Lecture 12 Strategies in Action Lecture Outline LongTerm

Lecture 12 Strategies in Action

Lecture Outline • Long-Term Objectives • Types of Strategies • Integration Strategies

Lecture Outline • Intensive Strategies • Diversification Strategies • Defensive Strategies • Means for Achieving Strategies

Lecture Outline • Michael Porter’s Generic Strategies • Strategic Management in Nonprofit and Governmental Organizations • Strategic Management in Small Firms

Strategies in Action Even if you’re on the right track, you’ll get run over if you just sit there. -- Will Rogers

Strategies in Action Hundreds of companies today – • Embrace strategic planning Quest for higher revenues • Quest for higher profits •

Long-Term Objectives • The results expected from pursuing certain strategies

Long-Term Objectives – – – – – Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line

Long-Term Objectives Long-term objectives are necessary – – Corporate – Divisional – Functional levels

Long-Term Objectives Strategists should avoid – – Managing by Extrapolation – Managing by Crisis – Managing by Subjectives – Managing by Hope

Integration Strategies Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration

Integration Strategies Vertical Integration strategies – – Allow a firm to gain control over: • Distributors • Suppliers • competitors

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

Integration Strategies Guidelines for Forward Integration – § § § Present distributors are expensive, unreliable, or incapable of meeting firm’s needs Availability of quality distributors is limited When firm competes in an industry that is expected to grow markedly Organization has both capital and human resources needed to manage new business of distribution Advantages of stable production are high Present distributors have high profit margins

Integration Strategies Backward Integration – – Seeking ownership or increased control of a firm’s suppliers

Integration Strategies Guidelines for Backward Integration – § § § When present suppliers are expensive, unreliable, or incapable of meeting needs Number of suppliers is small and number of competitors large High growth in industry sector Firm has both capital and human resources to manage new business Advantages of stable prices are important Present supplies have high profit margins

Integration Strategies Horizontal Integration – – Seeking ownership or increased control over competitors

Integration Strategies Guidelines for Horizontal Integration – Firm can gain monopolistic characteristics without being challenged by federal government § Competes in growing industry § Increased economies of scale provide major competitive advantages § Faltering due to lack of managerial expertise or need for particular resources §

Michael Porter’s Generic Strategies Cost Leadership Strategies Differentiation Strategies Focus Strategies

Generic Strategies Cost Leadership Strategies – Pursued in conjunction with differentiation § Economies or diseconomies of scale § Capacity utilization achieved § Linkages with suppliers and distributors §

Generic Strategies Low Cost Producer Advantages – Market of many price-sensitive buyers § Few ways of achieving product differentiation § Buyers not sensitive to brand differences § Large number of buyers with bargaining power §

Generic Strategies Differentiation Strategies – § § § Greater product flexibility Greater compatibility Lower costs Improved service Greater convenience More features

Generic Strategies Differentiation Strategies – Allow firm to charge higher price § Gain customer loyalty §

Generic Strategies Focus Strategies – Industry segment of sufficient size § Good growth potential § Not crucial to success of major competitors §

Generic Strategies Focus Strategies – Consumers have distinctive preferences § Rival firms not attempting to specialize in the same target segment §

Intensive Strategies Market Penetration Intensive Strategies Market Development Product Development

Intensive Strategies Intensive strategies – – Require intensive efforts to improve a firm’s competitive position with existing products

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

Intensive Strategies Guidelines for Market Penetration – Current markets not saturated § Usage rate of present customers can be increased significantly § Market shares of competitors declining while total industry sales increasing § Increased economies of scale provide major competitive advantages §

Intensive Strategies Market Development – – Introducing present products or services into new geographic area

Intensive Strategies Guidelines for Market Development – § § § New channels of distribution that are reliable, inexpensive, and good quality Firm is very successful at what it does Untapped or unsaturated markets Capital and human resources necessary to manage expanded operations Excess production capacity Basic industry rapidly becoming global

Intensive Strategies Product Development – – Seeking increased sales by improving present products or services or developing new ones

Intensive Strategies Guidelines for Product Development – § § § Products in maturity stage of life cycle Competes in industry characterized by rapid technological developments Major competitors offer better-quality products at comparable prices Compete in high-growth industry Strong research and development capabilities

Diversification Strategies Concentric Diversification Strategies Conglomerate Diversification Horizontal Diversification

Diversification Strategies Diversification strategies – – Becoming less popular as organizations are finding it more difficult to manage diverse business activities

Diversification Strategies Concentric Diversification – – Adding new, but related, products or services

Diversification Strategies Guidelines for Concentric Diversification – § § § Competes in no- or slow-growth industry Adding new & related products increases sales of current products New & related products offered at competitive prices Current products are in decline stage of the product life cycle Strong management team

Diversification Strategies Conglomerate Diversification – – Adding new, unrelated products or services

Diversification Strategies Guidelines for Conglomerate Diversification – Declining annual sales and profits § Capital and managerial talent to compete successfully in a new industry § Financial synergy between the acquired and acquiring firms § Exiting markets for present products are saturated §

Diversification Strategies Horizontal Diversification – – Adding new, unrelated products or services for present customers

Diversification Strategies Guidelines for Horizontal Diversification – Revenues from current products/services would increase significantly by adding the new unrelated products § Highly competitive and/or no-growth industry w/low margins and returns § Present distribution channels can be used to market new products to current customers § New products have counter cyclical sales patterns compared to existing products §

Thank You