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balance financial measures, strategy evaluation and control with nonfinancial measures such as product quality and customer
service
o Chosen combination of financial and strategic objectives tailored to the companys business
o balance shareholder objectives with customer and operational objectives, consistent with the notions of continuous improvement in
management and total quality management
o Financial measures, softer factors comprise an important part of both the objective-setting process and strategy evaluation process
o Listing of all key objectives, associated time dimension of each objective and primary responsibility or contact person, department or
division for each objective
Types of Strategies
o Combination strategy two or more strategies, exceptionally risky if carried too far
o Priority must be established.
o choices that risk resources and trade-offs that sacrifice opportunity, spend resources and focus on a finite number of opportunities
o Strategic planning wager based on predictions and hypothesis that are continually tested and refined by knowledge, research
experience and learning
o Large diversified companies different divisions pursue different strategies
o Struggling to survive defensive strategies such as divestiture, liquidation and retrenchment
o Levels of Strategies:
Four levels of strategies (large firms):
Corporate
Divisional
Functional
Operational
Three levels of strategies (small firms):
Company
Functional
Operational
See Figure 5-2, page 170
Integration Strategies
o Forward Integration
Gaining ownership or increased control over distributors or retailers
Establishing Web sites to directly sell to customers
Microsoft: what the customers want and how they buy, shareholders agree but existing retail partners would not
Franchising distribute products and services, expand rapidly because costs and opportunities are spread; growing rift
between franchisees and franchisers
Six Guidelines:
Distributors are expensive, unreliable or incapable of meeting the firms distribution needs
Availability of quality distributors is so limited
Competes in a growing industry and would continue to grow; forward integration reduces an organizations ability to
diversify if its basic industry falters
o
Possesses capital and human resources needed to manage the new business of distributing its own products
High advantages of stable production; increase predictability of the demand for its output through forward integration
Present distributors have high profit margins; price products competitively
o Backward Integration
Strategy of seeking ownership or increased control of a firms suppliers
De-integration
Seven Guidelines:
Present suppliers are expensive, unreliable or incapable of meeting the firms needs
Number of suppliers is small and the number of competitors is large
Growing industry; integrative-type strategies (forward, backward and horizontal) reduce an organizations ability to
diversify in a declining industry
Capital and human resources to manage the new business of supplying its own raw materials
Advantages of stable prices are important, stabilize cost of raw materials and products
Present supplies have high profit margins
Organization needs to quickly acquire a needed resource
o Horizontal Integration
Strategy of seeking ownership of or increased control over a firms competitors
Growth strategy
Mergers (direct competitors) create efficiencies than mergers (unrelated) because duplicate facilities could be
minimized/eliminated and more business industry knowledge
Five Guidelines:
Gain monopolistic characteristics without being challenged by the government to reduce competition
Competes in a growing industry
Increased economies of scale provide major competitive advantages
Has capital and human talent needed to manage an expanded organization
Competitors are faltering due to a lack of managerial expertise or a need for particular resources that an organization
possesses
Intensive Strategies require intensive efforts if a firms competitive position with existing products is to improve
o Market Penetration seeks to increase market share for present products or services in present markets through greater marketing
efforts (increasing number of salespersons, increasing advertising expenditures, offering extensive sales promotion items or
increasing publicity efforts)
Five Guidelines:
Current markets are not saturated with a particular product or service
Usage rate of present customers could increase significantly
Market shares of competitors declining, industry sales increasing
Correlation between dollar sales and dollar marketing expenditures has been high
Increased economies of scale provide major competitive advantages
o Market Development introducing present products or services into new geographic areas; unprofitable domestic routes to
international ones
Six guidelines:
New channels of distribution are reliable, inexpensive and of good quality
Successful organization
New untapped or unsaturated markets exist
Has the needed capital and human resources to manage expanded operations
Excess production capacity
Increasingly global industry
o Product Development seeks increased sales by improving or modifying present products and services; entails large research and
development expenditures
Five guidelines:
Successful products at the maturity stage, attract satisfied customers
Rapid technological advances (industry)
Competitors offer better quality products at comparable prices
High-growth industry
Strong R & D capabilities
Diversification Strategies
o General types: related ( value chain possess competitively valuable cross-business strategic fits) and unrelated (value chains are so
dissimilar that no competitively cross-business relationships exist)
Favor related diversification:
Transferring competitively valuable expertise, technological know-how or other capabilities from one business to
another
Combining the related activities to 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
Selling, closing, less profitable divisions to focus on core businesses
Risky single industry, all eggs in one basket; presence of new technologies, new products and customer preferences can
decimate a business
Add shareholder value, attractive to yield consistently high returns on investment, offer potential across the operating
divisions for greater synergies
stick to the knitting unattractive industry
o Related Diversification
Google Web search engine that sells advertising
Merck & Co. acquired rival Schering-Plough Corp., biotech, consumer health and animal health
Six guidelines:
No-growth or a slow-growth industry
Adding new related products could enhance sales of current products
New but related products could be offered at competitive prices
Products have seasonal sales levels
Current products are in the declining stage of their life cycle
Liquidation
Selling of a companys assets, in parts, for their tangible worth
Cease operating than to continue losing large sums of money
Bad planning and highly leveraged
Intense price competition, falling customer demand and economic distress
Three Guidelines:
Retrenchment, divestiture and still failed
Only alternative is bankruptcy, orderly and planned means of obtaining the greatest possible cash for the assets
Can minimize their losses by selling assets