Strategies in Action
Strategies in Action
Strategies in Action
A Competitive Advantage
Approach, Concepts and Cases
Chapter 5
Strategies in Action
Learning Objectives (1 of 2)
5.6 List guidelines for when retrenchment, divestiture, and liquidation are
especially effective strategies.
5.7 Identify and discuss Porter’s five generic strategies.
5.8 Compare (a) cooperation among competitors, (b) joint venture and
partnering, and (c) merger/acquisition as key means for achieving strategies.
5.9 Discuss tactics to facilitate strategies, such as (a) being a first mover, (b)
outsourcing, and (c) reshoring.
5.10 Explain how strategic planning differs in for-profit, not-for-profit, and
small firms.
Figure 5.1 A Comprehensive Strategic-
Management Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1 (February 1989): 91. See also Anik Ratnaningsih, Nadjadji
Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction
Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20.
Long-Term Objectives
• Objectives
– provide direction
– allow synergy
– assist in evaluation
– establish priorities
– reduce uncertainty
– minimize conflicts
– stimulate exertion
1. Quantitative: measurable
2. Understandable: clear
3. Challenging: achievable
Compatible: consistent
4. vertically and horizontally in a
chain of command
5. Obtainable: realistic
Financial Versus Strategic Objectives
• Financial objectives include growth in revenues, growth in earnings,
higher dividends, larger profit margins, greater return on investment,
higher earnings per share, a rising stock price, improved cash flow, and
so on.
• Strategic objectives include a larger market share, quicker on-time
delivery than rivals, shorter design-to-market times than rivals, lower
costs than rivals, higher product quality than rivals, wider geographic
coverage than rivals, achieving technological leadership, consistently
getting new or improved products to market ahead of rivals, and so on.
Not Managing by Objectives
• Managing by Crisis
• Managing by Hope
• Managing by Extrapolation
• Managing by Mystery
Types of Strategies
• Most organizations simultaneously pursue a combination of two or
more strategies, but a combination strategy can be exceptionally
risky if carried too far.
• No organization can afford to pursue all the strategies that might
benefit the firm.
• Difficult decisions must be made and priorities must be established.
Table 5.3 Alternative Strategies Defined
and Exemplified (1 of 2)
Strategy Definition Example
Gaining ownership or increased control Amazon began rapid delivery
Forward Integration over distributors or retailers services in some U.S. cities.
Backward Integration Seeking ownership or increased control Starbucks purchased a coffee farm.
of a firm’s suppliers
Seeking ownership or increased control &T acquired Susquehanna
Horizontal Integration over competitors Bancshares.
Seeking increased market share for Under Armour signed tennis
Market Penetration present products or services in present champion Andy Murray to a 4-year,
markets through greater marketing $23 million marketing deal.
efforts
Introducing present products or Gap opened its first five stores in
Market Development services into new geographic area China.
Seeking increased sales by improving Amazon just began offering its own
Product Development present products or services or line of baby diapers and wipes.
developing new ones
• Related Diversification
– value chains possess competitively valuable cross-business
strategic fits
• Unrelated Diversification
– value chains are so dissimilar that no competitively
valuable cross-business relationships exist
Synergies of Related Diversification
• When adding new, but related, products would significantly enhance the sales
of current products
• When new, but related, products could be offered at highly competitive prices
• When new, but related, products have seasonal sales levels that
counterbalance an organization’s existing peaks and valleys
• When the new products have countercyclical sales patterns compared to present
products
• Retrenchment
• Retrenchment
– occurs when an organization regroups through cost and
asset reduction to reverse declining sales and profits
– also called a turnaround or reorganizational strategy
– designed to fortify an organization’s basic distinctive
competence
Retrenchment Guidelines
• Liquidation
– selling all of a company’s assets, in parts, for their tangible worth
– can be an emotionally difficult strategy
Liquidation Guidelines
• Differentiation
– is a strategy aimed at producing products and services considered
unique industry-wide and directed at consumers who are relatively
price-insensitive
Michael Porter’s Two Generic Strategies (3
of 3)
• Type 4