grand stratergy
TRANSCRIPT
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CHAPTER 6
Formulating Long-Term
Objectives and GrandStrategies
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Chapter Topics
• Long-Term Objectives
• Generic Strategies
• Grand Strategies
• Corporate Combinations
• Selection of Long-Term Objectives and Grand
Strategy Sets
• Sequence of Objectives and 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
company‟s strategy. It directs a
company to link its own long-term
strategy with tangible goals andactions.
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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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Exhibit 6-2: The Balanced Scorecard
Vision
and
Strategy
Financial
„To succeed financially,
how should we appear to
our shareholders?”
Customer“To 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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The Value Disciplines
• Strategies must center on delivering superior
customer value through one of three value
disciplines:
Operational excellence
Customer intimacy
Product leadership
• Companies that specialize in one of these
disciplines, while simultaneously meetingindustry standards in the other two, gain a
sustainable lead in their markets.
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Generic Strategies
Low-cost Leadership
Differentiation Focus
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Ex. 6-3: Requirements for Generic
Competitive Strategies
Generic
Strategy
Commonly Required Skills and
Resources
Common Organizational
Requirements
Overall CostLeadership
•Sustained capital investmentand 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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Ex. 6-3 (contd.)
Generic Strategy Commonly Required Skills and
resources
Common Organizational
Requirements
Differentiation •Product engineering
•Creative flare•Strong capability in basic research
•Corporate reputation for quality or
technological leadership
•Unique combination of skills
•Strong cooperation from channels
•Strong marketing abilities
•Strong coordination
among functions inR&D, product
development, and
marketing
•Subjective measurement and
incentives instead of quantitative
measures
•Amenities to attract highly
skilled labor, scientists, or
creative people
Focus Combination of above policies directed at the
particular strategic target
Combination of above policies
directed at the particular
strategic target
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Ex. 6-4: Risks of the Generic Strategies
Risks of Cost Leadership Risks of Differentiation Risks of Focus
Cost leadership is not
sustained
•Competitors imitate
•Technology 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 imitate
•Bases for differentiation
become less important to
buyers
Cost proximity is lost
Differentiation focusers
achieve greater differentiation in segments
Focus strategy is imitated
Target segment becomes
unattractive
•Structure erodes
•Demand disappears
Broadly target competitors
overwhelm segments
•Segment‟s 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 resources on the
profitable growth of a single product, in a
single market, with a single dominant
technology• Rationale – Firm develops and exploits its
expertise in a delimited competitive arena
• Determinants of 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
Firm‟s industry is resistant to major technological
advancements
Firm‟s target markets are not product saturated
Firm‟s markets are sufficiently distinctive to dissuadecompetitors in adjacent markets from entering firm‟s
segment
Firm‟s inputs are stable in price and quantity and
available in the amounts and at the times needed
Firm‟s industry is stable Firm‟s 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 withonly cosmetic modifications to customers inrelated market areas by
• Adding channels of distribution or • Changing content of advertising or promotion
• Product development
• Involves substantial modification of existing products or creation of 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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Exhibit 6-4: Specific Options for
Selected Grand Strategies
Concentration (I ncreasing use of present products in
present markets)
1. Increasing present customers‟ rate of use
a. Increasing size of purchase
b. Increasing the rate of product obsolescencec. Advertising other uses
d. Giving price incentives for increased use
2. Attracting competitors‟ customers
a. Establishing sharper brand recognition
b. Increasing promotional effort
c. Initiating price cuts3. Attracting nonusers to buy the product
a. Introducing trial use thru‟ sampling, price incentives, etc.
b. Pricing up or down
c. Advertising new uses
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Ex. 6-4 (contd.)
Market Development (Sell ing present
products in new markets.)
1. Opening additional geographic markets
a. Regional expansion b. National expansion
c. International expansion
2. Attracting other market segments
a. Developing product versions to appeal to other segments
b. Entering other channels of distribution
c. Advertising in other media
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Ex. 6-4 (contd.)
Product Development (Developing new products 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, combineunits, etc.)
2. Developing quality variations
3. Developing additional models and sizes (product proliferation)
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Innovation Strategy
Involves creating a new product life cycle, thereby
making similar existing
products obsolete
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Horizontal and Vertical Integration
Strategies
Horizontal I ntegration
• Based on growth via acquisition of one or
more similar firms operating at the same
stage of the production-marketing chainVertical I ntegration
• Involves acquiring firms
• That supply acquiring firm with inputs
(backward integration) or
• Are customers for firm‟s outputs
(forward integration)
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Ex. 6-7: 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 are horizontal integrations
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Motivations for Diversification
Increase firm‟s 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 Diversif ication
• Involves acquisition of businesses related toacquiring firm in terms of technology,markets, or products
Conglomerate Diversif ication • Involves acquisition of a business because it
represents a promising investmentopportunity
• Primary motivation is profit pattern of venture
• Difference between the approaches• Concentric diversification emphasizes
commonality whereas conglomeratediversification emphasizes profits for eachindividual unit
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Turnaround Strategy
Involves a concerted effort
over a period of time tofortify a firm‟s 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 situation represents absolute
and relative-to-industry declining
performance of a sufficient magnitude to
warrant explicit turnaround actions
• The immediacy of the resulting threat to
company survival posed by the turnaround
situation is known as situation sever ity
• Turnaround responses typically include two
stages of strategic activities
– Retrenchment
– Recovery response
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Divestiture and Liquidation Strategies
Divesti 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
L iquidation Strategy • Involves selling parts of a firm, usually for
its tangible asset value and not as a goingconcern
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The Strategy of Bankruptcy
• Two approaches
• Liquidation – Involves complete distribution of a
firm‟s assets to creditors, most of whom receive a
small fraction of amount owed
• Reorganization – Involves creditors temporarily
freezing their claims while a firm reorganizes and
rebuilds its operations more profitably
• Advantage of a reorganization bankruptcy
• Proactive option offering maximum repayment of a firm‟s 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 All iance
• Involves creating a partnership between two
or more companies that contribute skills and
expertise to a cooperative project• Exists for a defined period
• Does not involve the exchange of equity
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Corporate Combination Strategies(contd.)
• Consortia are defined as large interlockingrelationships between businesses of anindustry. In Japan such consortia are knownas keiretsus , in South Korea as chaebols
• A Japanese keiretsu is an undertakinginvolving up to 50 different firms that are
joined around a large trading company or bank and are coordinated throughinterlocking directories and stock exchanges
• Chaebols are typically financed throughgovernment banking groups and largely arerun by professional managers trained by
participating firms expressly for the job
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Ex. 6-13: 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