Module 4 - Strategies in Action
Module 4 - Strategies in Action
Module 4 - Strategies in Action
Planning
Module 4:
Strategies in Action
Corporate-Level Strategy & Scope
Scope
Product Geographical
Scope Scope
3
Diversification Strategy
4
Types of Diversification
5
Allan Gardner, November 2018
Diversification and Market Power
6
Motives (Goals) for Diversification
• May be necessary for companies
experiencing stagnant or declining
industries
• Diversification may not always provide
increasing profitability
• Dependent upon existing capabilities and
ability to create value
Growth
Profitability Risk
Reduction
Allan Gardner, November 2018
All Rights Reserved 7
Diversification and Performance
• Economies of Scope
– Economies of Scope exist whenever there are cost savings from using a
resource in multiple activities carried out in combination rather than
independently
– Economies of scope are cost economies from increasing output across
multiple products
– Economies of scale are cost economies from increasing output of a
single product
• Example of Economy of Scope:
– Proctor & Gamble, which produces hundreds of products from razors
to toothpaste. They can afford to hire expensive graphic designers and
marketing experts who will use their skills across the product lines.
Because the costs are spread out, this lowers the average total cost of
production for each product.
8
Integration Strategy
Vertical
Vertical Horizontal
Integration
Integration Integration
9
Types of Vertical Integration
• Backward
– The company takes over ownership and control of producing its own
components or other inputs. (KFC buys Dixie Cup Company)
• Forward
– The company takes over ownership and control of activities previously
undertaken by its customers. (GM acquires 25% of its independent
dealerships)
• Full vertical integration
– Everything the organization produces passes through the vertical
integrated business unit
• Partial vertical integration
– Only a portion of the overall production passes through the vertical
integrated business unit and the rest through external market
channels
10
Horizontal Integration
11
Boston Consultant Group MATRIX
High Low
RELATIVE GROWTH RATE
High
Stars Question marks
Low
Horizontal Vertical
Concentric
A merger in which the two companies are in
the same general industry, but have no
mutual buyer/customer or supplier
relationship. (Example: Bank & Leasing
Company) 14
Types of Acquisitions
Share Asset
Acquisition Acquisition
15
Turnaround and Retrenchment Strategies
• Turnaround Strategy
– The plan and effort to return an underperforming company to
acceptable levels of profitability and long-term growth
– A well-designed turnaround strategy involves refining strategic
objectives, reducing costs and restructuring organizational process
• Retrenchment Strategy
– A corporate-level strategy that seeks to reduce the size or diversity of
an organization’s operations
– Typically, this involves removing costs, restructuring finances and
redefining strategic objectives.
16
Turnaround & Retrenchment Activities
Company may contract (labor,
marketing, promotion) or,
consolidate by closing Eliminating a portion
unprofitable businesses of the business via sell
off, closure or spin-off
Restructuring Divestment
17
Allan Gardner, November 2018
Business Level Strategy
Porter’s Generic Strategies
Advantage
Target Scope
Low Cost Product Uniqueness
A firm positions itself by leveraging its strengths that fall into one of two categories:
cost advantage and differentiation. By applying these strengths in either a broad or
narrow scope, three generic strategies result: cost leadership, differentiation and
focus.
19
Examples of Porter’s Generic Strategies
20
Business Level Strategy and Cost Advantage
Cost savings attributed to
decreased fixed costs per
unit when production &
Economies sales increase
of Scale
Process Economies of
Technology &
Process Design Learning
21
Differentiation & Differentiation Advantage
22
Tangible & Intangible Differentiation Factors
D
Observable characteristics I Perceptual benefits that
of a product or service F appeal to customers social,
relevant to customers’ F emotional, psychological and
preferences aesthetic considerations
E
R
E
Tangible N Intangible
T
Opportunities I Opportunities
A
T
Size, shape, color, weight, Desires for status, exclusivity,
design, material & technology I individuality, image and
Reliability, taste, speed, O security
durability and safety N
23
Network Strategy
Partnerships & the New Competitive Landscape
26
Types of Network Relationships
Relationships of a Relationships of a
company with Indirect Direct company with its
companies outside its competitors in the
industry Horizontal Horizontal same industry
27
Strategic Alliances as Vehicles of Strategy
28
Types and Structure of Alliances
One or more partners assume a greater
ownership interest in either the alliance or
another partner
Two or more cooperating companies (e.g. Fiat acquires 35% of Chrysler. Chrysler
(parents) create a legally accesses Fiat technology and facilities in
independent company in which they
invest and from which they share
Equity exchange for helping Fiat sell its brands in
the U.S.)
profits created.
(e.g. Ericsson & Sony multimedia) Alliance
Non-
Joint Companies collaborate to
Equity supply, produce, market or
Advantages Drawbacks
30
Why Alliances Fail
31
Globalization and Global Strategies
Global Strategic Management
33
Glocalization
• Glocalization
– Occurs when an organization with a strong global image
maintains an equally strong local identity. Commonly seen in
Transnational Corporations.
• Global Integration
– Emphasizes consistency of approach, standardization of
processes and a common corporate culture across global
operations.
– Decisions are made from a global perspective so the
organization’s brand and image are consistent and uniform.
• Local Responsiveness
– Emphasizes adapting to the needs of local markets and allows
subsidiaries to develop unique products, structures and
systems.
34
Organizing Global Operations
Domestic strategy tends to be driven by mission, values and objectives; global
strategy can be driven by the orientation toward specific global behaviors selected
by an organization
Organization divides itself into divisions
that focus on regions to leverage
Product
Customer
or Service
Divisions based around specific products Organizations form separate customer
or services are formed in countries Global service divisions to meet needs of
targeted for such products or services.
e.g. HP partners with LG to share Strategy specific targeted country. e.g. Lufthansa
airlines form customer service divisions
technology to open Asian market to HP Orientations in U.S.
35
Going Global
36
Benefits of Global Strategy
Increased customer base results in more World market production can achieve
diversification of products and more growth large scale economies in product
development, operations and
marketing
39
Global View of Porter’s Competitive Model
Barriers to entry
decrease substantially
Rivalry increase due to: Increasing due to large
• More producers entering market customers ability to leverage
• Increase in competitor diversity
buying power more effectively
• Increase in excess capacity
40
Creating Global Strategy Success
41