Chapter 5

Strategies in Action

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Long Term Objectives
 Objectives are commonly stated in terms such as
growth in assets, growth in sales, profitability,
market share, degree and nature of diversification,
degree and nature of vertical integration,
earnings per share, and social responsibility.
 Clearly established objectives offer many benefits.
They provide direction, allow synergy, aid in
evaluation, establish priorities, reduce uncertainty,
minimize conflicts, stimulate exertion, and aid in
both the allocation of resources and the design of
jobs.
 Long-term objectives are needed at the corporate,
divisional, and functional levels in an organization
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Long Term Objectives

 Quantitative  Challenging

 Measurable  Hierarchical

 Realistic  Obtainable

 Understandable  Congruent
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Long Term Objectives
 Performance goals of an organization, intended
to be achieved over a period of five years or
more.
 Long-term objectives usually include specific
improvements in the organization's competitive
position, technology leadership, profitability,
return on investment, employee relations and
productivity, and corporate image

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Long Term Business and Marketing Goals

 Increasing Sales
 Brand Recognition
 Creating a stellar reputation
 Grow Social Media Following
 Get on the First Page of Google
 Host Promotional Events

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Financial vs. Strategic Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Larger profit margins
Greater ROI
Higher earnings per share
Rising stock price
Improved cash flow
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Balance Score Card
The Balanced Scorecard The balanced scorecard (BSC)
(or balance score card) is a
is a strategic performance strategic planning and manage
measurement model ment
which is developed by system that organizations use
Robert Kaplan and David to:
Norton. Its objective is to •Communicate what they are
translate an organization's trying to accomplish
mission and vision into •Align the day-to-day work that
actual (operational) everyone is doing with strategy
actions (strategic •Prioritize projects, products,
planning). and services
•Measure and monitor progress
towards
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Education, Inc. targetsCh 5 -9
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Balance Score Card

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Types of Strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

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Vertical Integration Strategies
Forward Gaining ownership or increased
Integration control over distributors or retailers

Backward Seeking ownership or increased

Integration control of a firm’s suppliers

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Types of Strategies

Market
Penetration

Intensive Market
Strategies Development

Product
Development

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Intensive Strategies
Seeking increased market share for
Market present products or services in
Penetration present markets through greater
marketing efforts

Market Introducing present products or

Development services into new geographic areas

Seeking increased sales by

Product
improving present products or
Development services or developing new ones

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Types of Strategies

Related
Diversification

Diversification
Strategies

Unrelated
Diversification

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Diversification Strategies

Related Adding new but related products or

Diversification services

Unrelated
Adding new, unrelated products or
Diversification services

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Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation

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Defensive Strategies
Regrouping through cost and asset
Retrenchment reduction to reverse declining sales
and profit

Divestiture Selling a division or part of an

organization

Selling all of a company’s assets, in

Liquidation parts, for their tangible worth

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The three levels of strategy are:

•Corporate level strategy: This level

answers the foundational question of
what you want to achieve. ...
•Business unit level strategy: This
level focuses on how you're going to
compete.
•Market level strategy: This strategy
level focuses on how you're going to
grow.
Types of corporate strategy:

There are four main types of growth

strategies: horizontal integration,
vertical integration, diversification and
market penetration.
Types of business unit level strategy:

There are four generic strategies that are used to help organizations
establish a competitive advantage over industry rivals.
Types of business unit level strategy:

There are four generic strategies that are used to help organizations
establish a competitive advantage over industry rivals.

1. Cost Leadership – Organizations compete for a wide customer based

on price. Price is based on internal efficiency in order to have a margin
that will sustain above average returns and cost to the customer so that
customers will purchase your product/service. Works well when
product/service is standardized, can have generic goods that are
acceptable to many customers, and can offer the lowest price.
Continuous efforts to lower costs relative to competitors is necessary in
order to successfully be a cost leader. This can include:

Ex. Building state of art efficient facilities (may make it costly for
competition to imitate)
Maintain tight control over production and overhead costs
Minimize cost of sales, R&D, and service.
Types of business unit level strategy:

There are four generic strategies that are used to help organizations
establish a competitive advantage over industry rivals.

2. Differentiation - Value is provided to customers through unique

features and characteristics of an organization's products rather than by
the lowest price. This is done through high quality, features, high
customer service, rapid product innovation, advanced technological
features, image management, etc. (Some companies that follow this
strategy: Rolex, Intel, Ralph Lauren)

Create Value by:

Lowering Buyers' Costs – Higher quality means less breakdowns, quicker
response to problems.
Raising Buyers' Performance – Buyer may improve performance, have
higher level of enjoyment.
Sustainability – Creating barriers by perceptions of uniqueness and
reputation, creating high switching costs through differentiation and
uniqueness.
Types of business unit level strategy:

There are four generic strategies that are used to

help organizations establish a competitive
advantage over industry rivals.

3. Focused Low Cost- Organizations not only

compete on price, but also select a small
segment of the market to provide goods and
services to.

For example a company that sells only to the

U.S. government.
Types of business unit level strategy:

There are four generic strategies that are used to help organizations
establish a competitive advantage over industry rivals.

4. Focused Differentiation - Organizations not only compete based on

differientation, but also select a small segment of the market to provide
goods and services.

Focused Strategies - Strategies that seek to serve the needs of a

particular customer segment.

Companies that use focused strategies may be able serve the smaller
segment (e.g. business travelers) better than competitors who have a
wider base of customers. This is especially true when special needs
make it difficult for industry-wide competitors to serve the needs of this
group of customers. By serving a segment that was previously poorly
segmented an organization has unique capability to serve niche.
Types of business unit level strategy:

There are four generic strategies that are used to help organizations
establish a competitive advantage over industry rivals.

5. Using an Integrated Low-Cost/Differentiation Strategy

This new strategy may become more popular as global competition

increases. Firms that use this strategy may see improvement in their
ability to:
Adaptability to environmental changes.
Learn new skills and technologies
More effectively leverage core competencies across business units and
products lines which should enable the firm to produce with differentiated
features at lower costs.
Thus the customer realizes value based both on product features and a
low price.

Ex. Southwest airlines is one example of a company that does uses this
strategy.
Types of Market level strategy:

•Market penetration
•Product development
•Market development
•Diversification
Levels of Strategies –
Large Company

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Levels of Strategies –
Small Company

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 RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
WEAK 7. Concentric diversification
STRONG
COMPETITIVE COMPETITIVE
POSITION Quadrant III Quadrant IV
POSITION
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate
4. Conglomerate diversification
diversification 4. Joint ventures
5. Liquidation
SLOW MARKET GROWTH
30
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0 .50 0.0

High
+20
Industry Sales Growth Rate

Stars Question Marks

II IS, MP, I MP, MD,
MD, PD, PD,
Divestiture
Medium
0

Cash Cows Dogs

R,D,L
III PD, IV
Diversifica
Low tion, R, D
-20
31