بسم الله الرحمن الرحيم
Strategies in Action
Qualities of Long-Term Objectives : There are five criteria that should be used in preparing long-term objectives : Flexible, Measurable, Motivating, Suitable, Understandable.
Long-term objectives are necessary : Corporate , Business / Divisional ,Functional levels .
Strategists should avoid : Managing by Extrapolation , Managing by Crisis , Managing by Subjective , Managing by Hope .
Types of strategies
1. Integration Strategies . Vertical Integration strategies (Forward Integration , Backward Integration , Horizontal Integration ) .
Vertical Integration strategies :
# Running after Controlling between raw-materials ( suppliers ) and products marketing( distributors ) .
# Allow a firm to gain control over : Distributors , Suppliers , competitors .
Forward Integration : Gaining ownership or increased control over distributors or retailers .
Backward Integration : Seeking ownership or increased control of a firm’s suppliers .
Horizontal Integration :
- When a firm’s long-term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production-marketing chain, its grand strategy is called horizontal integration
- Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets
- Seeking ownership or increased control over competitors .
2. Michael Porter’s Generic Strategies .
Overall Cost Leadership Strategies : Pursued in conjunction with differentiation , Economies or diseconomies of scale , Capacity utilization achieved , Linkages with suppliers and distributors .
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 .
Differentiation Strategies : Greater product flexibility , Greater compatibility , Lower costs , Improved service , Greater convenience , More features , Allow firm to charge higher price , Gain customer loyalty .
Focus Strategies : Industry segment of sufficient size , Good growth potential , Not crucial to success of major competitors , Consumers have distinctive preferences , Rival firms not attempting to specialize in the same target segment .
3. Intensive Strategies . Market Penetration , Market Development , Product Development .
Intensive strategies : Require intensive efforts to improve a firm’s competitive position with existing products .
Market Penetration : Seeking increased market share for present products or services in present markets through greater marketing efforts .
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 .
Market Development : Introducing present products or services into new geographic area .
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 .
Product Development : Seeking increased sales by improving present products or services or developing new ones .
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 .
4. Diversification Strategies . Concentric Diversification , Conglomerate Diversification , Horizontal Diversification .
Diversification strategies : Becoming less popular as organizations are finding it more difficult to manage diverse business activities .
Concentric Diversification :
- Adding new, but related, products or services .
- involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products
- The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk .
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 .
Conglomerate Diversification : Adding new, unrelated products or services .
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 .
Horizontal Diversification : Adding new, unrelated products or services for present customers .
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 /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 .
5. Defensive Strategies . Retrenchment , Divestiture , Liquidation .
Retrenchment : Regrouping through cost and asset reduction to reverse declining sales and profit .
Guidelines for Retrenchment :
- Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies
- Firm is one of the weaker competitors
- Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.
- When an organization’s strategic managers have failed
- Very quick growth to large organization where a major internal reorganization is needed .
Divestiture : Selling a division or part of an organization .
Guidelines for Divestiture :
- When firm has pursued retrenchment but failed to attain needed improvements
- When a division needs more resources than the firm can provide
- When a division is responsible for the firm’s overall poor performance
- When a division is a misfit with the organization
- When a large amount of cash is needed and cannot be obtained from other sources.
Liquidation: Selling all of a company’s assets, in parts, for their tangible worth .
Guidelines for Liquidation :
- When both retrenchment and divestiture have been pursued unsuccessfully
- If the only alternative is bankruptcy, liquidation is an orderly alternative
- When stockholders can minimize their losses by selling the firm’s assets
Means for Achieving Strategies
1. Joint Venture Strategy . Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.
2. Cooperative Arrangements :
- Research and development partnerships
- Cross-distribution agreements
- Cross-licensing agreements
- Cross-manufacturing agreements
- Joint-bidding consortia
3. Problems Causing Joint Ventures to Fail :
- Managers who must collaborate daily not involved in forming or shaping the venture
- Venture may benefit the companies but not the customers
- Venture not supported equally by both partners
- Venture may begin to compete with one of the partners more so than the other
Guidelines for Joint Ventures :
- Combination of privately held and publicly held can be synergistically combined
- Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks
- Distinctive competencies of two or more firms are complementary
- Overwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline)
- Two or more smaller firms have trouble competing with larger firm
- A need exists to introduce a new technology quickly