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Alternative Strategies
Forward Integration
Gaining ownership or increased control over distributors or retailers
Tandy Corporation opens new Radio Shack stores
Backward Integration
Seeking ownership or increased control over a firm’s suppliers
K-Mart purchases manufacturing facility for shoes
Horizontal Integration
Seeking ownership or increased control over competition
Merck, the world’s largest drug company, acquires Medco, the world’s largest marketer of discount prescription drugs
STRATEGY DEFINITION EXAMPLE
Alternative Strategies
Market Penetration
Seeking increased market share for present products or services in present markets through greater marketing efforts
Walt Disney pays Nancy Kerrigan $1million for appearances
Market Development
Introducing present product or services into new geographic area
Corning, Inc. becomes one of Russia’s first major suppliers of optical fiber
Product Development
Seeking increased sales by improving present products or services or developing new ones
Rayovac develops an alkaline battery recharger
STRATEGY DEFINITION EXAMPLE
Alternative Strategies
Concentric Diversification
Adding new, but related, products or services
Sonoco Products Co., a maker of industrial packages, acquired Engraph, Inc., a maker of consumer packages
Conglomerate Diversification
Adding new, unrelated products or services
Seagram acquires 13.1 percent of Time Warner
Horizontal Diversification
Adding new, unrelated products or services for present customers
Stratus Computer, a maker of fault-tolerant computers, acquires Shared Financial Systems, a software maker
STRATEGY DEFINITION EXAMPLE
Alternative Strategies
Joint Venture
Two or more sponsoring firms forming a separate organization for cooperative purposes
Home Shopping Network and Sumitomo offer television shopping in Japan
Retrenchment
Regrouping through cost & asset reduction to reverse declining sales/profits
U.S. Surgical declares bankruptcy
Divestiture
Selling a division or part of an organization
Ryder System, a truck-leasing co, divests its aviation business
Liquidation
Selling all of a co’s assets, in parts, for their tangible worth
The Bank of Credit and Commerce Int’l (BCCI) liquidates
STRATEGY DEFINITION EXAMPLE
Strategic AnalysisProducts – MarketsMarket/Product Expansion Grid
Current
Product
New
Product
Current
Markets
Market
Penetration
Strategy
Product Development
Strategy
New
Markets
Market
Development
Strategy
Diversification
Strategy
M
A
R
K
E
T
S
P R O D U C T S
Market Analysis / Coors
HIGH(H) MEDIUM(M) LOW(L)
H China; India
M Brazil; Czech
Republic
L Korea; Germany
H Poland
M Romania
L
L
O
W
R
I
S
K
H
I
G
H
MARKET ATTRACTIVENESS
Strategic ManagementProductivity Tree
TTask
Technical
PStaff
Performance
PEfficiency
EffectivenessAdaptive
Plant/Office, Facilities, Methods, STDS
MGMT Plan Organize Direct Control
Knowledge, Skills, Ability
CommunicationsMotivation
Job Design Staff Leadership
Feedback - Information
Strategic ManagementThe Firm: Core Competencies
Technology Operating System
Management System
Knowledge-Base Skills / Abilities
Organizational Dynamics, Culture,
Climate, Motivations
Work Sheet: Internal Assessment of Firms
Four CharacteristicsResources-Capabilities Important in Sustaining Competitive Advantage
1.Durability
2.Transparency
3.Transferability
4.Replicability
Internal Assessment of Firms
Durability– Rate at which firms underlying resources and
capabilities depreciate or become obsolete
Transparency– Speed with which other firms can understand the
relationship of resources and capabilities supporting a successful firm’s strategy. Capability that requires a complex pattern of various resources and is more difficult to comprehend than a capability based on a single key resource.
Internal Assessment of Firms
Transferability– Ability of competitors to gather the resources necessary to
support a competitive challenge. (e.g., Duplicating the primary source of Rocky Mountain spring water may be difficult. Also, brand names may be impossible to transfer with out purchase or a license.)
Replicability– Ability of competitors to use resources and capabilities to
duplicate a firm’s success. (e.g., a brand manager from a P&G competitor may fail to identify least visible coordination mechanisms or fail to note behaviors of another company’s brand manager may conflict with company’s culture.)
Basic Principles of Organizations
1. The organization plan should be developed from the point of view of the activities required to achieve the objectives of the enterprise.
2. Group the activities according to the natural likings of the activities and the usual combinations of abilities and interests of the team members.
3. Assign persons to natural groupings according to their abilities and interests.
4. Personal responsibilities, authorities and relationships should be clearly understood and completely accepted not only by the individual but also by all persons affected.
5. Delegation of authority and the freedom to act should be clearly and appropriately defined and be adequate for the responsibilities assigned.
Basic Principles of Organizations
6. As many as possible of the decisions affecting specific operations and requiring approval before action should be made only one organization step (level) above the person putting the decision into effect.
7. No person should report to more than one superior. (However, an individual may be assigned by his or her superior to serve or assist another organization unit and receive directions within the assigned sphere of service.
8. (Span of Control) The number of persons reporting to a superior should be few enough so that he or she can give each person adequate attention and still have time for responsibilities other than direction and supervision such as investigations, planning, etc…
Basic Principles of Organizations
9. Recognize and make good use of the informal organization: I.e., the natural groupings of persons based on friendships and like interests. Watch that cliques or “gangs” do not handicap the official organization.
10. Titles should be appropriate and consistent.11. Keep the organization plan flexible and sensitive to
changing conditions.
“Pure Project”Dedicated Task Force
OrganizationGeneral Manager
Marketing
Network
Engineering
Manufacturing
Project Manager
Other Operations
• Is a separate project organization with most or all personnel needed on the project working under the direct control of the project manager?
• Used for major or special projects: I.e., “skunk works”
• Hybrid matrix = a project organization with some functions directly controlled and others controlled through a matrix
Matrix Project Management
Within this category are three types of matrix organizations which primarily differ in the relative amount of influence/decision-making
power between functional discipline managers and the project management organization. Matrix management generally increases conflict as functional managers and project management often stress
different project aspects and goals.
General Manager
Project Manager A
Project Manager B
Marketing Network Engineering Manufacturing
personnel
personnel
personnel
personnel
Matrix Project Management: Descriptions
Strong or Project Matrix– Here, a project management orientation predominates: a
full-fledged project office with support staff may exist
Balanced or “Classical” Matrix– Balanced influence between functional managers and
project managers characterizes this arrangement. The full-time project manager has expert power and formal position power. A high level of conflict is often evident.
Weak or Functional Matrix– Functional managers exert a stronger influence than the
project manager who is really a coordinator and can be part or full-time. Team members may only be liaisons, linking the project to the functional department.
Matrix Management and The Team Member
Ground Rules for Behavior
•Keep both bosses informed.
•As soon as a conflict emerges (or before), get the bosses together for a meeting and get one to change his or her priorities.
•Do not make the mistake of telling each boss what he or she want to hear—You will get squeezed.
•Try to work out an agreement in writing that spells out your responsibilities and reporting relationships.
Team Member
Project Manager
Functional Manager
The Problem of Two or
More Bosses
Influence Project Management
Weakest Project Organization
•Influence project management occurs in a standard functional or hierarchical management organization.
•A “project activator” (often staff member) is asked to coordinate a project. This is frequently part-time and with no formal authority. The “activator” merely works through the “influence” of the general manager’s position (“the division manager asked that I do this for him/her.”)
General ManagerProject Activator
Marketing Network Engineering Manufacturing
personnel
personnel
personnel
personnel
Matrix Project Management
General Manager
Project Manager A
Project Manager B
personnel
personnel
personnel
personnel
Strategic ManagementFirm-Industry Value Chain—A Model
Inbound Logistics
Operations, R&D, Technology, Manufacturing, Staff
Outbound Logistics
Marketing, Advertising, Sales
Service
Elements of Industry Structure: Porter’s Five-Forces
B
u
yers
Suppliers
Industry Competito
rs
Intensity of Rivalry
Bargaining Power
of Buyers
Bargaining Power
of Suppliers
New EntrantsThreat of New
Entrants
Threat of Substitutes
Substitutes
Adapted from Michael E. Porter, “Competitive Advantage,”
New York, The Free Press, 1985. Reprinted by Permission.
Porter’s Five-Forces: Described
Barriers to Entry– Economies of Scale — Product Differentiation– Brand Identification — Switching Costs– Access to Distribution Channels — Capital Requirements– Access to Latest Technology — Experience and Learning
Effects
Government Action– Industry Protection — Industry Regulation– Consistency of Policies — Custom Duties– Foreign Exchange — Foreign Ownership– Capital Movements Among Countries– Assistance Provided to Competitors
Adapted from Michael E. Porter, “Competitive Advantage,”
New York, The Free Press, 1985. Reprinted by Permission.
Porter’s Five-Forces: Described
Rivalry Among Competitors– Concentration and Balance Among Companies– Industry Growth — Fixed (or Storage) Costs– Product Differentiation — Switching Costs– Intermittent Capacity Increasing– Corporate Strategic Stakes
Barriers to Exit– Asset Specialization – One-Time Cost of Exit– Strategic Interrelationships with other Businesses– Emotional Barriers – Government and Social Restrictions
Adapted from Michael E. Porter, “Competitive Advantage,”
New York, The Free Press, 1985. Reprinted by Permission.
Porter’s Five-Forces: Described
Power of Suppliers– Number of Important Suppliers– Availability of Substitutes for the Suppliers’ Products– Differentiation or Switching Cost of Suppliers’ Products– Suppliers’ Threat of Forward Integration– Suppliers’ Contribution to Quality or Service of the Industry
Products– Total Industry Cost Contributed by Suppliers– Importance of the Industry to Suppliers’ Profit
Adapted from Michael E. Porter, “Competitive Advantage,”
New York, The Free Press, 1985. Reprinted by Permission.
Porter’s Five-Forces: Described
Power of Buyers– Number of Important Buyers– Availability of Substitutes for the Industry Products– Buyers’ Switching Costs– Buyers’ threat of Backward Integration– Industry Threat of Forward Integration– Contribution to Quality or Service of Buyers’ Products– Total Buyers’ Cost Contributed by the Industry– Buyers’ Profitability
Availability of Substitutes– Availability of Close Substitutes– User’s Switching Costs– Substitute Producer’s Profitability and Aggressiveness– Substitute Price-Value
Adapted from Michael E. Porter, “Competitive Advantage,”
New York, The Free Press, 1985. Reprinted by Permission.
Porter’s Five Forces: As Applied to the Pharmaceutical Industry in the
early 1990’s
B
u
yers
Suppliers
Industry Competito
rs
Intensity of Rivalry—Attractive
VeryAttractive
New EntrantsVery Attractive
Mildly Unattractive
Substitutes
Adapted from Michael E. Porter, “Competitive Advantage,”
New York, The Free Press, 1985. Reprinted by Permission.
MildlyUnattractive
Porter’s Five-Forces: The Pharmaceutical Industry--
Applied Barriers to Entry (Very Attractive)
– Steep R&D experience curve effects– Large economies of scale bariers in R&D and sales force– Critical mass in R&D and marketing require global scale– Significant R&D and marketing costs– High risk inherent in the drug development process– Increasing threat of new entrants coming from biotechnology
companies
Bargaining Power of Suppliers (Very Attractive)– Mostly commodities– Individual scientists may have some personal leverage
Porter’s Five-Forces: The Pharmaceutical Industry--
Applied Bargaining Power of Buyers (Mildly Unattractive)
– Traditional purchasing process highly price insensitive: the consumer (the patient) did not buy and the buyer (the physician) did not pay
– Large power of buyers—plan sponsors and cost containment orgs—influence decisions to prescribe less expensive drugs
– Mail order pharmacies obtain large discounts on volume drugs– Large aggregate buyers—hospital suppliers, large distributors,
gov’t institutions—progressively replace the role of individual customers
– Important influence of the government in the regulation of the buying process
Porter’s Five-Forces: The Pharmaceutical Industry--
Applied Threat of Substitutes (Mildly Unattractive)
– Generic and “me-too” drugs weakening branded, proprietary drugs
– More than half of the drug patent is spent in product development and approval processes
– Technological development makes imitation easier– Consumer aversion to chemical substances erodes appeal for
pharmaceutical drugs
Porter’s Five-Forces: The Pharmaceutical Industry--
Applied Intensity of Rivalry (Attractive)
– Global competition concentrated among fifteen large companies– Most companies focus on certain types of disease therapy– Competition among incumbents limited by patent protection– Competition based on price and product differentiation– Government intervention and growth of “me-too” drugs increase
rivalry– Strategic alliances establish collaborative agreements among
industry players– Very profitable industry, however with declining margins
Summary Assessment of Industry Attractiveness
Strategic ManagementExternal Factors Diagram
Global Micro
STRATEGIC
MANAGEMEN
T FIRM
Availability of
Substitutes
Global Macro
Industry Value Chain
Strategic Alternativ
es
Strategic ManagementExternal Factors Diagram--
Elaboration Global Micro
– Industry Structure — Government action– Competition — Suppliers– Buyers — Resources: Labor / Unions
Global Macro– Economic– Social / Demographics– Political-Legal: Taxes / Regulations– Technological: Product / Process
Strategic ManagementExternal Factors Diagram--
Elaboration Strategic Alternatives
– Cost vs. Product Differentiation — Integration:– Simplification: Product / Process Forward, Backward,
Horizontal– Joint Venture / Alliance — Retrenchment– Divestiture / Liquidation
Industry Value Chain– Inbound Logistics– Operations – R&D / Technology / Manufacturing– Outbound Logistics– Marketing – Sales / Advertising– Service
The Drucker ModelAnswer to 3 Key Questions
Mission Statement
8 Business Objectives (Drucker)– Market — Human Resources– Innovation — Financial Resources– Profit — Material Resources– Societal — Productivity
Strategic Planning is a Continuous Process
Product Life Cycle
TIME -- Years
Cu
mu
lati
ve S
ale
s
Phase IInnovation
Introduction
Phase IIAccelerated
Growth
Phase IIIMaintenance Phase IV
Discontinuance
Strategic ManagementBusiness Portfolio Matrix
Star Business (Invest Cash)
Problem Child (Draw)
Cash CowDog
(But – Exceptions)
Relative Market Share(Firm vs. largest competitor)
Industry AttractivenessGrowth Rate
Average Rate of Growth
HIGH
HIGH
LOW
LOW
Poker Analogy – Where to Bet Technology Portfolio Matrix
Bet (Cash)
Draw
Cash In Fold
Relative Technological Position(Firm vs. largest competitor)
Industry Technology
Importance to Product / Service
HIGH
HIGH
LOW
LOW
Strategic ManagementR&D Model
Pure
Research
Applied
Research
Product/Service
Configur-ation
Pilot
Intro
Full Scale Ops
RESEARCH DEVELOPMENT
INNOVATION
RADICAL
INCREMENTAL
STRATEGIC MANAGEMENTMODEL PORTFOLIO MANAGEMENT
RESOURCE ALLOCATION
CASE II
IRR
II
FUNDS
DEFICIT
I
SURPLUS
FUNDS
PROGRAMS
PROJECTS
INVESTMENTS $
DEMAND
FOR FUNDS
CASE I
IRR
INTERNAL
SUPPLY
FUND