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IN MOST INDUSTRIES, CORPORATIONS ARE MUTUALLY DEPENDENT. ACOMPETITIVE MOVE BY ONE FIRM CAN BE EXPECTED TO HAVE ANOTICEABLE EFFECT ON ITS COMPETITORS AND THUS MAY CAUSERETALIATION OR COUNTEREFFORTS. FOR EXAMPLE, THE ENTRY BYMAIL ORDER COMPANIES SUCH AS DELL AND GATEWAY INTO A PCINDUSTRY PREVIOUSLY DOMINATED BY IBM, APPLE, AND COMPAQINCREASED THE LEVEL OF COMPETITIVE ACTIVITY TO SUCH ANEXTENT THAT ANY PRICE REDUCTION OR NEW PRODUCT INTRODUCTIONIS NOW QUICKLY FOLLOWED BY SIMILAR MOVES FROM OTHER PCMAKERS. ACCORDING TO PORTER, INTENSE RIVALRY IS RELATED TOTHE PRESENCE OF SEVERAL FACTORS, INCLUDING:..............13
Number of competitors. When competitors are few and roughly equal in size, such as in the U.S. auto andmajor home appliance industries, they watch each other carefully to make sure that any move by another firmis matched by an equal countermove................................................................................................................13Rate of industry growth. Any slowing in passenger traffic tends to set off price wars in the airline industrybecause the only path to growth is to take sales away from a competitor.........................................................13Product or service characteristics. Many people choose a videotape rental store based on location, variety ofselection, and pricing because they view videotapes as a commoditya product whose characteristics are thesame regardless of who sells it.........................................................................................................................13Amount of fixed costs. Because airlines must fly their planes on a schedule regardless of the number of payingpassengers for any one flight, they offer cheap standby fares whenever a plane has empty seats. ...................13Capacity. If the only way a manufacturer can increase capacity is in a large increment by building a new plant(as in the paper industry), it will run that new plant at full capacity to keep its unit costs as low as possiblethus producing so much that the selling price falls throughout the industry......................................................13Height of exit barriers. Exit barriers keep a company from leaving an industry. The brewing industry, forexample, has a low percentage of companies that leave the industry because breweries are specialized assetswith few uses except for making beer...............................................................................................................13Diversity of rivals. Rivals that have very different ideas of how to compete are likely to cross paths often andunknowingly challenge each others position...................................................................................................14
SUBSTITUTE PRODUCTS ARE THOSE PRODUCTS THAT APPEAR TO BE
DIFFERENT BUT CAN SATISFY THE SAME NEED AS ANOTHER PRODUCT.FOR EXAMPLE, THE FAX IS A SUBSTITUTE FOR FEDEX, NUTRASWEETIS A SUBSTITUTE FOR SUGAR, AND BOTTLED WATER IS ASUBSTITUTE FOR A COLA. ACCORDING TO PORTER, SUBSTITUTESLIMIT THE POTENTIAL RETURNS OF AN INDUSTRY BY PLACING ACEILING ON THE PRICES FIRMS IN THE INDUSTRY CAN PROFITABLYCHARGE.19 TO THE EXTENT THAT SWITCHING COSTS ARE LOW,SUBSTITUTES MAY HAVE A STRONG EFFECT ON AN INDUSTRY. TEACAN BE CONSIDERED A SUBSTITUTE FOR COFFEE. IF THE PRICE OFCOFFEE GOES UP HIGH ENOUGH, COFFEE DRINKERS WILL SLOWLYBEGIN SWITCHING TO TEA. THE PRICE OF TEA THUS PUTS A PRICE
CEILING ON THE PRICE OF COFFEE. SOMETIMES A DIFFICULT TASK,THE IDENTIFICATION OF POSSIBLE SUBSTITUTE PRODUCTS ORSERVICES MEANS SEARCHING FOR PRODUCTS OR SERVICES THAT CANPERFORM THE SAME FUNCTION, EVEN THOUGH THEY MAY NOT APPEARTO BE EASILY SUBSTITUTABLE. .............................15
BUYERS AFFECT AN INDUSTRY THROUGH THEIR ABILITY TO FORCEDOWN PRICES, BARGAIN FOR HIGHER QUALITY OR MORE SERVICES,AND PLAY COMPETITORS AGAINST EACH OTHER. A BUYER OR A GROUPOF BUYERS IS POWERFUL IF SOME OF THE FOLLOWING FACTORS HOLDTRUE:....................................................15
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RECOMMENDED STRATEGY .................................................................................................74
Introduction
Current Situation
Current Performance
Strategic Posture
Mission
Vision (What do we want to become?)& Mission ( What is
our business?)
Components of a Mission Statement:
a. Customers: Who are the firms customers?
b. Products or Services: What are the firms major
products or services?
c. Markets: Geographically, where does the firm
compete?
d. Concern for Survival, Growth, & Profitability: Is
the firm committed to growth and financial
soundness?
e. Philosophy: What are the basic beliefs, values,
aspirations, & ethical priorities of the firm?f. Self-Concept: What is the firms distinctive
competence or major competitive advantage?
g. Concern for Public Image: Is the firm responsive
to social, community & environmental concerns?
h. Concern for employees: Are employees a valuable
asset of the firm?
Objectives
Strategies
Policies
External Environment: Opportunities and Threats (SWOT)
Societal Environment (P.E.S.T Factors)
Political - Legal Factors
Government regulations & deregulations.
Changes in tax laws.
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Changes in patents() laws
Level of government subsidies
Country to other countries relationships
Import-export regulations
Political conditions in foreign countries
Size of government budgets
Antitrust regulations
Environmental protection laws
Tax laws
Special incentives
Foreign trade regulations
Attitudes toward foreign companies
Laws on hiring and promotion
Stability of government
ecological/environmental issues
current legislation home market
future legislation
European/international legislation
regulatory bodies and processes
government policies
government term and change
trading policies
funding, grants and initiatives
home market lobbying/pressure groups
international pressure groups
wars and conflict
political stability,
facilities for the entrance for new foreign
investment,
taxation law,
deregulation trend
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Demographics (age, size,)- continuous growth in the
world population
Whats socially acceptable?
Number of marriages, divorces, births, and deaths.
Social security programs
Per capita Income
Traffic congestion
Trust in government
Average level of education
Population changes by race, age, and sex
Air pollution
Lifestyle changes
Career expectations
Consumer activism
Rate of family formation
Growth rate of population
Age distribution of population
Regional shifts in population
Life expectancies
Birth rates
lifestyle trends
demographics
consumer attitudes and opinions
media views
law changes affecting social factors
brand, company, technology image
consumer buying patterns
fashion and role models
major events and influences
buying access and trends
ethnic/religious factors
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advertising and publicity
ethical issues
Technological Factors
The Internet; (rapid growth in the internet
infrastructure)
- The pace of technological change.
- The rate of development
- The presence of skilled persons
- Presence of technological capabilities.
Internet availability and usage
E-commerce
The rate of development
The presence of skilled persons
Presence of technological capabilities.
Substitute might replace the organizations
product.
Total government spending for R&D
Total industry spending for R&D
Focus of technological efforts
Patent protection
New products
New developments in technology transfer from lab
to marketplace
Productivity improvements through automation
competing technology development
research funding
associated/dependent technologies
replacement technology/solutions
maturity of technology
manufacturing maturity and capacity
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information and communications
consumer buying mechanisms/technology
technology legislation
innovation potential
technology access, licensing, patents
intellectual property issues
global communications
Task Environment (Industry)
Porters Approach
Michael Porter contends that a corporation is most
concerned with the intensity of competition within its
industry. The level of this intensity is determined by
basic competitive forces. The collective strength of these
forces, he contends, determines the ultimate profit
potential in the industry, where profit potential is
measured in terms of long-run return on invested capital.
In carefully scanning its industry, the corporation must
assess the importance to its success of each of the 6
forces: threat of new entrants, rivalry among existing
firms, threat of substitute products or services,bargaining power of buyers, bargaining power of suppliers,
and relative power of other stakeholders.
Threat of New Entrants
Rivalry among Existing Firms
Threat of Substitute Products or Services
Bargaining Power of Buyers
Bargaining Power of Suppliers
Relative Power of Other Stakeholders
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The bargaining power of buyers, how strong?
Criteria
A single or very few buyers purchase a high
proportion of total sale
Product volume purchased
Products are standard or undifferentiated
Low switching costs
Buyer is in low profit business = sensitive to
cost
Real threat of backward integration from buyerIndustry product not important for buyer quality
The buyer has full information on product
The bargaining power of suppliers, how strong?
Criteria
Dominated by few companies, more concentrated than
the target industry
The target industry is NOT important to the
supplier
Supplier product is unique, or high switching cost
Supplier product is critical for the business of
the target
Substitutes are not easily available
Real threat of forward integration from supplier
Threat of new entrants barriers to entry howhigh
Criteria
Powerful economies of scale
Strong customer loyalty by product
Rivalry among existing firms?
Criteria
Number of firms, few equally balanced giants
Industry growth rate
Very high or fixed storage cost
Commoditization, low differentiation
Capacity, intermittent overcapacity
Diversity of rivalry
High strategic/corporate stakes
High exit barriers
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differentiation
Large capital investment requirements
Switching cost for new products are high
Lack of access to distribution channels
Structural cost disadvantage
Government policy
Substitutes:
Criteria
Relative perceived value tending to improve
Where the threat is to another industry's cash cow
1- Threats of new entrants
Barriers to entry:
New entrants to an industry typically bring to it new capacity, a
desire to gain market share, and substantial resources. They
are, therefore, threats to an established corporation. The
threat of entry depends on the presence of entry barriers and
the reaction that can be expected from existing competitors. An
entry barrier is an obstruction that makes it difficult for a
company to enter an industry. For example, no new domestic
automobile companies have been successfully established in the
United States since the 1930s because of the high capital
requirements to build production facilities and to develop adealer distribution network. Some of the possible barriers to
entry are:
The need to gain economic of scale quickly
The need to gain technology and specialized know-how
The lack of experience
Strong customer loyalty
Strong brand preference
Large capital requirements
Lack of adequate distribution channels
The potential saturation of market.
Government regulatory
Capital intensity
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Economies of scale-- Scale economies in the production
and sale of mainframe computers, for example, gave IBM a
significant cost advantage over any new rival
Learning curve effects
Extent of vertical integration
Level of product differentiation
Ease of access to distribution channels
Amount of switching costs
Product Differentiation. Corporations like Procter &Gamble and General Mills, which manufacture products
like Tide and Cheerios, create high entry barriersthrough their high levels of advertising and promotion.
Capital Requirements. The need to invest huge financialresources in manufacturing facilities in order to
produce computer microprocessors creates a significant
barrier to entry to any competitor for Intel.
Switching Costs. Once a software program like Excel orWord becomes established in an office, office managers
are very reluctant to switch to a new program because
of the high training costs.
Access to Distribution Channels. Small entrepreneursoften have difficulty obtaining supermarket shelf space
for their goods because large retailers charge for
space on their shelves and give priority to the
established firms who can pay for the advertising
needed to generate high customer demand.
Cost Disadvantages Independent of Size. Microsoftsdevelopment of the first widely adopted operating
system (MS-DOS) for the IBM-type personal computer gaveit a significant advantage over potential competitors.
Its introduction of Windows helped to cement that
advantage.
Government Policy. Governments can limit entry into anindustry through licensing requirements by restricting
access to raw materials, such as off-shore oil
drilling sites.
Potential Entry of New Competitors
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Barriers to entry are important
Quality, pricing, and marketing can
overcome barriers
2- Rivalry among existing firms
In most industries, corporations are mutually dependent. A
competitive move by one firm can be expected to have a
noticeable effect on its competitors and thus may cause
retaliation or counterefforts. For example, the entry by mail
order companies such as Dell and Gateway into a PC industry
previously dominated by IBM, Apple, and Compaq increased the
level of competitive activity to such an extent that any
price reduction or new product introduction is now quickly
followed by similar moves from other PC makers. According to
Porter, intense rivalry is related to the presence of severalfactors, including:
Number of competitors. When competitors are few androughly equal in size, such as in the U.S. auto and
major home appliance industries, they watch each other
carefully to make sure that any move by another firm
is matched by an equal countermove.
Rate of industry growth.Any slowing in passenger traffic
tends to set off price wars in the airline industrybecause the only path to growth is to take sales away
from a competitor.
Product or service characteristics. Many people choose avideotape rental store based on location, variety of
selection, and pricing because they view videotapes as
a commoditya product whose characteristics are the
same regardless of who sells it.
Amount of fixed costs. Because airlines must fly their
planes on a schedule regardless of the number ofpaying passengers for any one flight, they offer cheap
standby fares whenever a plane has empty seats.
Capacity. If the only way a manufacturer can increasecapacity is in a large increment by building a new
plant (as in the paper industry), it will run that new
plant at full capacity to keep its unit costs as low
as possiblethus producing so much that the selling
price falls throughout the industry.
Height of exit barriers.Exit barriers keep a company from
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leaving an industry. The brewing industry, for
example, has a low percentage of companies that leave
the industry because breweries are specialized assets
with few uses except for making beer.
Diversity of rivals.Rivals that have very different ideasof how to compete are likely to cross paths often and
unknowingly challenge each others position.
Number of competitors
Relative size of competitors
Industry profitability
Stage in industry lifecycle
Possible gain from successful move
Capacity Intensity
Switching Costs
Level of product differentiation
Rivalry Among Competing Firms
Most powerful of the five forces
Focus on competitive advantage of strategies
3- Threats of substitutes
Availability of substitute products
Relative price of substitute products declines
Consumers switching cost decreases
Amount of switching costs
Relative prices of substitutes
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Substitute products are those products that appear to be
different but can satisfy the same need as another product.
For example, the fax is a substitute for FedEx, Nutrasweet
is a substitute for sugar, and bottled water is a substitute
for a cola. According to Porter, Substitutes limit the
potential returns of an industry by placing a ceiling on the
prices firms in the industry can profitably charge.19 To
the extent that switching costs are low, substitutes may
have a strong effect on an industry. Tea can be considered a
substitute for coffee. If the price of coffee goes up high
enough, coffee drinkers will slowly begin switching to tea.
The price of tea thus puts a price ceiling on the price of
coffee. Sometimes a difficult task, the identification of
possible substitute products or services means searching for
products or services that can perform the same function,
even though they may not appear to be easily substitutable.
Potential Development of Substitute Products
Pressures increase when consumers
switching costs decrease
Firms plans for increased capacity &
market penetration
4- Bargaining power of Buyers
Buyers affect an industry through their ability to force downprices, bargain for higher quality or more services, and play
competitors against each other. A buyer or a group of buyers
is powerful if some of the following factors hold true:A buyer purchases a large proportion of the sellers
product or service (for example, oil filters purchased by
a major automaker).
A buyer has the potential to integrate backward by
producing the product itself (for example, a newspaper
chain could make its own paper).
Alternative suppliers are plentiful because the product
is standard or undifferentiated (for example,motorists can choose among many gas stations).
Changing suppliers costs very little (for example,
office supplies are easy to find).
The purchased product represents a high percentage of a
buyers costs, thus providing an incentive to shop
around for a lower price (for example, gasoline
purchased for resale by convenience stores makes up
half their costs).
A buyer earns low profits and is thus very sensitive to
costs and service differences (for example, grocery
stores have very small margins).
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The purchased product is unimportant to the final quality
or price of a buyers products or services and thus
can be easily substituted without affecting the final
product adversely (for example, electric wire bought
for use in lamps).
When customers are:
concentrated
large
buy in volume
Bargaining Power of Buyers
Customers concentrated or buy in
volume affects intensity of competition
Consumer power is higher where
products are standard or undifferentiated
Relative size of buyers
Number of buyers
Importance of buyers as major customers
Threat of backward integration
Amount of switching costs
Uniqueness of product
Level of buyer profitability
5- Bargaining power of suppliers
Suppliers can affect an industry through their ability to
raise prices or reduce the quality of purchased goods and
services. A supplier or supplier group is powerful if
some of the following factors apply:
The supplier industry is dominated by a few companies,but it sells to many (for example, the petroleum
industry).
Its product or service is unique and/or it has built up
switching costs (for example, word processing
software).
Substitutes are not readily available (for example,
electricity).
Suppliers are able to integrate forward and compete
directly with their present customers (for example, a
microprocessor producer like Intel can make PCs).
A purchasing industry buys only a small portion of the
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supplier groups goods and services and is thus
unimportant to the supplier (for example, sales of
lawn mower tires are less important to the tire
industry than are sales of auto tires).
When suppliers are:
Few suppliers who supply the required products
The products have few substitutes
The switching cost is relatively high
Bargaining Power of Suppliers
Large number of suppliers & few substitutes affects
intensity of competition
Backward integration can gain control or ownership of
suppliers
Relative size of suppliers
Number of suppliers
Importance of suppliers as major
sources
Threat of forward integrationAmount of switching costs
Importance of products to buyer
Level of supplier profitability
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STRATEGIES
TACTICS
ACTIONS
INTERNALSTRENGTHS
1. Cash position
2. Luxury car image3. New car models
4. Location dose tosuppliers
5. Engineering andtechnology
INTERNALWEAKNESSES
1. High costs
2. Venturing intounrelated businesses
3. Organizationaldiversity
4. Reliance on pastsuccesses andbureaucracy
5. Long cycle for newmodel development
6. Relatively weak
position in JapanEXTERNALOPPORTUNITIES
1. Demand for luxury cars
2. Eastern Europe,especially East Germany
3. Prosperity through EC1992
4. Electronics technology
S-0 STRATEGY
1. Develop new models(using high-tech) andcharge premiumprices
2. Use financialresources to acquireother companies or
increased productioncapacity
W-0 STRATEGY
1. Reduce coststhrough automationand flexiblemanufacturing
2. Manufacture partsin Eastern Europe
3. Reorganizations
4. Daimler-Benzmanagementholding companies
EXTERNALTHREATS
5. Decrease in defenseneeds because of easing ofEastWest tensions
6. BMW, Volvo, Jaguar,
Lexus, Infinity in Europe7. BMW in Japan
8. Diesel emissions
9. Renault/Volvocooperation
10. Political instability inSouth Africa
S-T STRATEGY
1. Transform defensesector to consumersector
2. Develop new models
to compete especiallyin Europe
W-T STRATEGY
1. Retrench in SouthAfrica
2. Form strategicalliance with
Mitsubishi topenetrate theJapanese market
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Internal Environment: Strength and Weaknesses (SWOT)
Corporate Structure---- Changes in Strategies = changes in structure(Restructuring as a way to improve performance)
1. Changes in strategy often require changes in the way an organization is
structured for two major reasons:
a. First, structure largely dictates how objectives and policies will be established.For example, objectives and policies established under a geographic
organizational structure are couched in geographic terms. Objectives and
policies are stated largely in terms of products in an organization whose
structure is based on product groups. The structural formula for developing
objectives and policies can significantly impact all other strategy-implementation issues.
b. Second major reason why changes in strategy often require changes instructure is that structure dictates how resources will be allocated.
2. Changes in strategy lead to changes in organizational structure. Structure should
be designed to facilitate the strategic pursuit of a firm and, therefore, follow
strategy. The below illustrates a structure sequence repeated as organizations
grow and change over time.
3. There is not just one optimal organizational design or structure for a given
strategy or type of organization.
The Functional Structure
1. The most widely used structure is the functional or centralized type because this
structure is the simplest and least expensive of the seven alternatives.
2. A functional structure group's tasks and activities by business function such as
product/operations, marketing, finance/accounting, R&D, and computer
information systems.
a. Advantages: Besides being simple and inexpensive, a functional
structure also promotes specialization of labor, encourages efficiency,
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minimizes the need for an elaborate control system, and allows rapid
decision-making.
b. Disadvantages: Some disadvantages of a functional structure are that
it forces accountability to the top, minimizes career development
opportunities, and is sometimes characterized by low employee morale.
The Divisional Structure
1. The divisional or decentralized structure is the second most common type
used by American businesses.
2. The divisional structure can be organized in one of four ways: by
geographic area, product or service, customer, or process. With a divisional
structure, functional activities are performed both centrally and in each
separate division.
a. Advantages: A divisional structure has some clear advantages. First, and
perhaps foremost, is accountability. Other advantages of the divisional
structure are that it creates career development opportunities formanagers, allows local control of local situations, leads to a competitive
climate within an organization, and allows new businesses and products to
be added easily.
b. Disadvantages: Perhaps the most important limitation is that a divisional
structure is costly.
3. A divisional structure by geographic area is appropriate for organizations
whose strategies need to be tailored to fit the particular needs and
characteristics of customers in different geographic regions.
4. A division structure by product is most effective for implementingstrategies when specific products or services need special emphasis.
5. A division structure by process is similar to a functional structure,
because activities are organized according to the way work is actually
performed.
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The Strategic Business Unit (SBU) Structure
1. The SBU structure group's similar divisions into strategic business units and
delegate authority and responsibility for each unit to a senior executive who reports
directly to the CEO.
a. Advantages: This change in structure can facilitate strategy implementation by
improving coordination between similar divisions and channeling
accountability to distinct business units.
b. Disadvantages: Two disadvantages of an SBU structure are that it requires an
additional layer of management, which increases salary expenses, and the role
of the group vice president is often ambiguous.
The Matrix Structure
1. It is the most complex of all designs because it depends upon both vertical and
horizontal flows of authority and communication.
a. It can result in higher overhead because it creates more managerial positions.
b. It also creates dual lines of budget authority, dual sources of reward and
punishment, shared authority, and dual reporting channels.
c. Advantages are that project objectives are clear, there are many channels of
communication, workers can see visible results of work, and projects can be
shut down easily.
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Restructuring, Reengineering
Reshaping Corporate Landscape
1. Restructuring, also called downsizing, rightsizing, or delayering, involvesreducing the size of the firm in terms of number of employees, divisions or units,
and hierarchical levels in the firms organizational structure.
2. The Internet is ushering in a new wave of business transformations.
3. Reengineering is concerned more with employee and customer well-being than
with shareholder well-being.
Restructuring
1. Firms often employ restructuring when various ratios appear out of line withcompetitors, as determined through benchmarking exercises.
a. The primary benefit sought from restructuring is cost reduction. The downside ofrestructuring can be reduced employee commitment, creativity, and innovation
that accompanies the uncertainty and trauma associated with pending and actual
employee layoffs.
Reengineering
1. In reengineering, a firm uses information technology to break down functional
barriers and create a work system based on business processes, products, or outputs
rather than on functions or inputs.
2. A benefit of reengineering is that it offers employees the opportunity to see more
clearly how their particular jobs impact the final product or service being marketed
by the firm.
3. Reengineering, also called process management, process innovation, or process
redesign, involves reconfiguring or redesigning work, jobs, and processes for the
purpose of improving cost, quality, service, and speed.
The organization is the process of arranging people andother resources to work together to accomplish a goal and
as a result of the company strategy the organization
structure must be adjusted to cope with the new strategy
and achieve its goals.
The organization's strategy to grow and go more
international must be reflected on the organization
structure to achieve the required result.
Simple structure:
Owner-manager makes decisions.
Little specialization of tasks.
Few rules, little formalization.
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Advantages:
Provides high flexibility
Rapid product introduction
Few coordination problems
Leadership Style +HR Paper
According to behavioural approach, there are four styles:
1. Laissez-faire shows low concern for both people andtask. Turn most decisions over the work group and show
less interest in the work process or its results.
2. Directive or Autocratic, High concern for task and lowconcern for people. Make most of the decisions, gives
directions and expect his orders to be followed.3. Supportive or human relations leader shows high concern
for people and low concern for tasks. Warm in
interpersonal relationships, avoid conflict, and seek
harmony in decision-making.
4. Participative or democratic, shows high concern forboth people and task. Share decisions with the work
group, encourage participation and support the work
efforts of others.
According to situational Approach:
o Delegating, allowing the group to make and takeresponsibilty for task decisions(low task low
relationship style).
o Participating,emphasizing shared ideas andparticipation decsions on task directions (low task
high relationship style)
o Selling,explaining task directions in supportiveand persuasive way(high task high relationship
style)
o Telling,giving specific task directions and closelysupervising work ( high task low relationship style)
o Charismatic Leader , develops special leaderfollower relationships and inspire followers in
extraordinary way
o Transformational leader,inspirational leader thatgets people to do more in achievinh high performance
o Transactional leader, directs the feeorts of othersthrough task rewards and structure.
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2. It may take on such forms as sabotaging production
machines, absenteeism, filing unfounded grievances, and
unwillingness to cooperate.
3. Resistance to change can emerge at any stage or
level of the strategy-implementation process.
4. There are three commonly used strategies for
implementing change:
a) Force change strategy
b) Educative change strategy
c) Self-interest change strategy
5. It represents major threat to strategy
implementation, it could be in the form of sabotagingmachines, absenteeism, filing unfounded grievances, and
unwillingness to cooperate effectively
6. Thus, successful strategy implementation must
provide accurate information to employees and hinges
around developing a climate conductive to change.
7. Raises anxiety; fear concerning
a) Economic loss
b) Inconvenience
c) Uncertainty
d) Break in status-quo
Egyptian Culture needs:
- Culture of completion
- Focus on quality
- Encourage ethical practice
- Personal accountability
3 Main forces help to sustain the organization culture:
1- Selection method
2- The action of top management
3- Socilaization
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Corporate ResourcesMarketing (STP and 4Ps)
Market segmentation, Targeting and Positioning
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(A) Marketing segmentation (Level of marketsegmentation)
Determining distinct groups of buyers (segments) with
different needs, characteristics, or behavior.
Mass Marketing
o Same product to all consumers with Homogeneous
preferences; Implements mass production concept
o Very large segment
Niche Marketing
o Narrowly defined customer group seeking a distinctive
mix of benefits & willing to pay premium.
o Specialization; very small market segment
o Niche is relatively small market which doesnt attract
many other competitors; at the same time it has hugereturn (profit).
Local Marketing
o Marketing activities/programs tailored to the needs
and wants of local customer groups
o Grassroots (Cultural) Marketing
Individual Marketing
o Empowers consumers to design the product and service
offering of their choice.
o Micromarketing
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o One-to-One Marketing
o Customerization
Segmenting consumer markets
Geographic: World region, country, city, density,climate
Demographic: age, gender, family size, income,occupation ,, education, religion, racegeneration, nationality
Psychographic: social class, lifestyle, personality
Behavioral: occasions, benefits, user rate, loyalty,attitude toward product.
Market segment attractivness:
(B) Market Targeting
Evaluating each segments attractiveness and selecting
one or more segments to enter.
o Mass (undifferentiated) marketing
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o The same offer with the a advantage of economic of
scale
o Segment (differentiated) marketing
o Several segment with offer for each
o Concentrated (niche) marketingo Target Singles with a single marketing mix
o Local marketing
o Tailoring products for the local customer group needs
o Customization
o Tailoring products for the small group of people or
specific individuals needs.
Undifferentiated marketing (mass)Differential marketing
Concentrated Marketing
Micromarketing
(C) Positioning
Criteria of Positioning:
1. Feature / Benefits:
features or characteristics that is already included in
the product
benefit for customers
User Category:
How to position you based on users who use this product
ex:
Against Competitors:
Ex:
Hybrid:
Mixture between more than one criteria and it is the most
preferred.
Ex: fine tissues smooth for women (Feature + User)
Ex: Volvo dropped when Mercedes and BMW came out with
things beyond safety.
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Positioning by Packaging:
Packaging creates a distinct identity and brand image.
Many companies view the package as an important way to
communicate and create an impression of their brand in the
mind of consumers. Ex: Glittery Perfume package
Repositioning: Sometimes marketers want to reposition theproduct in marketplace due to some reasons like; change
in customer needs, showing the product in higher quality
or the current position become very competitive.
Arranging for a product to occupy a clear, distinctive, and
desirable place relative to competing products in the minds
of target consumers. i.e. Chevy Blazer is like a rock.
Begin by differentiating the companys marketing offer that
will deliver more value than the competitors thus gaining
competitive advantage
1.Choose a broad positioning for the product
This framework is based on the notion that in every market
there are three types of customers:
1. Some customers favor the firm that is advancing thetechnological frontier (product leadership).
2. Another customer group does not need the latestproducts but wants highly reliable and dependable
performance (operational excellence).
3. A final customer group prefers the firm that is mostresponsive and flexible in meeting their individual
needs (customer intimacy).
2.Choose a specific positioning for the product
Companies need to go beyond a broad positioning to express
a more concrete benefit and reason to buy. Many companies
advertise a single major benefit positioning, drawing from
such possibilities as:
Volvos case is interesting in that Volvo recognized that
in every country of the world, some car buyers make safety
their highest priority. In discovering this global niche,
Volvo is able to sell its cars all over the world. Volvo
has added a second benefit positioning of their automobile,
namely the claim that it is one of the most durable cars.
They use that second positioning in countries like Mexico,
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where the buyer is concerned more with buying a ling-
lasting car than with safety.
Best quality
Best performance
Most reliable
Most durable
Safest
Fastest
Best value for the money
Least expensive
Most prestigious
Best designed or styled Easiest to use
Most convenient
3.Choose a value positioning for the product
More for More
Companies can always be found that specialize in making the
most upscale version of the product and charging a high
price to cover their higher costs. Called luxury goods,
such products claim to be better in quality, craftsmanship,durability, performance, or style.
Yet more-for-more brands are vulnerable: They often invite
imitators who claim the same quality but are priced lower.
And luxury goods are at risk during economic downturns when
buyers become more cautious in their spending.
More for the Same
Companies have been able to attack a more for more brand
by introducing a brand claiming comparable quality and
performance but priced much lower . The Toyota companyintroduced its new Lexus automobile with more for the
same value positioning.
The Same for Less
It seems that everyone is happy when they can buy a typical
product or brand at less than the normal price. Everything
Arrow shirts, Goodyear tires, Panasonic TV setsseems to be
available at a lower price at some store or discount shop.
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one of its shoes as the best to wear for racing and
another as the best to wear for playing basketball.
User positioning: The product is positioned in terms of atarget user group, Apple Computer describes its computers
and software as the best for graphic designers.
Competitor positioning: The product suggests itssuperiority or difference from a competitors product.
Avis described itself as a company that tries harder
(than Hertz, by implication); 7 UP called itself the
Uncola,
Category positioning: The Company may describe itself asthe category leader, Xerox means copy machines.
Quality/price positioning: The product is positioned at a
certain quality and price level. Taco Bell represents itstacos as giving the most value for the money.
Companies must avoid the following errors inpositioning their brand:
Under-posirioning: Failing to present a strong centralbenefit or reason to buy this brand
Over-posirioning: Adopting such a narrow positioning thatsome potential customers may overlook the brand
Confused positioning: Claiming two or more benefits thatcontradict each other.
Irrelevant positioning: Claiming a benefit which fewprospects care about
Doubtful positioning: Claiming a benefit that people willdoubt the brand or company can actually deliver
Product & Service Strategy:
Methods used to improve/differentiate the product and
increase sales or target sales more effectively to
gain a competitive advantage e.g
4Ps
The
Distribution
Plan
ThePromotional
Plan
Pricing
Policies
and
Strategies
Product andService
Strategies
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Extension strategies
Specialized versions
New editions
Improvements real or otherwise!
Changed packaging
Technology, etc.
Product modification Strategies
1. Line extension: additional items in the same productunder the same brand
Advantage:
Saving cost
Minimize risk in introducing new products
Disadvantage:
Brand dilution
consumer confusion
Cannibalization on original product
2.brand extension: launching new product under thesame brand
Advantage:
Saving high advertising cost and build brand name
Give new products instant recognition and faster
acceptance
Disadvantage:
consumer confusion about the brand image and may
loose its positioning
may harm consumer attitude toward other product
under the same brand
3.multi branding: new brand name in the same productAdvantage:
establish different features
appeal to different buying motives
Disadvantage:
multi branding might gain only small market share
need resources on building different brands
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Optional pricing: The organisation sells optional extrasalong with the product to maximise its turnover. This
strategy is used commonly within the car industry.
Promotion:
Promotional Strategy:
Push Strategy: promotion to intermediaries in thedistribution channel to move or push products. For example;
bonus to retailers to spread good word of mouth and
recommend your product to the consumers.
Pull Strategy: promotion is designed to stimulateconsumers demand, usually though branding. For example;
free tooth brush with toothpaste.
Strategy Mix: is a combination of both, ideal strategy
Profile Strategy: used by companies on 2 occasions;1. Crisis or rumors
2. New company
Promotion strategies
Advertising
Used when:
Build up long term image
Cost efficient in reaching geographically dispersed
buyers
Trigger quick sales
Gives image of good value to the brand
Sales promotion
Used when:
Encourage trial or purchase
Short run effect
Boosting sagging sales
Public relation
Used when:
Building up good corporate image
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Heading off unfavorable rumors
Personal selling
Used when:
Making sales
Building customer relations preference,
conviction and solicit action
Build up buyers
Direct and interative marketing
Used when:
Targeted individual consumers
Localized and customized used to reach well defined
target segments
Distribution & Place:
Up-market: prestigious areaso Down-market: poor or non-prestigious area. Ex: displayingproducts that match people
o Some products go upper market only & this is unethical
but legal; ex: MacDonalds does not open any branches in
local areas.
Distribution strategies
Identify major alternatives channels
Number of intermediary:
Exclusive distribution
selective distribution
intensive distribution
Evaluting alternatives channels
Based on:
Channels cost
Sales output
Product complexity
Selecting channels
Based on:
Years on business
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Growth record
Financial strength
Service reputation
Finance
The interpretation of the ratios:
Liquidity ratios
The ratio indicates that the company is able to meet all
its current and immediate obligations to the creditors, as
it has the capability to generate cash in a short period
through liquidating the current assets.
It attempts to measure a company's ability to pay off itsshort-term debt obligations.
1. The concept behind this ratio isto ascertain whether a company's short-term assets (cash,cash equivalents, marketable securities, receivables andinventory) are readily available to pay off its short-termliabilities (notes/Accounts payable, current portion ofterm debt, payables, accrued expenses and taxes, tax debt,Current maturities of long-term debts, Short-term loans,Other accrued expenses).
o In this ratio we r going to test
or examine how much the C.A can cover the C.L, So if the
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ratio is 1 this will be good to the company & vise
versa.
o This ratio plays as indicator to
the suppliers because it reflects how quick the company
can settle its payables.
o The bankers are looking to this
ratio because it reflects how much the company is prompt
to the suppliers & its short term obligations.
In theory, the higher the current ratio, the better.
1.
= Current Assets Inventories/Current liabilities
This ratio is more effective because it reflects how quick
the company can convert its C.A into cash without selling
any of its inventories.
The quick ratio is more conservative than the current ratio
because it excludes inventory and other current assets,
which are more difficult to turn into cash. Therefore, a
higher ratio means a more liquid current position.
3.The cash ratio is the most stringent and conservative, it
only looks at the most liquid short-term assets of the
company, which are those that can be most easily used to
pay off current obligations. It also ignores inventory and
receivables, as there are no assurances that these two
accounts can be converted to cash in a timely matter to
meet current liabilities. Very few companies will have
enough cash and cash equivalents to fully cover current
liabilities, which isn't necessarily a bad thing, so don't
focus on this ratio being above 1:1.
Profitability Ratios
These ratios, give users a good understanding of how well
the company utilized its resources in generating profit and
shareholder value. The long-term profitability of a company
is vital for both the survivability of the company as well
as the benefit received by shareholders.
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Positive profit margin analysis translates into positive
investment quality. To a large degree, it is the quality,
and growth, of a company's earnings that drive its stock
price.
Return On Assets
This ratio indicates how profitable a company is relative
to its total assets. The need for investment in current and
non-current assets varies greatly among companies. Capital-
intensive businesses (with a large investment in fixed
assets) are going to be more asset heavy than technology or
service businesses.
As a rule of thumb, investment professionals like to see a
company's ROA come in at no less than 5%.The higher the
better.
o The ratio should go high. If the ratio goes lower,
this means that the firm is utilizing its assets in a
proper way. Also means that the firm is paying more
interest expenses which decrease the net income.
Return on Equity
This ratio indicates how profitable a company is by
comparing its net income to its average shareholders'
equity. The return on equity ratio (ROE) measures how much
the shareholders earned for their investment in the
company. The higher the ratio percentage, the moreefficient management is in utilizing its equity base andthe better return is to investors.
In general, financial analysts consider return on equityratios in the 15-20% range as representing attractive
levels of investment quality.
o The ratio should go high. If the ratio goes lower, this
means that the firm is using more debt to finance its
operations. This means that paying more interest expenses
which decrease the net income.
o If the result is relatively low, we recommend that the
firm should change its financial strategy to be more
dependants on equity rather than debt.
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o Also it should change its marketing strategy to increase
its sales in less operations cost to increase its net
income.
Debt Ratios
These ratios give users a general idea of the company's
overall debt load as well as its mix of equity and debt.
Debt ratios can be used to determine the overall level of
financial risk a company and its shareholders face. In
general, the greater the amount of debt held by a companythe greater the financial risk of bankruptcy.
The Debt Ratio
The debt ratio compares a company's total debt to its total
assets, which is used to gain a general idea as to the
amount of leverage being used by a company. In general, the
higher the ratio, the more risk that company is consideredto have taken on.
o Creditors prefer low debt ratios because the lower the
ratio, the greater the cushion against creditors'
losses in the event of liquidation.
o Stockholders, on the other hand, may want more
leverage because it magnifies expected earnings.
Debt-Equity Ratio
The debt-equity ratio is another leverage ratio that
compares a company's total liabilities to its total
shareholders' equity. This is a measurement of how much
suppliers, lenders, creditors and obligors have committed
to the company versus what the shareholders have committed.
Interest Coverage Ratio
The interest coverage ratio is used to determine how easily
a company can pay interest expenses on outstanding debt.
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Price/Earnings Ratio
The price/earnings ratio (P/E) is the best known of the
investment valuation indicators. The P/E ratio has its
imperfections, but it is nevertheless the most widely
reported and used valuation by investment professionals andthe investing public. The financial reporting of both
companies and investment research services use a basic
earnings per share (EPS) figure divided into the current
stock price to calculate the P/E multiple (i.e. how many
times a stock is trading (its price) per each dollar of
EPS).
Activity Ratios:
May be this is the only good sign regarding Sales / Total
assets where the current level is higher than the industry
average which means that the company is generating
sufficient volume of sales out of its assets, however this
doesnt mean that the company is gaining.
As for the collection period, this is a real problem where
the average collection period exceeds the market average by
22 days. This indicates that the company will not be able
to generate cash in the right time because of the delay in
collection, consequently it will have a liquidity squeeze.
This will prevent the company from using its productive
assets.
The sales ratio is below the average by 30.6 leading to the
conclusion that the working capital is not used efficiently
enough to generate acceptable volume of sales.
For the inventory turnover ratio the current level is far
below the average due to the fact that the company is
holding an excessive stock of inventory and this excess
stock are unproductive representing an investment with low
or zero rate of return.
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Human Resources (Restructuring as a way to improveperformance)
(Linking Performance & Pay to Strategies HR)
Human Resource Objectives
Helping the organization reach its goals.
Employing the skills and abilities of the workforce
efficiently.
Providing the organization with well-trained and well-
motivated employees.
Increasing to the fullest the employees job
satisfaction and self-actualization.
Developing and maintaining a quality of work life that
makes employment in the organization desirable.
Communicating HRM policies to all employees.
Helping to maintain ethical policies and socially
responsible behavior.
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1. Organizational objectives: to achieve the requiredorganization effectiveness and objectives and ensure that
the organization always has people with the right abilities
available to do the right work
HRM and Organizational Effectiveness
HRM activities play a major role in ensuring that an
organization will survive and prosper.
Organizational effectiveness or ineffectiveness is
described in terms of:
Performance
Employee satisfaction
Absenteeism and turnover
Training effectiveness and its return on
investment
Accident rates
2. Functional Objectives: maintain the departmentscontribution at a level appropriate to the org. needs
3. Societal Objective : respond ethically and socially to the
challenges of the environment while minimizing the negativeimpact of such demands on the organizations
4. Personal objectives:to assist retain and motivate theemployees for achieving their personal goals and guide them
to better achievement (most important )
Human Resource Policies and Programs (Key Strategic HRMConcepts That Must Be Applied)
- Preparation and selection: Review of the employees' job
description, job specification and job performancestandard to match the change of the organization.
- Succession Planning: the preparation of the companysuccession plan will enable the organization to stand any
future challenges.
- Career Path and development: the preparation of thecareer path for the employees will help the stability and
minimize the turnover of the employees.
- Recruitment: designing a good recruitment process
(Selection, interviews) with a high level of orientation
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to ensure the compatibility of the new recruited
employees with the existing culture to achieve
organizational objectives.
- Training and development:on-the- job training, Off-the-Job training and Provide career planning assistance foremployees.
- Incentive system will ensure the motivation of theemployees to better performance (linking incentive to
production)
- Compensation Policies and protection: What employees getin exchange for their contribution to the organization,
maintain, retain productive workforce, achieve the
org. objectives
- Testing: Will ensure the qualification of the candidatesand their fit in the organization culture.
- Managing workforce diversity( if the organization isgoing internationally)
- Enhance employee participation: in implementing ourstrategy, all employees from different organizational
levels must make a meaningful contribution in decision-
making .this will increase employee's involvement andenhance their working life balance.
- Enhance employee organizational commitment: by increasingjob involvement, which results in lower levels of
absenteeism and turnover.
- Implementing employee recognition programs:starting withpersonal attention and ending with appreciation for a job
well done.
- Develop effective staffing plans supporting theorganizational strategies by allowing to fill job
openings proactively (in terms of number and the quality
of the workforce for the short and long term) VIP in case
of international operations.( if the company is
multinational)
Human Resource Management (HRM) Activities:
Job analysis
Human resource planning
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Problem solving
Leadership
Recruiting/staffing
Employment law
Training and development
Technology
Forecasting
Compensation design
Benefits design and administration
Accounting and finance
Record keeping
HRMs Place in Management
HRM must:
Ascertain specific organizational needs for the
use of its competence.
Evaluate the use and satisfaction among otherdepartments.
Educate management and employees about the
availability and use of hrm services.
External Environmental Influences
Government (Laws and regulations)
The Union
Economic Conditions (Domestic and international)
Competitiveness ( competitive advantage)
Work Sector of the Organization ( Private and Public
Sector)
Composition and Diversity of the Labor Force
Geographic Location of the Organization
Internal Environmental Influences
Strategy
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Goals
Organization culture
Nature of the task (job)
Work group
Leaders style and experience
HRM Activities That Can Enhance and Sustain Competitive
Advantage
Employment security.
Selectivity in recruiting.
High wages.
Incentive pay.
Information sharing.
Participation and empowerment.
Teams and job redesign.
Training as skill development.
Cross-utilization and cross training.
Promotion from within
Measurement of practices.
Major HRM Problems for the International Corporation
Selecting and training local managers.
Companywide loyalty and motivation.
Speaking local language and understanding local
culture.
Appraising managers overseas performance.
Planning systematic management succession.
Hiring local sales personnel.
Compensating local foreign managers.
Hiring and training foreign technical employees.
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Selecting and training international managers for
overseas.
Dealing with foreign unions and labor laws.
Promoting or transferring foreign managers.
Compensating international managers for an overseas
assignment.
Contributions of HR to Business Strategy Implementation &
Formulation
Strategic HRD involves aligning HRD activities with the
company's vision, mission, and strategic goals, so that
enhancing the KSAs of employees at all levels grows both
the individual and the organization.
SHRD can ensure that employees possess the necessary KSAs
to manage new demands arising from changes in the
competitive environment so HRD can help implement
business strategy through :
1. Identifying what do our people need to be good at?
(and then helping to provide these KSAs)2. Fostering a learning climate that prepares people to
cope with uncertainty and mindset-shift
3. Supporting the development of change agents and
transformational leaders
4. Adjusting training to the companys business life-
cycle
5. Remedying top managers KSA discrepancies: leadership,
vision, communication, team building, etc.
6. Enabling employees to become more innovative and drive
business strategy from the bottom-up
And on other side HRD can help business strategy
integration through :
1. Enabling the implementation of cost reduction
strategies by helping remaining employees learn to do
more with less
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2. Enabling rapid adjustment to changes in market
conditions, and the implementation of customer
responsiveness strategies, requiring multi-skilling,
lean production, autonomous working groups,
empowerment, delay ring, matrix structures, project
based teams, etc. So employees will need to be
prepared for and helped to adjust to job enrichment
and teamwork
Outcomes of Strategic HR
At the end of all strategic HR process we expect an
increase in the competitive advantage to the organization
such as:
Increased performance
Customer and Employees Satisfaction
Enhanced Shareholder value
Analysis of Strategic Factors (SWOT)
Grand strategies (3 Direction Model)
Growth Stability RetrenchmentAdding newbusinesses
Maintain/ increase MKTshare
Cut into pieces(cut /drop
businesses)Market still booming (not
saturated)New product Same productNew market Same marketHigh R&D Flat R&D
High Investment Flat investmentHigh competition Stable environmentM&A, Integration,
StrategicAlliances, Joint
ventures
market penetration Bankruptcy, sell out,divest, liquidation
I Growth Strategies (Vertical Integration
Strategies)
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o Can be achieved by taking over a function previouslyprovided by a supplier or by a distributor. The company
grows by making its own supplies and/or by distributing
its own products.
o This may be done in order to reduce costs, gain controlover a scarce resource, guarantee quality of a key input,
or obtain access to potential customers.
o This growth can be achieved whether internally byexpanding current operations or externally through
acquisitions.
o Vertical growth is a logical strategy for a corporationor business unit with a strong competitive position in a
highly attractive industry-especially when technology is
predictable and markets are growing.
o To keep and even improve its competitive position, thecompany may used backward integration to minimize
resource acquisition costs and inefficient operations as
well as forward integration to gain more control over
product distribution.
o A companys degree of vertical integration canrange from total ownership of the value chain needed to
make and sell a product to no ownership at all.
o Under full integration, a firm internally makes 100% of
its key supplies and completely controls its
distributors. I.e. large oil companies.
o Long-term contracts are agreements between two separate
firms to provide agreed-upon g0oods and services to each
other for a specified period of time. This cant really
be considered to be vertical integration unless the
contract specifies that the supplier or distribute canthave a similar relationship with a competitive firm.
1. Backward integration (Ownership or Control -- Firms
suppliers)
Guidelines:
Current suppliers expensive or unreliable
# of suppliers is small; # competitors is large
High growth in industry sector
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Competes in growing industry
Increased economies of scale major competitive
advantages
Faltering due to lack of managerial expertise or need for
particular resource
A corporation can grow internally by
expanding its operations both globally and
domestically, or it can grow externally through
mergers, acquisitions, and strategic alliances.
- A merger is a transaction involving two or morecorporations in which stock is exchanged, but from which
only one corporation survives. Mergers usually occurbetween firms of somewhat similar size and are usually
friendly. The resulting firm is likely to have a name
derived from its composite firms.
- An acquisition is the purchase of a company that iscompletely absorbed as an operating subsidiary or division
of the acquiring corporation. Acquisitions usually occur
between firms of different sizes and can be within
friendly or hostile. Hostile acquisitions are often called
takeovers.
- A strategic alliance is a partnership of two or morecorporations or business units to achieve strategically
significant objectives that are mutually beneficial.
Growth is a very attractive strategy for two key reasons:
Larger firms also havemore bargaining power than do smallfirms and are more likely to obtain support from key
stakeholders in case of difficulty.
A growing firm offersmore opportunities for advancement,promotion, and interesting jobs. Growth itself is excitingand ego-enhancing for CEOs. The marketplace and potential
investors tend to view a growing corporation as a winner
or on the move. Executive compensation tends to get
bigger as an organization increases in size. Large firms
are also more difficult to acquire than are smaller ones;
thus an executives job is more secure.
II Intensive Strategies
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1.Market Penetration (Increased Market Share)
o Present products/services
o Present markets
o Greater marketing efforts
Guidelines:o Current markets not saturated
o Usage rate of present customers can be increased
significantly
o Shares of competitors declining; industry sales
increasing
o Increased economies of scale provide major
competitive advantage
Is a strategy for company growth by increasing sales ofcurrent products to current market segments without
changing the product.
-Increase sales to current users
-Attract users of competition- Convince non users of the product
2.Market Development (New Markets -- Present
products/services to new geographic areas)
Guidelines:o New channels of distribution reliable,inexpensive, good quality
o Firm is successful at what it does
o Untapped/unsaturated markets
o Excess production capacity
o Basic industry rapidly becoming global
o
Is a strategy for company growth by identifying and
developing new market segments for current products
-Develop new markets in the same area
-Develop more distribution channels
-Develop new markets in other areas
3.Product Development(Increased Sales -- Improving
present products/services, Developing new
products/services)
Guidelines:o Products in maturity stage of life cycle
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o Industry characterized by rapid technological
development
o Competitors offer better-quality products @
comparable prices
o Compete in high-growth industryo Strong R&D capabilities
Is a strategy for company growth by offering modified or
new products to current market segments.
-Improve or add on current product features
-Improve on current product quality
-Develop new product in the same category
III Diversification Strategies
***A series of choices for each product/market condition,
choices can be expressed in terms of five types of strategy:
1.Maintenance of the current competitive position.
2.Improvement of the current competitive position.
3.Harvesting, which involves reducing or relinquishing thecurrent competitive position in order to capitalize upon
short-term profit and improve cash flow.
4.Exiting, this typically occurs when the company issuffering from a weak competitive position or recognizes
that the cost of staying in the market and/ or improving
upon the position is too high.
5. Entry to a new sector.
- When an industry consolidates and becomes mature, mostof the surviving firms have reached the limits of growth
using vertical and horizontal growth strategies.
- Unless the competitors are able to expandinternationally into less mature markets, they may have
no choice but to diversify into different industries ifthey want to continue growing.
1.Concentric Diversification (New & related
products/services)
(Technologically related products /New & related
products/services) growth through concentric
diversification into a related industry may be a very
appropriate corporate strategy when a firm has a
strong competitive position but industry
attractiveness is low.
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- By focusing on the characteristics that have given thecompany its distinctive competence, the company uses
those very strengths as its means of diversification.
- The firm attempts to secure strategic fit in a newindustry where the firms product knowledge, itsmanufacturing capabilities, and the marketing skills it
used so effectively in the original industry can be put
to good use.
- The corporations products or processes are related insome way; they possess some common thread. The search is
for synergy, the concept that two businesses will
generated more profits together than they could
separately. The point of commonality may be similar
technology, customer usage, distribution, managerial
skills, or product similarity.- The firm may choose to diversify concentrically throughinternal / external means.
Guidelines:o Compete in no/slow growth industry
o New & related products increases sales of current
products
o New & related products offered at competitive
prices
o Current productsdecline stage of product life
cycle
o Strong management team
This strategy involves the add of a new but related
products or services. One may argue that this represent a
contradiction of policies if adopting the first
(retrenchment) strategy, I would say absolutely not as
saving the cost that will happen as a result of the first
strategy will make money available to develop a new
products that can match with the new trend in the market
where people are heading toward nutrition .
It is worth mentioning that the company will assume noextra costs to develop the new product as the platform of
the product exist and all what will it take is to change
the ingredients toward more natural and less fat
ingredients.
Implementation:
This will also involve change in organizational
structure.
Shift toward natural ingredients.
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Set a promotional plan to attract the consumer
depending on the brand that have become healthier and
contains low fats.
To diversify the distribution channel and not to give
a large share to one distributor plus emphasis morecontrol on the receivables.
Provide training to the staff through across the
various functions of the company.
2.Conglomerate Diversification (New & unrelated
products/services)
(Seeking non related products or markets) when
management realizes that the current industry is
unattractive and that the firm lacks outstandingabilities or skills that it could easily transfer to
related products or services in other industries, the
most likely strategy is conglomerate diversification.
- Conglomerate div., diversifying into an industryunrelated to its current one.
- Rather than maintaining a common thread throughouttheir organization, strategic managers who adopt this
strategy are primarily concerned with financial
considerations of cash flow or risk reduction.
- The emphasis in conglomerate diversification is onfinancial considerations rather than on the product-
market synergy common to concentric diversification.
- A cash-rich company with few opportunities for growthin its industry might move into another industry where
opportunities are great but cash is hard to find.
- Another instance of conglomerated diversification mightbe when a company with a seasonal and, uneven cash flow
purchases a firm in an unrelated industry with
complementing seasonal sales that will level out the cash
flow.Guidelines:
o Declining annual sales & profits
o Capital & managerial ability to compete in new
industry
o Financial synergy between acquired and acquiring
firms
o Current markets for present products saturated
3.Horizontal Diversification (New & unrelated
products/services for current customers)
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Guidelines:o Adding new products/services would significantly
increase revenues
o Highly competitive and/or no-growth industry; low
margins & returns
o Current distribution channels can be used
o New products have counter cyclical sales patterns
IV Defensive Strategies1.Retrenchment (Regrouping , Cost & asset reduction to
reverse declining sales & profit)
a company may pursue retrenchment strategies when it has
a weak competitive position in some or all of its
product lines resulting in poor performance-sales are
down and profits are becoming losses.
- These strategies impose a great deal of pressure toimprove performance. In an attempt to eliminate the
weaknesses that are dragging the company down, management
may follow one of several retrenchment strategies ranging
from turnaround or becoming a captive company to selling
out, bankruptcy, or liquidation.
Turnaround strategy emphasizes the improvement of
operational efficiency and is probably mostappropriate when a corporations problems are
pervasive but not yet critical.
- The two basic phases of a turnaround strategy arecontraction and consolidation.
- Contraction is the initial effort to quickly stop thebleeding with a general across-the-board cutback in size
and costs.
- The second phase, consolidation, implements a programto stabilize the now-leaner corporation.
- To streamline the company, plans are developed toreduce unnecessary overhead and to make functional
activities cost-justified. This is a crucial time for the
organization.
- If the consolidation phase is n