بسم الله الرحمن الرحيم

Strategies in Action

Qualities of Long-Term Objectives : There are five criteria that should be used in preparing long-term objectives : Flexible, Measurable,  Motivating, Suitable, Understandable.

Long-term objectives are necessary : Corporate , Business / Divisional ,Functional levels .

Strategists should avoid : Managing by Extrapolation , Managing by Crisis , Managing by Subjective ,  Managing by Hope .

 Types of strategies

1. Integration Strategies . Vertical Integration strategies (Forward Integration , Backward Integration , Horizontal Integration ) .

Vertical Integration strategies :

 #  Running after Controlling between raw-materials ( suppliers ) and products marketing( distributors ) .    

 # Allow a firm to gain control over : Distributors , Suppliers , competitors .

Forward Integration : Gaining ownership or increased control over distributors or retailers .

Backward Integration : Seeking ownership or increased      control of a firm’s suppliers .

Horizontal Integration :

• When a firm’s long-term strategy is based on growth through the acquisition of one or more similar firms operating at the same stage of the production-marketing chain, its grand strategy is called horizontal integration
• Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets
• Seeking ownership or increased control over competitors .

2. Michael Porter’s Generic Strategies .

Overall Cost Leadership Strategies  : Pursued in conjunction with differentiation , Economies or diseconomies of scale , Capacity utilization achieved , Linkages with suppliers and distributors .

Low Cost Producer Advantages : Market of many price-sensitive buyers ,

Few ways of achieving product differentiation , Buyers not sensitive to brand differences , Large number of buyers with bargaining power .

Differentiation Strategies : Greater product flexibility , Greater compatibility , Lower costs , Improved service , Greater convenience , More features , Allow firm to charge higher price , Gain customer loyalty .

Focus Strategies : Industry segment of sufficient size , Good growth potential , Not crucial to success of major competitors , Consumers have distinctive preferences , Rival firms not attempting to specialize in the same target segment .

3. Intensive Strategies . Market Penetration , Market Development , Product Development .

 Intensive strategies : Require intensive efforts to improve a firm’s competitive position with existing products .

Market Penetration : Seeking increased market share for present products or services in present markets through greater marketing efforts .

Guidelines for Market Penetration  : Current markets not saturated ,

Usage rate of present customers can be increased significantly , Market shares of competitors declining while total industry sales increasing ,

Increased economies of scale provide major competitive advantages .

Market Development : Introducing present products or services into new geographic area .

Guidelines for Market Development  : New channels of distribution that are reliable, inexpensive, and good quality , Firm is very successful at what it does , Untapped or unsaturated markets , Capital and human resources necessary to manage expanded operations ,  Excess production capacity , Basic industry rapidly becoming global .

Product Development : Seeking increased sales by improving present products or services or developing new ones .

Guidelines for Product Development  : Products in maturity stage of life cycle , Competes in industry characterized by rapid technological developments , Major competitors offer better-quality products at comparable prices , Compete in high-growth industry , Strong research and development capabilities .

4. Diversification Strategies . Concentric Diversification , Conglomerate Diversification , Horizontal Diversification .

Diversification strategies : Becoming less popular as organizations are finding it more difficult to manage diverse business activities .

Concentric Diversification :

• Adding new, but related, products or services .
• involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products
• The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk .

 Guidelines for Concentric Diversification : Competes in no- or slow-growth industry , Adding new & related products increases sales of current products , New & related products offered at competitive prices , Current products are in decline stage of the product life cycle , Strong management team .

Conglomerate Diversification : Adding new, unrelated products or services .

Guidelines for Conglomerate Diversification  : Declining annual sales and profits , Capital and managerial talent to compete successfully in a new industry , Financial synergy between the acquired and acquiring firms , Exiting markets for present products are saturated .

Horizontal Diversification : Adding new, unrelated products or services for present customers .

Guidelines for Horizontal Diversification  : Revenues from current products/services would increase significantly by adding the new unrelated products , Highly competitive and/or no-growth industry   /low margins and returns , Present distribution channels can be used to market new products to current customers , New products have counter cyclical sales patterns compared to existing products .

5.  Defensive Strategies . Retrenchment , Divestiture , Liquidation .

Retrenchment : Regrouping through cost and asset reduction to reverse declining sales and profit .

 Guidelines for Retrenchment : 

• Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies
• Firm is one of the weaker competitors
• Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.
• When an organization’s strategic managers have failed
• Very quick growth to large organization where a major internal reorganization is needed .

Divestiture : Selling a division or part of an organization .

Guidelines for Divestiture  :

•  
  • When firm has pursued retrenchment but failed to attain needed improvements
  • When a division needs more resources than the firm can provide
  • When a division is responsible for the firm’s overall poor performance
  • When a division is a misfit with the organization
  • When a large amount of cash is needed and cannot be obtained from other sources.

Liquidation: Selling all of a company’s assets, in parts, for their tangible worth .

Guidelines for Liquidation  : 

• When both retrenchment and divestiture have been pursued unsuccessfully
• If the only alternative is bankruptcy, liquidation is an orderly alternative
• When stockholders can minimize their losses by selling the firm’s assets

Means for Achieving Strategies

1. Joint Venture Strategy . Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity.

2. Cooperative Arrangements  :  

• Research and development partnerships
• Cross-distribution agreements
• Cross-licensing agreements
• Cross-manufacturing agreements
• Joint-bidding consortia

3. Problems Causing Joint Ventures to Fail :

•  Managers who must collaborate daily not involved in forming or shaping the venture
• Venture may benefit the companies but not the customers
• Venture not supported equally by both partners
• Venture may begin to compete with one of the partners more so than the other

Guidelines for Joint Ventures :

• Combination of privately held and publicly held can be synergistically combined
• Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks
• Distinctive competencies of two or more firms are complementary
• Overwhelming resources and risks where project is potentially very profitable (e.g., Alaska pipeline)
• Two or more smaller firms have trouble competing with larger firm
• A need exists to introduce a new technology quickly