Ch 6 -1 Copyright © 2011 Pearson Education. Strategic Management: Concepts and Cases Arab World...

Strategic Management: Concepts and CasesArab World EditionFred R. DavidAbbas J. AliAbdulrahman Y. Al-Aali

Chapter 6: Strategies in Action


Chapter Outline


• Long-Term Objectives

• The Balanced Scorecard

• Types of Strategies

• Integration Strategies

• Intensive Strategies

• Diversification Strategies

Chapter Outline (cont’d)


• Defensive Strategies

• Porter’s Five Generic Strategies

• Means For Achieving Strategies

• Strategic Management in Nonprofit and Governmental Organizations

• Strategic Management in Small Firms

“Strategies for taking the hill won’t necessarily hold it.” – Amar Bhide, Professor, Tufts University

Strategies in Action

“When you have diversification, you are better balanced.” – Shahira Zeid, CEO, MZ Investments - Egypt


Ch 5 -6

Long-Term Objectives

• Quantifiable

• Measurable

• Realistic

• Understandable

• Challenging

• Hierarchical

• Obtainable

• Congruent

• Timeline


Varying Performance Measures by Organizational Level


Ch 5 -8

Financial vs. Strategic ObjectivesFinancial Objectives

• Growth in revenues

• Growth in earnings

• Higher dividends

• Higher profit margins

• Greater return on investment

• Higher earnings per share

• Rising stock price

• Improved cash flow


Ch 5 -9

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 first you don’t succeed, then you may on the second or third try.


The Balanced ScorecardRobert Kaplan & David Norton

• Strategy evaluation & control technique

• Balance financial measures with nonfinancial measures

• Balance shareholder objectives with customer & operational objectives



Source: Adapted from Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988) 40.

Ch 5 -12

Types of Strategies

Operational Level

Functional Level

Division Level

Corp Level

A Large Company


Ch 5 -13

Types of Strategies

Vertical IntegrationStrategies

Forward Integration

BackwardIntegration

HorizontalIntegration


Ch 5 -14

Types of Strategies

IntensiveStrategies

MarketPenetration

MarketDevelopment

ProductDevelopment

Innovation


Ch 5 -15

Types of Strategies

DiversificationStrategies

Related Diversification

Unrelated Diversification


Ch 5 -16

Types of Strategies

DefensiveStrategies

Retrenchment

Divestiture

Liquidation


2010 Examples

ForwardIntegration

Aramco has domestic and international refineries

BackwardIntegration

Juhayna has 59 production lines manufacturing 28 different products

HorizontalIntegration

Almarai acquired Teeba dairy company in Jordan, Beyti in Egypt, HADCO, and Al Safwa Dairies

Ch 5 -17


2010 Examples (cont’d)

MarketPenetration

Almarai secured agreements with large retailers such as Carrefour, Panda, and Al Othaim

Market Development

Alshaya Group’s (Kuwait) international network and profitable business partnerships

ProductDevelopment

Almarai introduced a variety of cheeses (e.g. full fat, light, and low salt)

InnovationApple Computer introduced the media-playing cell phone, the iPhone

Ch 5 -18



Related Diversification

LINKdotNET, the Egypt based internet services powerhouse, acquired eight new related online businesses

Unrelated Diversification

UAE based Al-Futtaim Group operates more than 65 companies across sectors as diverse as commerce, industry, and services

RetrenchmentNakheel, the property unit of Dubai World, cut several jobs in 2008 and 2010

Ch 5 -19



Divestiture Zain sold its operations in Africa to Bharti Airtel, India

LiquidationIraqi government decided to liquidate the assets of Iraqi Airways

Ch 5 -20


Michael Porter’s Generic Strategies

Cost Leadership Strategies(Low-Cost & Best-Value)

Differentiation Strategies

Focus Strategies(Low-Cost Focus & Best-Value Focus)


Means for Achieving Strategies

•Joint Venture/Partnering

•Mergers and Acquisitions

•Private Equity Acquisitions

•First-Mover Advantages

•Outsourcing


Joint Venture/Partnering

• Joint venture is a popular strategy• Two or more companies form a temporary partnership

or consortium for the purpose of capitalizing on some opportunity.

• Unlike the many U.S. counterparts, Arab corporations have sought cooperative and joint venture agreements with global corporations


Mergers and Acquisitions

• These are two commonly used ways to pursue strategies

• A merger occurs when two organizations of about equal size unite to form one enterprise

• A acquisition occurs when a large organization purchases a smaller firm or vice versa


Mergers and Acquisitions (cont’d)

Key reasons why mergers and acquisitions fail:

• Organizational integration difficulties

• Inadequate evaluation of target

• Large or extraordinary debt

• Inability to achieve synergy

• Too much diversification


Mergers and Acquisitions (cont’d)

Key reasons why mergers and acquisitions fail:

• Mergers overly focused on acquisitions

• Too large an acquisition

• Difficult to integrate different organizational cultures

• Reduced employee morale due to layoffs and relocations


Private Equity Acquisitions

• Among the world’s largest 300 private equity firms in 2010, six were from the Arab world.

• Foreign private equity firms are expanding their activities in the Arab world.


First Mover Advantages

First Mover AdvantagesBenefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.


Outsourcing

Business-Process Outsourcing (BPO)Companies taking over the functional operations of other firms.


Global Perspective

Joint Ventures Mandatory for All Foreign Firms in India

• The World Bank expects the Indian economy to grow by 8.7 percent in 2012

• This rapid growth is transforming the lives of 1 billion people in India

• India is experiencing 6.6% inflation

• Gap between rich and poor widening

• Vast majority of joint ventures fail

• Tourism also growing


Strategic Management in Nonprofit and Governmental Organizations

• Educational Institutions

• Medical Organizations

• Governmental Agencies and Departments


Strategic Management in Small Firms

• 95% of all businesses in the Arab world region are

family firms

• Most Arab entrepreneurs start off as owners of small

and medium-sized firms

• Strategic management is vital for small companies

• Lack of strategic management knowledge is a serious

obstacle for many small business owners


For Review (Chapter 6)

Key Terms & Concepts

Acquisition Combination Strategy

Backward IntegrationCooperative

Arrangements

Bankruptcy Cost Leadership

Business-ProcessingOutsourcing (BPO)

Differentiation




Diversification Strategies

Forward Integration

Divestiture Franchising

First-Mover Advantages Friendly Merger

Focus Generic Strategies




Horizontal Integration Joint Venture

Hostile Takeover Leveraged Buyout

Integration Strategies Liquidation

Innovation Long-Term Objectives




Market Development Related Diversification

Market Penetration Retrenchment

Merger Takeover

Product DevelopmentTurbulent, High-Velocity

Markets




Competitive Advantage Ethnocentric

Competitive Risks Export

Contract Manufacturing Franchising

Contractual Approaches Geocentric




Unrelated diversification Vertical Integration


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Ch 6 -1 Copyright © 2011 Pearson Education. Strategic Management: Concepts and Cases Arab World...

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Transcript of Ch 6 -1 Copyright © 2011 Pearson Education. Strategic Management: Concepts and Cases Arab World...