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Chapter 5Strategies in Action

Strategic Management: Concepts & Cases

13th Edition

Fred David

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Long Term Objectives

Quantitative

Measurable

Realistic

Understandable

Challenging

Hierarchical

Obtainable

Congruent

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Financial vs. Strategic Objectives

Financial Objectives Growth in revenues

Growth in earnings

Higher dividends

Larger profit margins

Greater ROI

Higher earnings per share

Rising stock price

Improved cash flow

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Financial vs. Strategic ObjectivesStrategic Objectives 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

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Not Managing by Objectives

Managing by Extrapolation – “If it ain’t broke, don’t fix it”

Managing by Crisis – The true measure of a good strategist is the ability to fix problems

Managing by Subjectives – “Do your own thing, the best way you know how”

Managing by Hope – The future is full of uncertainty and if at first you don’t succeed, then you may on the second or third try

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The Balanced Scorecard

Robert Kaplan & David Norton –

Strategy evaluation & control technique

Balance financial measures with nonfinancial measures

Balance shareholder objectives with customer & operational objectives

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Levels of Strategies – Large Company

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Levels of Strategies – Small Company

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Types of Strategies

Vertical IntegrationStrategies

Forward Integration

BackwardIntegration

HorizontalIntegration

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Vertical Integration Strategies

ForwardIntegration

Gaining ownership or increased control over distributors or retailers

BackwardIntegration

Seeking ownership or increased control of a firm’s suppliers

HorizontalIntegration

Seeking ownership or increased control over competitors

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Types of Strategies

IntensiveStrategies

MarketPenetration

MarketDevelopment

ProductDevelopment

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Intensive Strategies

MarketPenetration

Seeking increased market share for present products or services in present markets through greater marketing efforts

Market Development

Introducing present products or services into new geographic areas

ProductDevelopment

Seeking increased sales by improving present products or services or developing new ones

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Types of Strategies

DiversificationStrategies

Related Diversification

Unrelated Diversification

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Diversification Strategies

Related Diversification

Adding new but related products or services

Unrelated Diversification Adding new, unrelated products or

services

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Types of Strategies

DefensiveStrategies

Retrenchment

Divestiture

Liquidation

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Defensive Strategies

RetrenchmentRegrouping through cost and asset reduction to reverse declining sales and profit

Divestiture Selling a division or part of an organization

Liquidation Selling all of a company’s assets, in parts, for their tangible worth

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Porter’s Five Generic Strategies

Type 1 Cost Leadership – Low cost Type 2 Cost Leadership – Best value Type 3 Differentiation Type 4 Focus – Low cost Type 5 Focus – Best value

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Type 1 or 2 Cost Leadership Strategy Conditions Vigorous price competition Plentiful supply of identical products Little product differentiation Products used in same ways Low cost to switch Large buyers with power Industry newcomers use low prices to attract

buyers

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Type 3 Differentiation Strategy Conditions Many ways to differentiate and buyers

perceive the differences as having value Diverse buyer needs and uses Few rival firms following similar

differentiation approach Fast paced technological change and

evolving product features

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Type 4 or 5 Focus Strategy Conditions Large, profitable, and growing target market

niche Industry leaders do not consider the niche

crucial to their success Industry leaders consider it costly or difficult

to meet the needs of this niche Industry has many niches and segments Few rivals are specializing on this target

segment

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Means for Achieving Strategies

Cooperation among competitors Joint venture / partnering Merger / acquisition First mover advantages Outsourcing

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Strategic Management in Nonprofit and Governmental Organizations

Educational Institutions

Medical Organizations

Governmental Agencies and Departments