topic-05 (long term strategies)
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Topic 5
Formulating Long-TermObjectives and Grand
Strategies
Prof. Niki Lukviarman, SE, MBA, DBA, Akuntan
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Topic Outline
Long-Term Objectives
Generic Strategies Grand Strategies
Corporate Combinations
Selection of Long-Term Objectives & GrandStrategy Sets
Sequence of Objectives & Strategy Selection
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Types of Long-Term Objectives
Profitability
Productivity
Competitive position
Employee development
Employee relations
Technological leadership
Public responsibility
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Qualities of Long-Term Objectives
Criteria used
in preparing
objectives
Acceptable
Flexible
MeasurableMotivating
Suitable
Understandable
Achievable
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What is the Balanced Scorecard?
The Balanced Scorecard is a set of measures that
are directly linked to the companys strategy.
It directs a company to link its own long-term
strategy with tangible goals and actions.
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The Four Perspectives in a
Balanced Scorecard
Financial performance
Customer knowledge
Internal business processes
Learning and growth
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The Balanced Scorecard
Vision
and
Strategy
Financial
To succeed financially,how should we appear to
our shareholders?
CustomerTo achieve
our vision,
how should
we appear to
our
customers?
Internal
BusinessProcess
To satisfy our
shareholders
and customers,
what business
processes mustwe excel at?Learning and Growth
To achieve our vision,
how will we sustain our
ability to change and
improve?
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Copyright 2007 Prentice Hall Ch 5 -8
Michael Porters Generic Strategies
Cost Leadership Strategies
DifferentiationStrategies
Focus Strategies
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Copyright 2007 Prentice Hall Ch 5 -9
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Copyright 2007 Prentice Hall Ch 5 -10
Generic Strategies
In conjunction with differentiation
Economies or diseconomies of scale
Capacity utilization achieved
Linkages w/ suppliers & distributors
Cost Leadership(Type 1 and Type 2)
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Copyright 2007 Prentice Hall Ch 5 -13
Generic Strategies
Many price-sensitive buyers
Few ways of achieving differentiation
Buyers not sensitive to brand differences
Large # of buyers w/bargaining power
Low Cost Producer Advantage
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Copyright 2007 Prentice Hall Ch 5 -14
Generic Strategies
Greater product flexibility
Greater compatibility
Lower costs
Improved service
Greater convenience
More features
Differentiation (Type 3)
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Copyright 2007 Prentice Hall Ch 5 -15
Differentiation
Can be especially effective when:1. There are many ways to differentiate and
many buyers perceive the value of the
differences
2. Buyer needs and uses are diverse
3. Few rival firms are following a similar
differentiation approach
4. Technology change is fast paced andcompetition revolves around evolving product
features
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Copyright 2007 Prentice Hall Ch 5 -17
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
crucial3. Industry leaders consider the niche too costly
or difficult to meet
4. The industry has many different niches andsegments
5. Few, if any, other rivals are attempting to
specialize in the same target segment
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Copyright 2007 Prentice Hall Ch 5 -18
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Requirements for Generic
Competitive Strategies
Generic
Strategy
Commonly Required Skills
and Resources
Common
Organizational
Requirements
Overall Cost
Leadership
Sustained capital investment
and access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease in
manufacture
Low-cost distribution system
Tight cost control
Frequent, detailed
control reports
Structured
organization and
responsibilities
Incentives based on
meeting strict
quantitative targets
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Risks of the Generic Strategies
Risks of Cost
Leadership
Risks of
Differentiation
Risks of Focus
Cost leadership is not
sustained
Competitors imitateTechnology changes
Other bases for cost
leadership erode
Proximity in
differentiation is lost
Cost focusers achieve
even lower cost in
segments
Differentiation is not
sustained
Competitors imitateBases for differentiation
become less important to
buyers
Cost proximity is lost
Differentiation focusers
achieve greater
differentiation in segments
Focus strategy is
imitated
Target segment becomesunattractive
Structure erodes
Demand disappears
Broadly target
competitors overwhelm
segments
Segments differences
from others narrow
Advantages of broad
line increase
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Types of Grand Strategies
Concentrated growth
Market development
Product development Innovation
Horizontal integration
Vertical integration Concentric
diversification
Conglomeratediversification
Turnaround Divestiture
Liquidation
Bankruptcy
Joint ventures
Strategic alliances
Consortia
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Characteristics of a Concentrated
Growth Strategy
Involves focusing resou rceson the profitable growth of
a single product, in a single market, with a single
dominant technology
RationaleFirm develops and exploits its expertise in adelimited competitive arena
Determinantsof competitive market success
Ability to assess market needs
Knowledge of buyer behavior Customer price sensitivity
Effectiveness of promotion
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Conditions Favoring a
Concentrated Growth Strategy
Firms industry is resistant to major technological
advancements
Firms target markets are not product saturated
Firms markets are sufficiently distinctive to dissuadecompetitors in adjacent markets from entering firms segment
Firms inputs are stable in price and quantity and available in
the amounts and at the times needed
Firms industry is stable
Firms competitive advantages are based on efficient
production or distribution channels
Success of market generalists
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Strategies of Market and
Product Development
Market development
Consists of marketing present products, often with only cosmeticmodifications to customers in related market areas by
Adding channels of distribution or
Changing content of advertising or promotion
Produc t developm ent
Involves substantial modification of existing products or creationof new but related products
Based on penetrating existing market by
Incorporating product modifications into existing items or
Developing new products connected to existing products
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Specific Options for Selected
Grand Strategies
Product Development
(Developing new produc ts for present markets)
1. Developing new product features
a. Adapt (to other ideas, developments)b. Modify (change color, motion, sound, odor, form, shape)
c. Magnify (stronger, longer, thicker, extra value)
d. Minify (smaller, shorter, lighter)
e. Substitute (other ingredients, process, power)
f. Rearrange (other patterns, layout, sequence, components)g. Reverse (inside out)
h. Combine (blend, alloy, assortment, ensemble, combine units, etc.)
2. Developing quali ty vari ations
3. Developing additional models and sizes (product prol i feration)
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Innovation Strategy
Involves creating a new product lifecycle, thereby making similar existing
products obsolete
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Horizontal and Vertical
Integration Strategies
Horizontal Integrat ion
Based on growthvia acquis i t ionof one or more similar
firms operating at the same stage of the production-
marketing chain
Vertical Integration
Involves acquiring firms
That supply acquiring firm with inputs (backwardintegration) or
Are customers for firms outputs (forward integration)
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Example:
Vertical and Horizontal Integrations
Textile producer Textile producer
Shirt manufacturer Shirt manufacturer
Clothing store Clothing store
Acquisitions or mergers of suppliers or customer businesses are vertical integration
Acquisitions or mergers of competing businesses arehorizontal integrations
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Motivations for Diversification
Increase firms stock value
Increase growth rate of firm
Investment is better use of funds than using them for
internal growth Improves stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly Achieve tax savings
Increase efficiency and profitability
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Diversification Strategies
Concentr ic Diversi f icat ion
Involves acquisition of businesses related to acquiringfirm in terms of technology, markets, or products
Cong lomerate Diversi f icat ion
Involves acquisition of a business because it representsa promising investment opportunity (primary motivationis profit pattern of venture)
Difference between the approaches
Concentric diversification emphasizes commonalitywhereas conglomerate diversification emphasizes profits
for each individual unit
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Turnaround Strategy
Involves a concerted effort over a periodof time to fortify a firms distinctive
competencies, returning it to profitability
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Turnaround Strategy
A turnaround strategy is done
through
Cost reduction Asset reduction
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Terms Used in Turnaround Strategy
A turnaround si tuat ionrepresents absoluteand relative-to-industry declining performance ofa sufficient magnitude to warrant explicitturnaround actions
The immediacy of the resulting threat tocompany survival posed by the turnaroundsituation is known as si tuat ion sever i ty
Turnaround responsestypically include twostages of strategic activities Retrenchment
Recovery response
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Divestiture and Liquidation Strategies
Divest i ture Strategy
Involves selling a firm or a major component of a firm
Reasons for divestiture Partial mismatches between acquired firm and parent firm
Corporate financial needs
Government antitrust action
Liqu idation Strategy
Involves selling parts of a firm, usually for its tangible
asset value and not as a going concern
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The Strategy of Bankruptcy
Two approaches
Liquidat ionInvolves complete distribution of a firms assets to
creditors, most of whom receive a small fraction of amount owed
ReorganizationInvolves creditors temporarily freezing their
claims while a firm reorganizes and rebuilds its operations more
profitably
Advantageof a reorganizat ion bankruptcy
Proact ive op t ionoffering maximum repayment of a firms debt
in the future if a recovery strategy is successful
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Corporate Combination Strategies
Joint Ventures
Involves establishing a third company (child), operated
for the benefit of the co-owners (parents)
Strategic A l l iance
Involves creating a partnership between two or more
companies that contribute skills and expertise to acooperative project
Exists for a defined period
Does not involve the exchange of equity
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Corporate Combination Strategies
Consort iaare defined as large interlocking relationshipsbetween businesses of an industry. In Japan suchconsortia are known as keiretsus, in South Korea aschaebols
A Japanese keiretsuis an undertaking involving up to50 different firms that are joined around a large tradingcompany or bank and are coordinated throughinterlocking directories and stock exchanges
Chaebols are typically financed through governmentbanking groups and largely are run by professionalmanagers trained by participating firms expressly for the
job
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The Top Five
Strategic Reasons for Outsourcing
1. Improve business focus
2. Access to world-class capabilities3. Accelerated reengineering benefits
4. Shared risks
5. Free resources for other purposes
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