stg mgm lec-05 types of strategies

8/8/2019 Stg Mgm Lec-05 Types of Strategies

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COMPILES AND DEVELOPEDBY SIR IMRAN ZAIDI

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LECTURE-FIVE

TYPES OF STRATEGIES

STRATEGIC MANAGEMENT




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LONG-TERM OBJECTIVES

Long-term objectives represent the

results expected from pursuing

certain strategies.

Strategies represent the actions to betaken to accomplish long-term

objectives.

The time frame for objectives andstrategies should be consistent,

usually from two to five years.




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THE NATURE OF LONG-TERM OBJECTIVES

Objective are commonly stated in terms: Growth in assets,

Growth in sales,

Profitability,

Market share,

Degree, and nature of diversification,

Degree and nature of verticalintegration,

Earning per share, and socialresponsibility.




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THE NATURE OF LONG-TERM OBJECTIVES

Clear established objectives provide:

direction,

allow synergy,

aid in evaluation,

establish priorities,

reduce uncertainty,

minimize conflicts,

stimulates exertion,




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FINANCIAL VERSUS STRATEGIC OBJECTIVES

Financial objectives include: 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.



COMPILES AND DEVELOPEDBY SIR IMRAN ZAIDI 7

FINANCIAL VERSUS STRATEGIC OBJECTIVES

strategic objectives include:

Larger market share,

Quicker on time delivery than rivals,

Shorter design-to-market times than

rival,

Lower costs than rivals,

Higher product quality than rivals,

Wider geographic coverage than rivals.




JOINT VENTURE / PARTNERSHIP

Joint venture is a popular strategythat occurs when two or morecompanies form a temporary

partnership or consortium for thepurpose of capitalizing on someopportunity.

Often, the two or more sponsoring

firms form a separate organizationand have shared equity ownershipin the new entity.




MERGER / ACQUISITION

Merger and acquisition are twocommonly used ways to pursuestrategies.

A merger occurs when two

organizations of about equal size uniteto form one enterprise.

An acquisition occurs when a largeorganization purchases (acquired) a

smaller firm, or vice versa. When amerger or acquisition is not desired byboth parties, it can be called a takeover or hostile takeover.




INTEGRATION STRATEGIES

FORWARD INTEGRATION:

Forward integration involves gaining

ownership or increased control over

distributors or retailers. Increasing numbers of manufacturers

(suppliers) today are pursuing a forward

integration strategy by establishing Web sites

to sell products directly to consumers. An effective means of implementing forward

integration is franchising.




1. When an organization¶s present distributors are especiallyexpensive, or unreliable, or incapable of meeting the firm¶sdistribution needs.

2. When the availability of quality distributors is so limited as tooffer a competitive advantage to those firms that integrateforward.

3. When an organization competes in an industry that isgrowing and is expected to continue to grow

4. When an organization has both the capital and humanresources needed to manage the new business of distributing its own products.

5. When the advantages of stable production are particularly

high; this is a consideration because an organization canincrease the predictability of the demand for its outputthrough forward integration.

6. When present distributors or retailers have high profitmargins.

SIX GUIDELINES FOR WHEN FORWARD INTEGRATION

MAY BE AN ESPECIALLY EFFECTIVE STRATEGY ARE:




Backward integration is a strategy of seeking ownership or increased

control of a firm¶s suppliers.

This strategy can be especiallyappropriate when a firm¶s current

suppliers are:

Unreliable,

Too costly,

Cannot meet the firm¶s needs.

BACKWARD INTEGRATION




Horizontal integration refers to astrategy of seeking ownership of or increased control over a firm¶scompetitors.

One of the most significant trends instrategic management today is theincreased use of horizontal integrationas a growth strategy.

Mergers, acquisitions, and takeoversamong competitors allow for increasedeconomies of scale and enhancedtransfer of resources and competencies.

HORIZONTAL INTEGRATION




1. When an organization can gain monopolistic (exclusive possession and control)characteristics in a particular area or region.

2. When an organization competes in a growing industry.

3. When increased economies of scale providemajor competitive advantages.

4. When an organization has both the capital and human talent needed to successfully manage

an expanded organization.5. When competitors are faltering due to a lack of

managerial expertise or a need for particular resources that an organization possesses.

FIVE GUIDELINES FOR WHEN HORIZONTAL INTEGRATION

MAY BE AN ESPECIALLY EFFECTIVE STRATEGY ARE:




Market development

involves introducingpresent products or

services into newgeographic areas.

MARKET DEVELOPMENT




FIVE GUIDELINES FOR WHEN PRODUCT DEVELOPMENT

MAY BE AN EFFECTIVE STRATEGY TO PURSUE ARE:

1. When an organization has successful productsthat are in the maturity stage of the product lifecycle; the idea here is to attract satisfiedcustomers to try new (improved) products as aresult of their positive experience with theorganization¶s present products or services.

2. When an organization competes in an industry thatis characterized by rapid technologicaldevelopments.

3. When major competitors offer better-qualityproducts at comparable prices.

4. When an organization competes in a high-growthindustry.

5. When an organization has especially strongresearch and development capabilities.




DIVERSIFICATION STRATEGIES

CONCENTRIC DIVERSIFICATION:

Adding new, but

related, products or services is widely

called concentricdiversification.




SIX GUIDELINES FOR WHEN CONCENTRIC DIVERSIFICATION

MAY BE AN EFFECTIVE STRATEGY ARE:

1. When an organization competes in a no-growth or a slow-growth industry.

2. When adding new, but related, products wouldsignificantly enhance the sales of currentproducts.

3. When new, but related, products could be offeredat highly competitive prices.

4. When new, but related products have seasonalsales levels that counterbalance an organization¶sexisting peaks and valleys.

5. When an organization¶s products are currently inthe declining stage of the product¶s life cycle.

6. When an organization has a strong managementteam.




HORIZONTAL DIVERSIFICATION

Adding new, unrelated productsor services for present customersis called horizontal

diversification. This strategy is not as risky as

conglomerate diversification

because a firm already should befamiliar with its presentcustomers.




FOUR GUIDELINES FOR WHEN HORIZONTAL DIVERSIFICATION


1. When revenues derived from an organization¶scurrent products or services would increasesignificantly by adding the new, unrelatedproducts.

2. When an organization competes in a highly

competitive and/or a no-growth industry, asindicated by low industry profit margins andreturns.

3. When an organization¶s present channels of distribution can be used to market the newproducts to current customers.

4. When the new products have countercyclical(intended to compensate for immoderatedevelopments in a business cycle) sales patternscompared to an organization¶s present products.



COMPILES AND DEVELOPED

BY SIR IMRAN ZAIDI

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SIX GUIDELINES FOR WHEN CONGLOMERATE DIVERSIFICATION


1. When an organization¶s basic industry is experiencingdeclining annual sales and profits.

2. When an organization has the capital and managerial talentneeded to compete successfully in a new industry.

3. When an organization has the opportunity to purchase anunrelated business that is an attractive investment

opportunity.4. When there exists financial synergy between the acquiredand acquiring firm (note that a key difference betweenconcentric and conglomerate diversification is that theformer should be based on some commonality in markets,products, or technology, whereas the latter should be basedmore on profit considerations.)

5. When existing markets for an organization¶s presentproducts are saturated.

6. When antitrust action could be charged against anorganization that historically has concentrated on a singleindustry.




BY SIR IMRAN ZAIDI

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DEFENSIVE STRATEGIESRETRENCHMENT:

Retrenchment occurs when an organizationregroups through cost and asset reduction toreverse declining sales and profits. Sometimescalled a turnaround or reorganization strategy.

retrenchment is designed to fortify (strengthen) an

organization¶s basic distinctive competence. During retrenchment, strategists work with limited

resources and face pressure from shareholders,employees, and the media.

Retrenchment can entail (call for, asks for) selling

off land and buildings to raise needed cash,pruning (cut down) product lines, closing marginalbusinesses, closing obsolete factories, automatingprocesses, reducing the number of employees,and instituting expense control systems.




BY SIR IMRAN ZAIDI

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FIVE GUIDELINES FOR WHEN RETRENCHMENT


1. When an organization has a clearly distinctivecompetence but has failed to meet its objectives andgoals consistently over time.

2. When an organization is one of the weaker competitorsin a given industry.

3. When an organization is plagued by inefficiency, low

profitability, poor employee morale, and pressure fromstockholders to improve performance.

4. When an organization has failed to capitalize onexternal opportunities, minimize external threats, takeadvantage of internal strengths, and overcome internal

weaknesses over time; that is, when the organization¶sstrategic managers have failed (and possibly will bereplace by more competent individuals).

5. When an organization has grown so large so quicklythat major internal reorganization is needed.




BY SIR IMRAN ZAIDI

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DIVESTITURE

Selling a division or part of anorganization is called divestiture.

Divestiture often is used to raisecapital for further strategic

acquisitions or investments. Divestiture can be part of an overall

retrenchment strategy to rid anorganization of businesses that areunprofitable, that require too muchcapital, or that do not fit well with thefirm¶s other activities.




BY SIR IMRAN ZAIDI

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SIX GUIDELINES FOR WHEN DIVESTITURE


1. When an organization has pursued a retrenchmentstrategy and failed to accomplish neededimprovements.

2. When a division needs more resources to becompetitive than the company can provide.

3. When a division is responsible for anorganization¶s overall poor performance.

4. When a division is misfit with the rest of anorganization.

5. When a large amount of cash is needed quickly

and cannot be obtained reasonably from other sources.

6. When government antitrust action threatens anorganization




BY SIR IMRAN ZAIDI

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THREE GUIDELINES FOR WHEN LIQUIDATION


1. When an organization has pursued both aretrenchment strategy and a divestiturestrategy, and neither has been successful.

2. When an organization¶s only alternative isbankruptcy; liquidation represents an orderly

and planned means of obtaining the greatestpossible cash for an organization¶s assets. Acompany can legally declare bankruptcy firstand then liquidate various divisions to raise

needed capital.3. When the stockholders of a firm can

minimize their losses by selling theorganization¶s assets.




BY SIR IMRAN ZAIDI

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EXERCISE-1

Step-1 Recall the external opportunity/threat and internalstrength/weakness factors that you identified earlier for your university.

Step-2 Identify alternative strategies that you feel couldbenefit your university. Your proposed actions shouldallow the institution to capitalize on particular strengths,

improve upon certain weaknesses, avoid externalthreats, and/or take advantage of particular externalopportunities.

Step-3 Number from 1 to the total number of strategies liston the board. Everyone in class individually should ratethe strategies identified, using a 1 to 3 scale, where 1 = Ido not support implementation, 2 = I am neutral about

implementation, and 3 = I strongly supportimplementation. Justify your scaling.

Step-4 Finally score each strategy and develop thehierarchy of the strategies to implement accordingly tobenefit the university.




BY SIR IMRAN ZAIDI

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EXERCISE-2

Do this exercise bythe same steps as

exercise-1 for KKD




BY SIR IMRAN ZAIDI

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THANK YOU

FOR YOURCONCENTRATION

stg mgm lec-05 types of strategies

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