Strategic Management Ch 05 Pres

7/30/2019 Strategic Management Ch 05 Pres

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PRESENTATION DATE


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First of all thanks to Allah Almighty who gave us

the spirit to complete this task, which was given

by Honorable Sir Prof.Ghulam Nabi,

Chairman Dept. of Business Administration

and thanks to our parents who supported us a

lot for all of this.


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GROUP INTRODUCTION

Name of

GroupMembers:

Wajahat Ali Ghulam (Group Leader),

Zill-e-Subhani, Majid Mehmood,Kamran Rasheed, Safdar Hussain.

Roll Nos. 01, 15, 23, 48,

Group NO. 01

FACULTY OF ADMINISTRATIVE SCEICNES

UNIVERSITY OF AZAD JAMMU & KASHMIR

DEPARTMENT OF BUSINESS ADMINISTRATION.


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PRESENTATION ON

Chapter Five

Strategic

Management

CONCEPTS &CASES

Thirteenth Edition

By FRED R. DAVID


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LONG TERM OBJECTIVES

Long Term Objective

Long Term objectives represent theresults expected from perusing certain

strategies.

Strategies represent the actions to betaken to accomplish long term

objectives.


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The Nature of Long Term Objectives

Objectives should be: -

Quantitative

Measurable

RealisticUnderstandable

Challenging

Hierarchical

Obtainable

Congruent


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1). Corporate Level

2). Divisional Level

3).Functional Level

They are important measure of managerial

Performance.

Long term Objectives are Needed:


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FINANCIAL VS. STRATEGIC OBJECTIVES

Two Types of objectives are especially

common in organizations: -

1) . Financial Objectives

2) . Strategic Objectives


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1). FINANCIAL OBJECTIVES

Financial objectives include those associated with

1) Growth in revenues

2) Growth in earning

3) Higher dividends

4) Larger profit margins

5) Greater return on investment

6) Higher earning per share7) A rising stock price

8) Improved cash cow, and so on;


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2). STRATEGIC OBJECTIVES

Strategic objectives include those associated with

1) Larger market share

2) Quicker on time delivery than rivals

3) Shorter design-to-market than rivals4) Lower costs than rivals

5) Higher product quality than rivals

6) Wider geographic coverage than rivals

7) Achieving technological leadership

8) Consistently getting new or improved products to

markets ahead of rivals, and so on


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NOT MANAGING BY OBJECTIVES

Strategists should avoid the following

alternatives ways to Not managing by

Objectives.

1). Managing by Extrapolation

2). Managing by Crisis

3). Managing by Subjectives

4). Managing by Hope


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1).Managing by Extrapolation:-Adheres to the principle

If it isn't broke, dont fix it. The idea is to keep on doing

about the same things in the same ways because things

are going well.2).Managing by Crisis:- Based on the belief that the true

measure of really good strategist is the ability to solve

problems.

3). Managing by Subjectives:- Built on the idea that there

is no general plan for which way to go and what to do; just

do the best you can accomplish what you think should be

done.4). Managing by Hope:- Based on the fact that the future is

laden with great uncertainty and that if we try and do not

succeed, then we hope our second (or third) attempt will.


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THE BALANCED SCORECARD It is a strategy evaluation and control technique.

An effective Balanced Scorecard contains a

carefully chosen combination of strategic and

financial objectives tailored to the company's business.

A Balanced Scorecard for a firm is simply a listing

of all key objectives to work toward, along with an

associated time dimension of when each objective is to

be accomplished.

It is also a primary responsibility or contact person,

department, or division for each objective.


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TYPES OF STRATEGIESTypes of strategies that a enterprise could peruse

can be categorized in to 11 action: -1) Forward Integration

2) Backward Integration

3) Horizontal Integration

4) Market Penetration

5) Market Development

6) Product Development

7) Related Diversification

8) Unrelated Diversification

9) Retrenchment

10) Divestiture

11) Liquidation.


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INTEGRATION STRATEGIESForward Integration, Backward Integration & Horizontal

Integration are sometimes collectively referred to asintegration strategies.

Vertical integration strategies allow a firm to gain control

over distributors, suppliers, and/ or competitors.

Forward Integration: -

It involves gaining ownership or increased control over

distributors or retailers.

Increasing numbers of manufacturers (suppliers) today arepursuing a forward integration strategy by establishing

Websites to directly sell products to consumers.


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Six Guidelines indicate when forward integration maybe an effective strategy: -

1. When an organizations present distributors are especially

expensive, or unreliable, or incapable of meeting the firmsdistribution 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 markedly.

4. When an organization has both the capital and human

resources needed to manage the new business ofdistributing its own products.

5. When the advantages of stable production are particularlyhigh.

6. When present distributors or retailers have high profit

margins.


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BACKWARD INTEGRATION

Both manufacturers and retailers purchase

needed material from suppliers.

Backward integration is a strategy of seeking

ownership or increased control of a firmssuppliers.

This strategy can be especially appropriatewhen a firms current suppliers are unreliable,

too costly, or cannot meet the firms needs.


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Seven Guidelines indicate when backward integration maybe an effective strategy: -

1. When an organizations present suppliers areespecially expensive, or unreliable, or incapable of

meeting the firms distribution needs for parts,components, assemblies, or raw materials.

2. When the number of suppliers is small and the numberof competitors is large.

3. When an organization competes in an industry that isgrowing rapidly.

4. When an organization has both the capital and humanresources needed to manage the new business ofsupplying its own raw materials.

5. When the advantages of stable prices are particularlyimportant.

6. When present supplies have high profit margins.

7. When an organization needs to quickly acquire a

needed resources.


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HORIZENTAL INTEGRATION

Horizontal Integration refers to a

strategy of seeking ownership of or

increased control over firms

competitors.

Horizontal Integration is now a

significant trend in Strategic

Management.


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Five Guidelines indicate when Horizontal integration maybe an effective strategy: -

1) When an organization can gain monopolistic characteristicsin a particular area or region.

2) When an organization competes in a growing industry.

When increased economies of scale provide major

competitive advantages.

3) When an organization has both the capital and humancompetitive advantages.

4) When competitors are faltering due to a lack of managerialexpertise or a need for particular resources that anorganization possesses.


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INTENSIVE STRATEGIES

Market penetration, market development,

and product development are sometimes

referred to as intensive strategies becausethey require intensive efforts if a firms

competitive position with existing products is

to improve.


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MARKET PENETRATION

A Market penetration strategy seeks to increase marketshare for present products or services in present

market through greater marketing efforts.

A Market penetration includes increasing the number

of salespersons, increasing advertising expenditures,

offering extensive sales promotion items, or increasing

publicity efforts.


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Five Guidelines indicate when Market Penetration maybe an effective strategy: -

1). When current markets are not saturated with a

particular product or service.

2). When the usage rate of present customers could beincreased significantly.

3). When the market share of major competitors havebeen declining while total industry sales have beenIncreasing.

4). When the correlation between dollar sales and dollarmarketing expenditures historically has been high.When increased economics of scale provide majorcompetitive advantages.


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MARKET DEVELOPEMENTMarket development involves introducing products or services

into new geographic area.

1).When new channels of distribution are available that are

reliable, inexpensive, and of good quality.

2).When an organization is very successful at what it does.

3).When new untapped or unsaturated at what it does.

4).When an organization has the needed capital and human

resources to mange expanded operations.

5).When an organization has excess production capacity.

6).When an organization's basic industry is rapidly becoming

global in scope.

Six Guidelines indicate when Market Development maybe an effective strategy: -

O O


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PRODUCT DEVELOPEMENT

Product Development is a strategy that seeks

increased sales by improving or modifying present

products or services.

Product Development usually entails large researchand development expenditures.


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Six Guidelines indicate when Product Development maybe an effective strategy: -

1). When an organization has successful products that

are in the maturity stage of the product life cycle.

2). When an organization competes in an industry that ischaracterized by rapid technological developments.

3). When major competitors offer better-quality products atcomparable prices.

4). When an organization competes in an high growthindustry.

5). When an organization has especially strong researchand development capabilities.


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There are two general types of

diversification strategies: -

1). Related diversification strategies

2). Unrelated diversification strategies

DIVERSIFICATION STRATEGIES


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1). Businesses are said to be related when

their value chains posses competitively

valuable cross business strategic fits;

2). Businesses are said to be unrelated

when their value are so dissimilar that

no competitively valuable cross

business relationship exist.

1). Related Diversification &2). Unrelated Diversification


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1). When an organization competes in a no growth or aslow growth industry.

2). When adding new, nut related, products would

significantly enhance the sales or current products.3). When new, but related, products could be offered at

highly competitive prices.

4). When new, but related, products have seasonal saleslevels that counterbalance an organization's existing

peaks and valleys.

5).When an organizations products are currently in thedeclining stage of the products life cycle.

6). When an organization has a strong management team.

Six Guidelines indicate for when related diversificationmay be an effective strategy are as follows: -


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1). When revenues derived from an organizations current

products or services would increase significantly by

adding the new, related products.

2). When an organization competes in an highly

competitive and/or no growth industry.

3). When an organizations present channels of

distribution can be used to market the new products.

4).When the new products have countercyclical salespatterns compared to an organizations products.

5). When an organizations basic industry is experiencing

declining annual sales and profits

Ten Guidelines whenun - related diversification may be an especially

effective strategy are: -


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Six Guidelines indicate for when related diversificationmay be an effective strategy are as follows: -

6). When an organization has the capital andmanagerial talent needed to compete successfully

in a new industry.

7). When an organization has the opportunity to

purchase an unrelated business that is anattractive investment opportunity.

8). When there exists financial synergy between the

acquired and acquiring firm.

9). When the existing markets for an organization'spresent products are saturated.

10). When antitrust action could be charged against

an organization that historically has

concentrated on a single industry.


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In addition to integrative, intensive, and diversificationstrategies, organizations also could pursue

retrenchment, divestiture, or liquidation.

Retrenchment: -Retrenchment occurs when an organization regroups

through cost and asset reduction to reverse declining

sales and profits.

Sometimes called a turn round or reorganization

strategy, retrenchment is designed to fortify an

organizations basic distinctive competence.

DEFENSIVE STRATEGIES


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1). When an organization's has a clearly distinctivecompetence but has failed consistently to meet its

objectives and goals over time.

2). When an organization's is one of the weaker

competitors in given industry.

3). When an organizations is plagued by inefficiently, low

profitability, poor employee morale, and pressure from

stockholders to improve performance.

4). When an organization has failed to capitalize on

external opportunities, minimize external threats, take

advantage of internal strengths, and overcome internal

weaknesses overtime.

5). When an organization has grown so large so quickly

that major internal reorganization is needed.

Five Guidelines indicate for when retrenchment may bean especially effective strategy are as follows: -


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Selling a division or part of an organization is called

divestiture.

Divestiture is often used to raise capital for further

strategic acquisitions or investments. Divestiture can be part of an overall retrenchment

strategy to rid an organization of business that are

unprofitable, that require too much capital, or that do

not fit well with the firms other activities.

Divestiture has also become a popular strategy for

firms to focus on their core businesses and become

less diversified.

DIVESTITURE


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1). When an organization has pursued aretrenchment strategy and failed to accomplishneeded improvements.

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

3). When a division is responsible for anorganizations overall poor performance.

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

5). When a large amount of cash is need quickly andcannot be obtained reasonably from othersources.

6). When Government antitrust action threatens anorganization.

Six Guidelines indicate for when Divestiture may be anespecially effective strategy are as follows: -


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Selling all of companys assets, in parts,for their tangible worth is called liquidation.

Liquidation is a recognition of defeat andconsequently can be an emotionally

difficult strategy.

LIQUIDATION


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1). When an organization has pursued both a

retrenchment strategy and a divestiture

strategy, and neither has been successful.

2). When an organizations only alternative is

bankruptcy.

3). When the stakeholders of a firm can

minimize their losses by selling the

organization's assets.

Three Guidelines indicate for when Liquidation may bean especially effective strategy are as follows: -


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According to porter, strategy allow organizations

To gain competitive advantage from three different

bases:

1). Cost leadership

2). Differentiation

3). Focus

Porter called these bases Generic Strategies.

Michael Porters Five Generic

Strategies


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Cost leadership emphasizes producingstandardized products at a very low per

unit cost for consumers who are price

sensitive.Two alternative types of cost leadership

strategies can defined: -

1). TYPE 12). TYPE 2

COST LEADERSHIP


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TYPE 1 & TYPE 2

Type 1 is low cost strategy that offers

products or services to wide range of

customers at the lowest price available on

the market.Type 2is best value available on the

Market; the best value strategy aims tooffer customers a range of products or

services at the lowest price availablecompared to rivals products with similarattributes.

TYPE 1 & TYPE 2


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Porters Type 3 generic strategy is

differentiation, a strategy aimed at producing

products and services considered uniqueindustry wide and directed at consumers

who are relatively price insensitive.

TYPE 3 (Differentiation)


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Focus means producing products and

services that fulfill the needs of small groups

of consumers. Two alternative types of focusstrategies are: -

1). TYPE 42). TYPE5

FOCUSFOCUS


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Type 4is low cost focus strategy that offers productsor services to a small group niche group) of

customers at the lowest price available on the

market.

Type 5is best value available on the market.Sometimes called Focused Differentiation,

the best value focus strategy aims to offer a

niche group of customers products or services

that meet their tastes and requirements

better than rivals products do.

TYPE 4 & TYPE 5


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PORTERS GENERIC STRATEGIES

LARGE

SMALL

TYPE 1

TYPE 2

TYPE 3

TYPE 4TYPE 5

TYPE 3

Cost Leadership Differentiation Focus


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A primary reason for pursuing forward, backward and

horizontal integration strategies is to gain low cost or

best value cost leadership benefits. But cost leadership

generally must be pursued in conjunction withdifferentiation.

A number of cost elements affect the relative attractiveness

of generic strategies, including economics or diseconomiesof the scale achieved, learning experience curve effects, the

percentage of capacity utilization achieved, and linkages

with suppliers and distributors.

COST LEADERSHIP STRATEGIES (TYPE 1 & TYPE 2)


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1). When price competition among rival sellers is especiallyvigorous.

2).When the products of rival sellers are essentially identicaland suppliers are readily available from any of severaleager sellers.

3). When there are few ways to achieve productdifferentiation that have value to buyers.

4). When most buyers use the product in the same ways.

5). When buyers incur low costs in switching their purchases

from one seller to another.6). When buyers are large and have significant power to

bargain down prices.

7). When industry newcomers use introductory low prices toattract buyers and build a customer base.

Seven Guidelines indicate for when TYPE 1 & TYPE 2may be an especially effective strategy are as follows:


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Different strategies offer different degrees of

differentiation. Differentiation does not guarantee

competitive advantage, especially if standard products

sufficiently meet customer needs or if rapid imitation by

competitors is possible.

Durable products protected by barriers to quick copying

by competitors are best. Successful differentiation can

mean greater product flexibility, greater compatibility,lower costs, improved service, less maintenance, greater

convenience, or more features.

DIFFERENTIATION STRATEGIES (TYPE 3)


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1). When there are many ways to differentiate the productor service and many buyers perceive these differencesas having value.

2). When buyers needs and uses are diverse.

3). When few rival firms are following a similardifferentiation approach.

4). When technological change is fast paced andcompetition revolves around rapidly evolving productfeatures.

Four Guidelines indicate for when TYPE 3 may be anespecially effective strategy are as follows:


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A successful focus strategy depends on anindustry segment tat is of sufficient size, hasgood growth potential, and is not crucial to

the success of to other major competitors.Strategies such as market penetration andmarket development offer substantial

focusing advantages.

FOCUS STRATEGY (TYPE 4 & TYPE 5)


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1).When the target market niche is large, profitable, andgrowing.

2). When industry leaders do not consider the niche to be

crucial to their own success.

3). When an industry leaders consider it too difficult to meetthe specialized needs of target market niche while taking

care of their mainstream customers.

4). When the industry has many different niches and

segments, thereby allowing a focuser to pick a competitivelyattractive niche suited to its own resources.

5). When few, if any, other rivals are attempting to specialize in

the same target segment.

Four Guidelines indicate for when TYPE 4 & TYPE 5may be an especially effective strategy are as follows:


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The World is changing more and more rapidly, and

consequently industries and firms themselves are changing

faster than ever.

Some industries are changing so fast that researchers call

them turbulent, high velocity markets, such as

telecommunications, medical, biotechnology,

pharmaceuticals, computer hardware, software, and

virtually all internet based industries.

Strategies for competing in Turbulent, High VelocityMarkets


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Strategy that stress cooperation among competitors are

being used more. For collaboration between competitors

to succeed, both firms must contribute something

distinctive, such as technology ,distribution, basic

research, or manufacturing capacity.

But a major risk is that unintended transfers of important

skills or technology may occur at organizational levels

below where the deal was signed.

Means For Achieving StrategiesCooperation Among Competitors


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Joint venture is popular strategy that occurs when two or

more companies form a temporary partnership or

consortium for the purpose of capitalizing on some

opportunity.

Often the two or more sponsoring firms form a separate

organization and have shared equity ownership in the new

entity.

JOINT VENTURE/PARTNERING


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1). Managers who must collaborate daily in operating theventure are not involved in forming or shaping theventure.

2). The Venture may benefit the partnering companies butmay not benefit customers, who then complain aboutpoorer service or criticize that companies in other ways.

3). The venture may not be supported equally by both

partners. If supported unequally, problem arise.

4). The venture may begin to compete more with one of thepartners than the other.

A few common problems that cause joint ventures tofail are as follows:


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1).When a private owned organization is forming a jointventure with a publicity owned organization; there are someadvantages to being privately held, such as closed

ownership.

2). When a domestic organization is forming a joint venturewith a foreign company.

3). When the distinct competencies of two or more firmscomplement each other especially well.

4). When the project is potentially very profitable but requiresoverwhelming resources and risks.

5). When two or more smaller firms have trouble competingwith a large firm.

6). When there exists a need to quickly introduce a new

technology.

Six Guidelines indicate for when Joint Venture may bean especially effective means for pursuing strategies:


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Merger and acquisition are two commonly used ways to

pursue strategies .A merger occurs when two organizations

of about equal size unite to form one enterprise.

An Acquisition occurs when a large organization purchases

(Acquires) a smaller firm, or vice versa.

MERGER/AQUISTION


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First mover advantage refer the benefits a firm may

achieve by entering a new market or developing a new

product or service prior to rival firms.

Strategic management research indicates that first mover

advantage tend to be greatest when competitors are

roughly than same size and possess similar resources.

FIRST MOVER ADVANTAGES


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Business process outsourcing (BPO) is rapidly growing

new business that involves companies taking over the

Functional operations

such as human resources

information systems,

payroll, accounting,

customer service,

and even marketing of other firms.

OUTSOURCING


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1). It is less expensive

2). It allows the firm to focus on its core businesses

3). It enables the firm to provide better services.

Other advantages of outsourcing are that the strategy:

1). Allows the firm to align itself with Best inWorld.

Suppliers who focus on performing the special task.

2). Provides the firm flexibility should customer needs shift

unexpectedly.3). Allows the firm to concentrate on other internal value

chain activities critical to sustaining competitive

advantage.

Companies are choosing to outsource their functional

operations more and more for several reasons: -


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