strama - chap 5

Long-term objectives

• represent the results expected from pursuing certain strategies.

• are needed at the corporate, divisional, and functional levels of

  an organization

Strategies

represent the actions to be taken to accomplish long-term objectives.

Objectives

• should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units.

• are commonly stated in terms such as growth in assets, growth in sales, profitability, market share, degree and nature of diversification, degree and nature of vertical integration, earnings per share, and social responsibility.

• They provide direction, allow synergy, aid in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and aid in both the allocation of resources and the design of jobs.

• Financial Objectives

• Strategic Objectives

Two types of objectives are especially common in organizations:

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

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.

Managing by Extrapolation

adheres to the principle “If it ain’t broke, don’t fix it. The idea is to keep on doing about 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 prob- lems 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.

• “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 the good times are just around the corner, especially if luck and good fortune are on our side!

The Balanced Scorecard

• Developed in 1993 by Harvard Business School professors Robert Kaplan and David Norton, and refined continually through today,

• is a strategy evaluation and control technique.

The Balanced Scorecard

derives its name from the perceived need of firms to “balance” financial measures that are oftentimes used exclusively in strategy evaluation and control with nonfinancial measures such as product quality and customer service.

• Forward Integration

• Backward Integration

• Horizontal Integration

• Market Penetration

• Market Development

• Product Development

• Related Diversification

• Unrelated Diversification

• Retrenchment

• Divestiture

• Liquidation

Alternative strategies that an enterprise could pursue can be categorized into 11 actions

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

Seeking ownership or increased control over competitors

Market Penetration

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 area

Product Development

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

Related Diversification

Adding new but related products or service

Unrelated Diversification

Adding new, unrelated products or services

Retrenchment

Regrouping 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

Hansen and Smith

explain that strategic planning involves “choices that risk resources” and “trade-offs that sacrifice opportunity.”

• Corporate Level

• Division Level

• Functional Level

• Operational Level

Levels of Strategies with Persons Most Responsible (Large Company)

• Company Level

• Functional Level

• Operational Level

Levels of Strategies with Persons Most Responsible (Small Company)

Corporate Level

chief executive officer

Company Level

owner or president

Division Level

division president or executive vice president

Functional Level

finance, marketing, R&D, manufacturing, information systems, and human resource managers

Operational Level

plant managers, sales managers, production and department managers

• Forward Integration

• Backward Integration

• Horizontal Integration

Vertical Integration Strategies

Vertical integration strategies

allow a firm to gain control over distributors, suppliers, and/or competitors.

Horizontal integration

refers to a strategy of seeking ownership of or increased control over a firm’s competitors.

• Market penetration

• Market development

• Product development

are sometimes referred to as Intensive Strategies

Intensive Strategies

they require intensive efforts if a firm’s competitive position with existing products is to improve

Market Penetration

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 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.

• usually entails large research and development expenditures.

• Related

• Unrelated

Two general types of Diversification Strategies

Related

Businesses are said to be ________ when their value chains posses competitively valuable cross-business strategic fits;

Unrelated

Businesses are said to be ________ when their value chains are so dissimilar that no competitively valuable crossbusiness relationships exist.

Related Diversification

occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries

Unrelated Diversification

favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance in their respective industries, rather than striving to capitalize on value chain strategic fits among the businesses

Retrenchment

• occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits.

• sometimes called a turnaround or reorganizational strategy is designed to fortify an organization’s basic distinctive competence.

Divestiture

• selling a division or part of an organization

• often is used to raise capital for further strategic acquisitions or investments.

• 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.

Liquidation

• selling all of a company’s assets, in parts, for their tangible worth

• is a recognition of defeat and consequently can be an emotionally difficult strategy.

• Cost Leadership

• Differentiation

• Focus

According to Porter, strategies allow organizations to gain competitive advantage from three different bases called generic strategies

Cost Leadership

emphasizes producing standardized products at a very low per-unit cost for

consumers who are price-sensitive.

• Type 1 is a low-cost strategy

• Type 2 is a best-value strategy

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; the best-value strategy aims to offer customers a range of products or services at the lowest price available compared to a rival’s products with similar attributes.

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

• Type 4 is a low-cost focus strategy

• Type 5 is a best-value focus strategy

Two alternative types of focus strategies

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.

• 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

Porter’s Five Generic Strategies

Turbulent or High-velocity markets,

Some industries are changing so fast that researchers call them such as telecommunications, medical, biotechnology, pharmaceuticals, computer hardware, software, and virtually allInternet-based industries.

High-velocity change

is clearly becoming more and more the rule rather than the exception, even in such industries as toys, phones, banking, defense, publishing, and communication.

Cooperation Among Competitors

• Strategies that stress this are being used more.

• For collaboration between competitors to succeed, both firms must contribute something distinctive, such as technology, distribution, basic research, or manufacturing capacity.

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.

• the two or more sponsoring firms form a separate organization and have shared equity ownership in the new entity.

• Research and development partnerships

• Cross-distribution agreements, cross-licensing agreements,

cross-manufacturing agreements, and joint-bidding consortia.

Other types of cooperative arrangements include

Merger and acquisition

are two commonly used ways to pursue strategies

Merger

occurs when two organizations of about equal size unite to form one enterprise.

Acquisition

occurs when a large organization purchases (acquires) a smaller firm, or vice versa

Takeover or Hostile Takeover

When a merger or acquisition is not desired by both parties, it can be called a

Friendly Merger

if the acquisition is desired by both firms, it is termed a

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.

Slow over also called fast follower or late mover

being a __________ can be effective when a firm can easily

copy or imitate the lead firm’s products or services.

Business-process outsourcing (BPO)

is a rapidly growing new business that involves companies taking over the functional operations, such as human resources, information systems, payroll, accounting, customer service, and even marketing of other firms.

Strategic-management process

is being used effectively by countless nonprofit and governmental organizations, such as the Girl Scouts, Boy Scouts, the Red Cross, chambers of commerce, educational institutions, medical institutions, public utilities, libraries, government agencies, and churches.

Educational institutions

are more frequently using strategic-management techniques and concepts.

Richard Cyert, former president of Carnegie Mellon University,

said, “I believe we do a far better job of strategic management than any company I know.”

Medical Organizations

The $200 billion U.S. hospital industry is experiencing declining margins, excess capacity, bureaucratic overburdening, poorly planned and executed diversification strategies, soaring health care costs, reduced federal support, and high administrator turnover.

Governmental Agencies and Departments

Federal, state, county, and municipal agencies and departments, such as police depart- ments, chambers of commerce, forestry associations, and health departments, are responsi- ble for formulating, implementing, and evaluating strategies that use taxpayers’ dollars in the most cost-effective way to provide services and programs.

Strategic Management in Small Firms

The reason why “becoming your own boss” has become a national obsession is that entrepreneurs are America’s role models.