Long term objectives and generic alternative strategies by pengxuebo


									      Strategic formulation
Strategy Formulation

                              Vision & Mission

                       External Opportunities & Threats

                       Internal Strengths & Weaknesses

                            Long-Term Objectives

                            Alternative Strategies

                              Strategy Selection
Strategies in Action

   Strategies for taking the hill won’t
   necessarily hold it. –
   Amar Bhide

   The early bird may get the worm, but the
   second mouse gets the cheese. –
Long-Term Objectives

• Results expected from pursuing certain strategies
• Strategies represent actions to accomplish long-term
• Objectives are commonly stated in terms such as
  growth in assets,
• growth in sales, profitability, market share, degree
  and nature of diversification.
• Long-term objectives are needed at the corporate,
  divisional, and functional levels in an organization.
Long-Term Objectives

Objectives --

Hierarchical: corporate/ divisional/functional
 Financial               v.    Strategic Objectives

Financial Objectives           Strategic Objectives

Growth in revenues           Larger market share
Growth in earnings           Quicker on-time delivery than rivals
Higher dividends             Quicker design-to-market times than
Higher profit margins
                              Lower costs than rivals
Higher earnings per
share                         Higher product quality than rivals
Improved cash flow           Wider geographic coverage than rivals
Financial vs. Strategic Objectives

It is a Trade-Off between both

Maximize short-term financial objectives – harm
long-term strategic objectives
Pursue increased market share at the expense
of short-term profitability
Tradeoffs related to risk of actions
   Types of Generic Strategies
• Integration Strategies: related to industrial
  value chain
• Intensive Strategies: markets size and
  market share
• Diversification Strategies: a movement into
  other business areas
• Defensive Strategies: related to those
  when company is in “trouble”
Types of Strategies


 Integration          Integration

Forward Integration Strategies

 Attempts to gain control over:
 Distributors and Retailers

 should be adopted when:
   Current distributors – expensive or unreliable
   Availability of quality distributors – limited
   Firm competing in industry expected to grow
   Firm has both capital & HR to manage new
   business of distribution
   Current distributors have high profit margins
Backward Integration
 Control of Firm’s suppliers
 should be adopted when:
   Current suppliers – expensive or unreliable
   # of suppliers is small; # of competitors is large
   High growth in industry sector
   Firm has both capital & HR to manage new
   Stable prices are important
   Current suppliers have high profit margins
Horizontal Integration
 Control of Firm’s Competitors
 should be adopted when:
   Gain “lawful” monopolistic characteristics with
   out government challenge
   Competes in growing industry
   Increased economies of scale – a major
   competitive advantage by increase in size
   Faltering due to lack of managerial expertise or
   need for particular resource
Types of Strategies


 Intensive              Market
 Strategies           Development

  Market Penetration Strategies: Increased
  Market Share of Present products/services
  or Present markets

Strategy should be adopted when :

 Current markets not saturated
 Rate of present customers can be increased
 Shares of competitors declining; industry sales
 Increased economies of scale (increase units of
 production cause reduction in average cost to
 produce a unit) provide major competitive advantage
  Market Development Strategies: New
  Markets -- Present products/services to
  new geographic areas
Strategy should be adopted when :

 New channels of distribution – reliable, inexpensive,
 good quality
 When Firm is successful at what it does
 Untapped/unsaturated markets
 Excess production capacity
 Basic industry rapidly becoming global
   Product Development Strategies:
   Increased Sales -- Improving present
   products/services or developing new
Strategy should be adopted when :
 Products in maturity stage of life cycle
 Industry characterized by rapid technological
 Competitors offer better-quality products @
 comparable prices
 Strong R&D capabilities
Types of Strategies



     Related Diversification Preferred
            To Capitalize on:
• Combining the related activities of
  separate businesses into a single
  operation to lower costs
• Cross-business collaboration to create
  competitively valuable resource strengths
  and capabilities
 Related Diversification May be Effective
• An organization competes in a no-growth
  or a slow growth industry
• New, but related, products have seasonal
  sales levels that counterbalance an
  organization’s existing peaks and valleys
• An organization’s products are currently in
  the declining stage of the product’s life
         Unrelated Diversification

• Favours capitalising on a portfolio of
  businesses that are capable of delivering
  excellent financial performance
• Entails hunting to acquire companies:
  – Whose assets are undervalued
  – That are financially distressed
  – With high growth potential but are short on
    investment capital
Unrelated Diversification May be Effective
• An organization’s current distribution channels
  can be used to market new products to existing
• An organization has the capital and managerial
  talent to compete successfully in a new industry
• An organization’s basic industry is experiencing
  declining annual sales and profits
• An organization has the opportunity to purchase
  an unrelated business as an attractive
  investment opportunity
Types of Strategies


 Defensive             Divestiture

       Defensive Strategies
 Retrenchment: reduce Costs & assets to
  reverse declining sales & profit
 Divesture: Selling a division or part
 of an organization
 Liquidation: Sell Company’s assets,
 in parts, for only their tangible worth;
 not for their copyrights …
Retrenchment Strategies
Guidelines --
 Failed to meet objectives & goals consistency; has
 distinctive competencies
 Firm is one of weaker competitors
 Inefficiency, low profitability, poor employee morale,
 pressure for stockholders
 Strategic managers have failed
 Rapid growth in size; major internal reorganization
Divestiture Strategies
Guidelines --
 Retrenchment failed to attain improvements
 Division needs more resources than are available
 Division responsible for firm’s overall poor
 Division is a mis-fit with organization
 Large amount of cash is needed and cannot be
 raised through other sources
Liquidation Strategies

Guidelines --

 Retrenchment & divestiture failed
 Only alternative is bankruptcy
 Minimize stockholder loss by selling firm’s assets
Michael Porter’s Generic Strategies

         Cost Leadership Strategies

          Differentiation Strategies

              Focus Strategies
Generic Strategies

   Low Cost strategy: the basic idea

 underprice competitors or offer a better value

 thereby gain market share and sales

  driving some competitors out of the market entirely.
                  Cost Leadership

•    Ways of ensuring total costs across value
     chain are lower than competitors’ total
    1. Perform value chain activities more efficiently
       than rivals and control factors that drive costs
    2. Revamp the firm’s overall value chain to
       eliminate or bypass some cost-producing
                 Cost Leadership
•    Can be especially effective when:
    1. Price competition among rivals is vigorous
    2. Rival’s products are identical and supplies
       are readily available
    3. There are few ways to achieve differentiation
    4. Most buyers use the product in the same way
    5. Buyers have low switching costs
    6. Buyers are large and have significant power
    7. Industry newcomers use low prices to attract
Generic Strategies
Differentiation: (Type 3)
producing products that are considered unique
     allows a firm to charge higher prices
     Or gain customer loyalty
 risk of differentiation strategy:
     unique product may not be valued highly enough by customers to
     justify the higher price.
requirements for a successful differentiation strategy:
     strong coordination among the R&D and marketing functions
     and substantial amenities to attract scientists and creative
•    Can be especially effective when:
    1. There are many ways to differentiate and
       many buyers perceive the value of the
    2. Buyer needs and uses are diverse
    3. Few rival firms are following a similar
       differentiation approach
    4. Technology change is fast paced and
       competition revolves around evolving product
Generic Strategies
Focused Strategies (Type 4 & 5)
 producing products and services that fulfill the
 needs of small groups of consumers (niche market).
  two types:
    products or services to a small range (niche) of
    customers at the lowest price available on the
    products or services to a small range (niche) of
    customers at the lowest price available on the
    market. (focused differentiation)
                Focused Strategy
•    Can be especially effective when:
    1. The target market niche is large, profitable,
       and growing
    2. Industry leaders do not consider the niche
    3. Industry leaders consider the niche too costly
       or difficult to meet
    4. The industry has many different niches and
    5. Few, if any, other rivals are attempting to
       specialize in the same target segment
• Discuss three different types of strategies, not including
  porter’s three strategies, firms can adopt and discuss
  how to achieve these strategies.

• Discuss the relationship between: integrative, intensive
  and diversification strategies; and Porter’s strategies’s of
  low-cost, differentiation and focus.

• Discuss the type of strategy: integration, intensive,
  diversification or defensive, which you would consider to
  be most appropriate for the D.I.T. in the current
  economic climate.

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