Stability Strategy

8/3/2019 Stability Strategy

1/19

Chapter 7

Corporate Strategies II


2/19

Lecture Objectives

Describe when organizational stability is anappropriate strategic choice.

Define organizational renewal strategy

Discuss the causes of corporate decline and indicatorsof corporate performance decline

Describe the two main types of renewal strategies

Explain how renewal strategies are implementedDescribe how corporate strategies are evaluated

Discuss the major portfolio management techniques

Describe how corporate strategies are changed


3/19

ORGANIZATIONAL

STABIL

ITYA strategy where the organization maintains

its current size and current level of business

operationsWhen is stability an appropriate strategy?

Industry is in a period of rapid upheaval with

several key industry & external forces drasticallychanging, making future highly uncertain

Industry is facing slow or no growth opportunities


4/19

ORGANIZATIONAL

STABIL

ITYWhen is stability an appropriate strategy?

Organization has just completed a frenzied

period of growth & needs to have some downtime in order for its resources & capabilities to

build up strength again

Large firm in large industry at maturity stage of

industry life cycle

Implementation of Stability Strategy

Not expanding organizations level of operation

Should be a short-run strategy


5/19

ORGANIZATION RENEWAL

A strategy that is used to reverse organizationaldecline & put the firm back on a more appropriate pathto successfully achieve its strategic goals

Main cause of corporate decline ispoor managementPoor management manifests itself in:

Over-expansion or too rapid growth

Inadequate financial controls

Uncontrollable costs or too high costsInability to anticipate & deal with new competitors

Inability to anticipate unpredictable shifts in consumerdemand

Slow or no response to significant external or internalchanges


6/19

Types of Renewal StrategiesRetrenchment Strategy

Common short-run strategy designed to address

organizational weaknesses and deficiencies that are

leading to performance declines

Slow down and catch your breath..

Functional improvement- cost

reduction(turnaround)Reducing functions/businesses divestment,

liquidation

Reducing products/markets


7/19

Types of Renewal StrategiesTurnaround Strategies

A renewal strategy designed for situations where

the firms performance problems are more seriousbut not yet critical

Objective of turnaround strategies

Improve operational efficiency

Improve revenue and profitability of money loosing

businesses


8/19

Types of Renewal Strategies

(Turnaround continued)Turnaround most appropriate when

Reasons for poor performance are short-term

Divestment doesn't make long-term sense


9/19

Implementing the Renewal

StrategiesCost cutting

Costs are cut to revitalize the firmsperformance (retrenchment) or save the firm(turnaround)

Cost cutting can be approached from

Across-the-board all areas of the organization

Selective cuts selected areas of the organization

Strategic managers evaluate & eliminate waste,redundancies, & inefficiencies in work areas


10/19

Implementing the Renewal

StrategiesRestructuring

Divestment: Selling off business to someone else

where it will continue as a going concernLiquidation: Shutting down the business

completely

Reengineering: Fundamental rethinking &

redesign of the organizations business processes

Downsizing: Laying-off employees


11/19

Portfolio AnalysisThree main ones

The BCG (Growth-Share) Matrix:

Simple four-cell matrix created by the Boston Consulting

Group

A way to determine whether a business unit is a cash producer

or a cash user

McKinsey-GE Spotlight Matrix

A nine-cell matrix which provides a comprehensive analysis ofa business units internal (competitive strength) & external

(industry attractiveness) factors

Product-Market Evolution Matrix

A 15 cell matrix developed by C. W. Hofer


12/19

BCG Growth-Share MatrixRelative Market Share Position

Industry

Growth

Rate

Question Marks

Or Cash Hogs

Dogs

Stars

Cash Cows

High ( > 1.0) 1.0 Low (< 1.0)

Low

10%

High


13/19

BCG Growth-Share MatrixQuestion Marks or Cash Hog

Internal cash flows are inadequate to fully fund its

need for working capital & new capital investmentsParent company has to pump in capital to feed the

hog

Sometimes called problem children or wildcats

Strategic options

Aggressively invest in attractive cash hogs

Divest cash hogs lacking long-term potential


14/19

BCG Growth-Share MatrixStars

Businesses that are market leaders

Usually in rapidly growing marketsAble to generate enough cash to maintain sharein the market, but sometimes requiressignificant investment to maintain market share

When market slows, stars become cash cowsStrategic options

Fortify & defend position in industry

Short-term priority


15/19

BCG Growth-Share MatrixCash Cow

Businesses that generates cash surpluses over &above what is needed to sustain its present marketposition

Cash cow businesses are valuable because surpluscash can be used to

Pay corporate dividends

Finance new acquisitions

Invest in promising cash hogs

Strategic Objective

Fortify & defend present market position


16/19

BCG Growth-Share MatrixDogs

Businesses with low market share & no

potential to bring in much cashRequires significant cash injection to maintain

position

Strategic options

Exit business by divesting or liquidating

Harvest if business is generating some profits


17/19

McKinsey-GE Spotlight Matrix

Winners

Winners

Winners

AverageBusiness

Profit

Producers

Question

Mark

Losers

Losers

Losers

Business Unit Strength

Industry

Attractiveness

Low

Medium

High

Strong Average Weak


18/19

Strategic Implications of Strength-

Attractiveness MatrixWinners

Given top investment priority

Strategic prescription isgrow & build

Question marks, Average, Profit producers

Given medium investment

Strategic prescription is invest to maintain positionLosers

Candidates fordivestment

May be candidates forturnaround


19/19

Changing Corporate StrategiesChanges are needed if evaluation shows

Growth objectives are not being attained

Organizational stability causes firm to fallbehind

Corporate renewal efforts are not working

Possible Strategies to change

FunctionalCompetitive

Corporate direction

Stability Strategy

Documents

Transcript of Stability Strategy