
Short-run profit maximization is rarely the best
approach to achieving sustained corporate
growth and profitability
Types of Long Term Objectives:
– Profitability – Productivity
– Competitive Position – Employee development
– Employee Relations – Productivity
– Tech Leadership – Public Responsibility

3
 Usage Frequencies of Long
Term Objectives
(N = 82)
Profitability 89%
Growth 82
Market Share 66
Social Responsibility 65
Employee Welfare 62
Product/Service Quality 60
R&D 54
Diversification 51
Efficiency 50 4
 Qualities of Long-Term
Objectives
Acceptable

Achievable Flexible
Criteria used
in preparing
Understandable objectives Measurable

Suitable Motivating
5
 Forces Driving Industry
Competition
Potential
entrants
Threat of
new entrants
Bargaining power Industry Bargaining power
of suppliers competitors of buyers

Suppliers Buyers
Rivalry Among
Existing Firms
Threat of substitute
products or services

Substitutes 6
 Generic Strategies
A long-term BL strategy must be
based on a core idea about how
the firm can best compete in the
marketplace. The popular term
for this core idea is generic
strategy.

7
 Three Generic Strategies

Low-cost
leadership

Differentiation Focus

8
 3 Generic Strategies

1.Striving for overall low-cost leadership in the

industry.
2.Striving to create and market unique products
for varied customer groups through
differentiation.
3.Striving to have special appeal to one or more
groups of consumers or industrial buyers,
focusing on their cost or differentiation
concerns

9
 Low-Cost Leadership
Low-cost producers usually excel at cost
reductions and efficiencies
They maximize economies of scale,
implement cost-cutting technologies,
stress reductions in overhead and in
administrative expenses, and use
volume sales techniques to propel
themselves up the earning curve
A low-cost leader is able to use its cost
advantage to charge lower prices or to enjoy
higher profit margins

10
 Differentiation
Strategies dependent on differentiation are
designed to appeal to customers with a special
sensitivity for a particular product attribute
By stressing the attribute above other product
qualities, the firm attempts to build customer
loyalty
Often such loyalty translates into a firm’s ability to
charge a premium price for its product
The product attribute also can be the marketing
channels through which it is delivered, its image
for excellence, the features it includes, and its
service network

11
 Focus
A focus strategy, whether anchored in a low-cost
base or a differentiation base, attempts to attend to
the needs of a particular market segment
A firm pursuing a focus strategy is willing to service
isolated geographic areas; to satisfy the needs of
customers with special financing, inventory, or
servicing problems; or to tailor the product to the
somewhat unique demands of the small- to medium-
sized customer
The focusing firms profit from their willingness to
serve otherwise ignored or underappreciated
customer segments

12
 For each of the Three

Requirements
– Skills/resources
– Organizational

Risks

13
 Requirements for Generic
Competitive Strategies
Generic Commonly Required Skills
Strategy and Resources
• Sustained capital investment and
access to capital
• Process engineering skills
Overall cost • Intense supervision of labor
leadership
• Products designed for ease in
manufacture
• Low-cost distribution system
• Strong marketing abilities
• Product engineering
• Creative flare
Differentia- • Strong capability in basic research
tion • Corporate reputation for quality or
technological leadership
• Unique combination of skills
• Strong cooperation from channels
• Combination of above policies
Focus directed at the particular strategic
target
Common Organizational
Requirements
• Tight cost control
• Frequent, detailed control reports
• Structured organization and
responsibilities
• Incentives based on meeting strict
quantitative targets
• Strong coordination among
functions in R&D, product
development, and marketing
• Subjective measurement and
incentives instead of quantitative
measures
• Amenities to attract highly skilled
labor, scientists, or creative people
• Combination of above policies
directed at the regular strategic
target
14
Risks of the Generic Strategies
Risks of Cost
Risks of Differentiation Risks of Focus
Leadership
Cost of leadership is not Differentiation is not Focus strategy is
sustained sustained imitated
• Competitors imitate • Competitors imitate Target segment becomes
• Technology changes • Bases for unattractive
• Other bases for cost differentiation • Structure erodes
leadership erode become less important
to buyers • Demand disappears
Broadly targeted
Proximity in competitors overwhelm
differentiation is lost Cost proximity is lost
segment
• Segment’s differences
from others narrow
Cost focusers achieve Differentiation focusers • Advantages of broad
even lower cost in achieve greater line increase
segments differentiation in
segments
15
 Types of Grand Strategies
Concentrated
ConcentratedGrowth
Growth Conglomerate
ConglomerateDiversification
Diversification

Market
MarketDevelopment
Development Turnaround
Turnaround

Product
ProductDevelopment
Development Divestiture
Divestiture

Innovation
Innovation Liquidation
Liquidation

Horizontal
HorizontalIntegration
Integration Bankruptcy
Bankruptcy

Vertical
VerticalIntegration
Integration Joint
JointVentures
Ventures

Concentric
ConcentricDiversification
Diversification Strategic
StrategicAlliances
Alliances

Consortia
Consortia 16
 Concentrated Growth
A grand strategy in which a firm
directs its resources to the
profitable growth of a single
product, in a single market, with a
single dominant technology.

17
 Example 1
In 2011, McDonald’s uses promotional
campaign “Monopoly” to increase the rate
of use of their current customers. If you
make a game out of it, people will
purchase your products to play.
http://www.associatedcontent.com/article/6
239272/increasing_your_sales_using_con
centrated.html?cat=
3
 Example 2
Paypal revolutionized financial services
through its on-line person-to-person (P2P)
money transfer service. Paypal’s growth
strategy is to increase its customer base
and sales through focusing on its online
payment market.
http://www.ibscdc.org/businesscasebooks-
pdfs/Growth%20Stratiges%20Vol.%
20II.pdf
 Market Development
A grand strategy of marketing
present products. Often with
only cosmetic modification, to
customers in related
marketing areas.

20
 Example 1
Pacific Andes achieved considerable
growth in seafood and vegetable business
within a short span expanding into other
countries. It also increased its global
market share and gained a sustainable
competitive advantage through synergy.
http
://www.ibscdc.org/businesscasebooks-pdfs/
Growth%20Stratiges%20Vol.%
20II.pdf
 Example 2
Toyota expanded its presence in the
European car market. Toyota succeeded in
localizing its strategies in tune with the needs
of the European car market. Toyota also
analyzed its strategy in Europe in the wake of
currency fluctuations and the new needs of
the market.
http://www.ibscdc.org/businesscasebooks-pd
fs/Growth%20Stratiges%20Vol.%
20II.pdf
 Product Development

A grand strategy that

involves the substantial
modification of existing
products that can be
marketed to current
customers.

23
 Example 1
The entire Nikon group is implementing the
“Nikon Product Assessment” to create new
products which offer enhanced power
consumption efficiency, are smaller and
lighter, use less harmful substances, and
utilise Eco-glass.
http://www.nikon.com/about/csr/report/2004/
eco_e_09.
pdf
 Innovation

A grand strategy that seeks to

reap the premium margins
associated with creation and
customer acceptance of a new
product or service.
25
 Example 1
Apple is one of the most creative
companies in the world. It designs and
launches every Mac, iPhone, iPad. Its
innovation on electronic products is so
successful that everyone wants to own the
new Apple products.
 Example 2
Google’s most recent innovation is on the
Android OS for smartphones. It will
challenge Apple's iPhone in the hotly
competitive world of mobile devices.
http://money.cnn.com/magazines/fortune/
mostadmired/2010/snapshots/11207.
html
 Example 2
Google’s most recent innovation is on the
Android OS for smartphones. It will
challenge Apple's iPhone in the hotly
competitive world of mobile devices.
http://money.cnn.com/magazines/fortune/
mostadmired/2010/snapshots/11207.
html
 Horizontal Integration
A grand strategy based on
growth through the acquisition
of similar firms operating at the
same stage of the production-
marketing chain.
 Example 1

USAirways merging with

Piedmont Airlines

30
 Example 3
Exxon Acquiring
Mobil in 2000 for
$85.1 Billion
 Vertical Integration
A grand strategy based on the acquisition of firms
that supply the acquiring firm with inputs or new
customers for its outputs.
Backward VI is the desire to increase the
dependability of the supply or quality of the raw
materials used as production inputs
Forward VI is the desire to gain greater control of
the distribution/marketing/selling/service of
products or services

32
 Example 1
AT&T has ownership over companies that
transmit equipments, including stations, cable
lines, telephones, etc. which tremendously
helped AT&T in providing one stop services
and products. Without paying AT&T for its
entitled infrastructure, other companies would
never be able to use or provide similar services
or products which AT&T is said to be a
“dominating winning mix”.
http://ccit300.wikispaces.com/Horizontal+
Integration
 Example 2
Starbucks originally started as a roaster and
retailer of coffee-beans, when its founder,
Howard Schultz joined the company as a
young salesman. The company is
immensely vertically integrated for one
purpose alone, maintaining perfect quality
throughout the value-chain.
http://www.techiteasy.org/2007/07/28/starbu
cks-an-example-of-vertical-integration
/
 Example 3
Apple figured out how to link the content, the
hardware, the software, and the pricing and
distribution mechanisms, all more or less under
one company's control. However, Apple is
controlling the parts of the operation that touch
customer experience. Apple aggressively uses
contract manufacturing rather than having to
manage everything itself. Apple has dug even
deeper into vertical integration by announcing
that it now intends to design the very chips that
go into some of its products.
http://blogs.hbr.org/hbr/mcgrath/2009/12/vertica
l-integration-can-work.html
Vertical and Horizontal Integration

36
 Concentric Diversification
Concentric diversification involves the
acquisition of businesses that are related to
the acquiring firm in terms of technology,
markets, or products
With this grand strategy, the selected new
businesses possess a high degree of
compatibility with the firm’s current businesses
The ideal concentric diversification occurs
when the combined company profits increase
the strengths and opportunities and decrease
the weaknesses and exposure to risk
37
 Example 1
The recent entry of Bell Atlantic
Corporation, a telephone company, into
the video programming business.
http://bizcovering.com/management/busin
ess-strategies-in-action/#ixzz1bC3scaBo
 Example 2
Dell Computers is pursing concentric
diversification by manufacturing and marketing
consumer electronic products (Flat Panel TVs,
MP3 players, online music-downloading store.)
This is an example of Personal computer
business becoming more aligned with the
entertainment business because both are
becoming more and more digital.
thinkpositive.ciprasystems.com/Admin/Commo
n/163.ppt
 Example 3
Bill Gates (sorry - ahem - MS) bought
Hotmail, which added a valuable e-mail
service to the other internet activities and
brought Microsoft a bright future.
http://www.thinkingmanagers.com/managem
ent/business-diversity.php
Conglomerate Diversification
Occasionally a firm, particularly a very large
one, plans to acquire a business because it
represents the most promising investment
opportunity available. This grand strategy is
commonly known as conglomerate
diversification.
The principal concern of the acquiring firm is
the profit pattern of the venture
Unlike concentric diversification, conglomerate
diversification gives little concern to creating
product-market synergy with existing
businesses

41
 Example 1
General Electric is an example of a firm
that is highly diversified. GE makes
locomotives, light bulbs, and refrigerators.
GE manages more credit cards than
American Express. GE owns more aircraft
that American Airlines.
http://bizcovering.com/management/busin
ess-strategies-in-action/#ixzz1bC4CLca9
 Example 2
ITC, a primarily cigarette company, is
pursing conglomerate diversification by
entering into hotel industry.
thinkpositive.ciprasystems.com/Admin/Co
mmon/163.ppt
 Example 3
ESSAR GROUP is pursing conglomerate
diversification by entering into these fields:
iron and steel, oil support services,
shipping, and marine constructions.
thinkpositive.ciprasystems.com/Admin/Co
mmon/163.ppt
 Turnaround
The firm finds itself with declining profits
Among the reasons are economic recessions,
production inefficiencies, and innovative
breakthroughs by competitors
Strategic managers often believe the firm can
survive and eventually recover if a concerted
effort is made over a period of a few years to
fortify its distinctive competences. This is
turnaround.
Two forms of retrenchment:
– Cost reduction
– Asset reduction

45
 Divestiture
A divestiture strategy involves the sale
of a firm or a major component of a firm
When retrenchment fails to accomplish
the desired turnaround, or when a
nonintegrated business activity achieves
an unusually high market value, strategic
managers often decide to sell the firm
Reasons for divestiture vary

46
 Liquidation
When liquidation is the grand strategy,
the firm typically is sold in parts, only
occasionally as a whole—but for its
tangible asset value and not as a going
concern
Planned liquidation can be worthwhile

47
 Bankruptcy
Liquidation (Chapter 7) bankruptcy—agreeing
to a complete distribution of firm assets to
creditors, most of whom receive a small
fraction of the amount they are owed
Reorganization (Chapter 11) bankruptcy
—the managers believe the firm can
remain viable through reorganization

48
 Joint Ventures
Occasionally two or more capable firms lack a
necessary component for success in a
particular competitive environment
The solution is a set of joint ventures, which
are commercial companies (children) created
and operated for the benefit of the co-owners
(parents)
The joint venture extends the supplier-
consumer relationship and has strategic
advantages for both partners
49
 Strategic Alliances
Strategic alliances are distinguished
from joint ventures because the
companies involved do not take an
equity position in one another
In some instances, strategic alliances are
synonymous with licensing agreements
Outsourcing arrangements vary

50
 Session Objectives

1. Setting your dominant long term

objective.
2. Define the 3 generic (drivers) of effective
competitive strategies.
3. Define and clarify 15 recurring grand
strategies.

51