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Stra Ma Chapter 2

The document discusses different types of strategies that organizations use including financial and strategic objectives, integration strategies, intensive strategies, diversification strategies, defensive strategies, Porter's generic strategies, and means for achieving strategies such as cooperation, joint ventures, mergers and acquisitions, and private equity acquisitions.

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69 views20 pages

Stra Ma Chapter 2

The document discusses different types of strategies that organizations use including financial and strategic objectives, integration strategies, intensive strategies, diversification strategies, defensive strategies, Porter's generic strategies, and means for achieving strategies such as cooperation, joint ventures, mergers and acquisitions, and private equity acquisitions.

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TYPES OF

STRATEGIES
FINANCIAL VERSUS STRATEGIC OBJECTIVES

Two types of objectives are especially common in organizations: financial


and strategic objectives. Financial objectives include those associated
with growth in revenues, growth in earnings, higher dividends, larger profit
margins, greater return on investment, higher earnings per share, a rising
stock price, improved cash flow, and so on; whereas strategic objectives
include things such as a larger market share, quicker on-time delivery than
rivals, shorter design-to-market times than rivals, lower costs than rivals,
higher product quality than rivals, wider geographic coverage than rivals,
achieving technological leadership, consistently getting new or improved
products to market ahead of rivals, and so on.
DESIRED CHARACTERISTICS OF OBJECTIVES BENEFITS OF HAVING CLEAR OBJECTIVES
NOT MANAGING BY OBJECTIVES
• Managing by Extrapolation—adheres to the principle “If it ain’t broke, don’t fix it.” The idea
is to keep on doing the same things in the same ways because things are going well.
• Managing by Crisis—based on the belief that the true measure of a really good strategist
is the ability to solve problems. Because there are plenty of crises and problems to go
around for every person and every organization, strategists ought to bring their time and
creative energy to bear on solving the most pressing problems of the day. Managing by
crisis is actually a form of reacting rather than acting and of letting events dictate the what
and when of management decisions.
• Managing by Subjectives—built on the idea that there is no general plan for which way to
go and what to do; just do the best you can to accomplish what you think should be done.
In short, “Do your own thing, the best way you know how”
• Managing by Hope—based on the fact that the future is laden with great uncertainty and
that if we try and do not succeed, then we hope our second (or third) attempt will succeed.
Decisions are predicated on the hope that they will work and that good times are just
around the corner, especially if luck and good fortune are on our side!
INTEGRATION STRATEGIES

 Forward integration involves gaining ownership or increased control over distributors or


retailers. Increasing numbers of manufacturers (suppliers) today are pursuing a forward
integration strategy by establishing websites to directly sell products to consumers.
 Backward integration is a strategy of seeking ownership or increased control of a firm’s
suppliers. This strategy can be especially appropriate when a firm’s current suppliers are
unreliable, too costly, or cannot meet the firm’s needs.
 Horizontal integration refers to a strategy of seeking ownership of or increased control over a
firm’s competitors. One of the most significant trends in strategic management today is the
increased use of horizontal integration as a growth strategy. Mergers, acquisitions, and
takeovers among competitors allow for increased economies of scale and enhanced transfer of
resources and competencies.
INTENSIVE STRATEGIES

 A market penetration strategy seeks to increase market share for present products or services
in present markets through greater marketing efforts. This strategy is widely used alone and in
combination with other strategies. Market penetration includes increasing the number of
salespersons, increasing advertising expenditures, offering extensive sales promotion items, or
increasing publicity efforts.
 Market development involves introducing present products or services into new geographic
areas.
 Product development is a strategy that seeks increased sales by improving or modifying
present products or services. Product development usually entails large research and
development expenditures.
DIVERSIFICATION STRATEGIES

There are two general types of diversification strategies: related


diversification and unrelated diversification. Businesses are
said to be related when their value chains possesses
competitively valuable cross-business strategic fits; businesses
are said to be unrelated when their value chains are so
dissimilar that no competitively valuable cross-business
relationships exist.
DEFENSIVE STRATEGIES

 Retrenchment occurs when an organization regroups through cost and asset reduction to reverse
declining sales and profits. Sometimes called a turnaround or reorganizational strategy, retrenchment is
designed to fortify an organization’s basic distinctive competence.
 Selling a division or part of an organization is called divestiture. Divestiture often is used to raise capital
for further strategic acquisitions or investments. Divestiture can be part of an overall retrenchment
strategy to rid an organization of businesses that are unprofitable, that require too much capital, or that do
not fit well with the firm’s other activities.
 Selling all of a company’s assets, in parts, for their tangible worth is called liquidation. Liquidation is a
recognition of defeat and consequently can be an emotionally difficult strategy. However, it may be
better to cease operating than to continue losing large sums of money
MICHAEL
PORTER’S
GENERIC
STRATEGIE
S
MICHAEL PORTER’S GENERIC
STRATEGIES
Cost leadership emphasizes producing standardized products at a low per-unit cost for consumers who are price-
sensitive. Two alternative types of cost leadership strategies can be defined. Type 1 is a low-cost strategy that offers
products or services to a wide range of customers at the lowest price available on the market. Type 2 is a best-value
strategy that offers products or services to a wide range of customers at the best price-value available on the market.
Porter’s Type 3 generic strategy is differentiation, a strategy aimed at producing products and services considered
unique industrywide and directed at consumers who are relatively price-insensitive.
Focus means producing products and services that fulfill the needs of small groups of consumers. Two alternative types
of focus strategies are Type 4 and Type 5. Type 4 is a low-cost focus strategy that offers products or services to a small
range (niche group) of customers at the lowest price available on the market. Type 5 is a best-value focus strategy that
offers products or services to a small range of customers at the best price-value available on the market. Sometimes
called “focused differentiation,” the best-value focus strategy aims to offer a niche group of customers products or
services that meet their tastes and requirements better than rivals’ products do.
TURBULENT, HIGH-VELOCITY MARKETS

The world is changing more and more rapidly, and consequently industries and firms
themselves are changing faster than ever. Some industries are changing so fast that
researchers call them turbulent, high-velocity markets, such as telecommunications,
medical, biotechnology, pharmaceuticals, computer hardware, software, and virtually all
Internet-based industries.
MEANS FOR ACHIEVING STRATEGIES

 Cooperation Among Competitors


 Joint Ventures and Partnering
 Joint venture is a popular strategy that occurs when two or more companies form a temporary partnership or
consortium for the purpose of capitalizing on some opportunity.
 Other types of cooperative arrangements include research and development partnerships, cross-distribution
agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-bidding consortia.
Joint ventures and cooperative arrangements are being used increasingly because they allow companies to improve
communications and networking, to globalize operations, and to minimize risk. Joint ventures and partnerships are
often used to pursue an opportunity that is too complex, uneconomical, or risky for a single firm to pursue alone. Such
business creations also are used when achieving and sustaining competitive advantage when an industry requires a
broader range of competencies and know-how than any one firm can marshal.
MEANS FOR ACHIEVING STRATEGIES

 Mergers/Acquisitions
 A merger occurs when two organizations of about equal size unite to form one enterprise.
 An acquisition occurs when a large organization purchases (acquires) a smaller firm, or vice versa.
When a merger or acquisition is not desired by both parties, it can be called a takeover or hostile takeover. In 
contrast, if the acquisition is desired by both firms, it is termed a friendly merger.
 White knight is a term that refers to a firm that agrees to acquire another firm when that other firm is facing a
hostile takeover by some company.
 A leveraged buyout (LBO) occurs when a corporation’s shareholders are bought (hence buyout) by the
company’s management and other private investors using borrowed funds (hence leverage).
WHY
MERGERS
AND
ACQUISITION
FAILS
BENEFITS OR
MERGING
WITH OR
ACQUIRING
ANOTHER
FIRM
MEANS FOR ACHIEVING STRATEGIES

 Private Equity Acquisitions


As stock prices increased and companies became cash-rich in 2012–2013, private-equity (PE) firms such as Kohlberg
Kravis Roberts (KKR) jumped aggressively back into the business of acquiring and selling firms. PE firms have
unleashed a wave of new initial public offerings (IPO).
PE firms increasingly are buying companies from other PE firms, such as Clayton, Dubilier & Rice recently buying
David’s Bridal from Leonard Green & Partners LP for $1.05 billion. Such PE to PE acquisitions, called secondary
buyouts, totaled $30 billion in 2012 in the USA compared to $10.5 billion in 2011.
PE firms especially, but other firms also, in 2012 extensively borrowed money, more than $70 billion, at record low
interest rates, simply to fund dividend payouts to themselves, a controversial practice known as dividend
recapitalizations.
MEANS FOR ACHIEVING STRATEGIES

 First-Mover Advantage
First mover advantages refer to the benefits a firm may achieve by entering a new market or developing a new product
or service prior to rival firms.
Benefits of a Firm Bring A First Mover
MEANS FOR ACHIEVING STRATEGIES

 Outsourcing and Reshoring


Business-process outsourcing (BPO) involves companies hiring other companies to take over various parts of their
functional operations, such as human resources, information systems, payroll, accounting, customer service, and
even marketing.
Reshoring is the new term that refers to U.S. companies planning to move some of their manufacturing back to the
USA.
BENEFITS OF
OUTSOURCING
STRAMA IN NONPROFIT AND
GOVERNMENTAL ORGANIZATIONS

Nonprofit organizations are basically just like for-profit companies except for two
major differences: (1) nonprofits do not pay taxes and (2) nonprofits do not have
shareholders to provide capital.
 Educational Institutions
 Medical Organizations
 Governmental Agencies and Departments

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