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Long Term Objectives, Generic and Grand Strategies

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Session 11 Long Term Objectives, Generic and Grand Strategies * Example 1 Wachovia merging with First Union only to be acquired by Wells Fargo * Example 2 USAirways ... – PowerPoint PPT presentation

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Title: Long Term Objectives, Generic and Grand Strategies


1
Session 11
  • Long Term Objectives, Generic and Grand Strategies

2
Session Objectives
  1. Setting your dominant long term objective.
  2. Define the 3 generic (drivers) of effective
    competitive strategies.
  3. Define and clarify 15 recurring grand strategies.

3
Long-Term Objectives
  • Short-run profit maximization is rarely the best
    approach to achieving sustained corporate growth
    and profitability
  • Types of Long Term Objectives
  • Profitability Productivity
  • Competitive Position Employee development
  • Employee Relations Productivity
  • Tech Leadership Public Responsibility

4
Usage Frequencies of Long Term Objectives(N 82)
  • Profitability 89
  • Growth 82
  • Market Share 66
  • Social Responsibility 65
  • Employee Welfare 62
  • Product/Service Quality 60
  • RD 54
  • Diversification 51
  • Efficiency 50

5
Qualities of Long-Term Objectives
6
Forces Driving Industry Competition
7
Generic Strategies
  • A long-term BL strategy must be based on a core
    idea about how the firm can best compete in the
    marketplace. The popular term for this core idea
    is generic strategy.

8
Three Generic Strategies
9
3 Generic Strategies
  • Striving for overall low-cost leadership in the
    industry.
  • Striving to create and market unique products for
    varied customer groups through differentiation.
  • Striving to have special appeal to one or more
    groups of consumers or industrial buyers,
    focusing on their cost or differentiation concerns

10
Low-Cost Leadership
  • Low-cost producers usually excel at cost
    reductions and efficiencies
  • They maximize economies of scale, implement
    cost-cutting technologies, stress reductions in
    overhead and in administrative expenses, and use
    volume sales techniques to propel themselves up
    the earning curve
  • A low-cost leader is able to use its cost
    advantage to charge lower prices or to enjoy
    higher profit margins

11
Differentiation
  • Strategies dependent on differentiation are
    designed to appeal to customers with a special
    sensitivity for a particular product attribute
  • By stressing the attribute above other product
    qualities, the firm attempts to build customer
    loyalty
  • Often such loyalty translates into a firms
    ability to charge a premium price for its product
  • The product attribute also can be the marketing
    channels through which it is delivered, its image
    for excellence, the features it includes, and its
    service network

12
Focus
  • A focus strategy, whether anchored in a low-cost
    base or a differentiation base, attempts to
    attend to the needs of a particular market
    segment
  • A firm pursuing a focus strategy is willing to
    service isolated geographic areas to satisfy the
    needs of customers with special financing,
    inventory, or servicing problems or to tailor
    the product to the somewhat unique demands of the
    small- to medium-sized customer
  • The focusing firms profit from their willingness
    to serve otherwise ignored or underappreciated
    customer segments

13
For each of the Three
  • Requirements
  • Skills/resources
  • Organizational
  • Risks

14
Requirements for Generic Competitive Strategies
15
Risks of the Generic Strategies
16
Types of Grand Strategies
Concentrated Growth
Conglomerate Diversification
Market Development
Turnaround
Product Development
Divestiture
Innovation
Liquidation
Horizontal Integration
Bankruptcy
Vertical Integration
Joint Ventures
Concentric Diversification
Strategic Alliances
Consortia
17
Concentrated Growth
  • A grand strategy in which a firm directs its
    resources to the profitable growth of a single
    product, in a single market, with a single
    dominant technology.

18
Example 1
  • In 2011, McDonalds uses promotional campaign
    Monopoly to increase the rate of use of their
    current customers. If you make a game out of it,
    people will purchase your products to play.
  • http//www.associatedcontent.com/article/6239272/i
    ncreasing_your_sales_using_concentrated.html?cat3

19
Example 2
  • Best Buy focused on the Concept Stores and the
    initiatives that improved its performance and
    differentiated the company from its main
    competitor.
  • http//www.ibscdc.org/businesscasebooks-pdfs/Growt
    h20Stratiges20Vol.20II.pdf

20
Example 3
  • Paypal revolutionized financial services through
    its on-line person-to-person (P2P) money transfer
    service. Paypals growth strategy is to increase
    its customer base and sales through focusing on
    its online payment market.
  • http//www.ibscdc.org/businesscasebooks-pdfs/Growt
    h20Stratiges20Vol.20II.pdf

21
Market Development
  • A grand strategy of marketing present products.
    Often with only cosmetic modification, to
    customers in related marketing areas.

22
Example 1
  • Pacific Andes achieved considerable growth in
    seafood and vegetable business within a short
    span expanding into other countries. It also
    increased its global market share and gained a
    sustainable competitive advantage through
    synergy.
  • http//www.ibscdc.org/businesscasebooks-pdfs/Growt
    h20Stratiges20Vol.20II.pdf

23
Example 2
  • Toyota expanded its presence in the European car
    market. Toyota succeeded in localizing its
    strategies in tune with the needs of the European
    car market. Toyota also analyzed its strategy in
    Europe in the wake of currency fluctuations and
    the new needs of the market.
  • http//www.ibscdc.org/businesscasebooks-pdfs/Growt
    h20Stratiges20Vol.20II.pdf

24
Product Development
  • A grand strategy that involves the substantial
    modification of existing products that can be
    marketed to current customers.

25
Example 1
  • The entire Nikon group is implementing the Nikon
    Product Assessment to create new products which
    offer enhanced power consumption efficiency, are
    smaller and lighter, use less harmful substances,
    and utilise Eco-glass.
  • http//www.nikon.com/about/csr/report/2004/eco_e_0
    9.pdf

26
Example 2
  • Miller/Coors with their Coors Light cold themed
    packaging bells and whistles frost brewed, cold
    activated can, wide mouthed, cold filtered, home
    keg

27
Example 3
  • Sears Circa 1975 with their buy your stocks
    where you buy your socks expansion into
    financial services Discover Card, Dean Witter,
    Coldwell Banker, Allstate Insurance

28
Innovation
  • A grand strategy that seeks to reap the premium
    margins associated with creation and customer
    acceptance of a new product or service.

29
Example 1
  • Apple is one of the most creative companies in
    the world. It designs and launches every Mac,
    iPhone, iPad. Its innovation on electronic
    products is so successful that everyone wants to
    own the new Apple products.
  • (I wrote it.)

30
Example 2
  • Googles most recent innovation is on the Android
    OS for smartphones. It will challenge Apple's
    iPhone in the hotly competitive world of mobile
    devices.
  • http//money.cnn.com/magazines/fortune/mostadmired
    /2010/snapshots/11207.html

31
Example 2
  • Virgin Galactic For profit commercial and
    consumer space travel and transportation

32
Example 3
  • Googles most recent innovation is on the Android
    OS for smartphones. It will challenge Apple's
    iPhone in the hotly competitive world of mobile
    devices.
  • http//money.cnn.com/magazines/fortune/mostadmired
    /2010/snapshots/11207.html

33
Horizontal Integration
  • A grand strategy based on growth through the
    acquisition of similar firms operating at the
    same stage of the production-marketing chain.

34
Example 1
  • Wachovia merging with First Union only to be
    acquired by Wells Fargo

35
Example 2
  • USAirways merging with Piedmont Airlines

36
Example 3
  • Exxon Acquiring Mobil in 2000 for 85.1 Billion

37
Vertical Integration
  • A grand strategy based on the acquisition of
    firms that supply the acquiring firm with inputs
    or new customers for its outputs.
  • Backward VI is the desire to increase the
    dependability of the supply or quality of the
    raw materials used as production inputs
  • Forward VI is the desire to gain greater control
    of the distribution/marketing/selling/service of
    products or services

38
Example 1
  • ATT has ownership over companies that transmit
    equipments, including stations, cable lines,
    telephones, etc. which tremendously helped ATT
    in providing one stop services and products.
    Without paying ATT for its entitled
    infrastructure, other companies would never be
    able to use or provide similar services or
    products which ATT is said to be a dominating
    winning mix.
  • http//ccit300.wikispaces.com/HorizontalIntegrati
    on

39
Example 2
  • Starbucks originally started as a roaster and
    retailer of coffee-beans, when its founder,
    Howard Schultz joined the company as a young
    salesman. The company is immensely vertically
    integrated for one purpose alone, maintaining
    perfect quality throughout the value-chain.
  • http//www.techiteasy.org/2007/07/28/starbucks-an-
    example-of-vertical-integration/

40
Example 3
  • Apple figured out how to link the content, the
    hardware, the software, and the pricing and
    distribution mechanisms, all more or less under
    one company's control. However, Apple is
    controlling the parts of the operation that touch
    customer experience. Apple aggressively uses
    contract manufacturing rather than having to
    manage everything itself. Apple has dug even
    deeper into vertical integration by announcing
    that it now intends to design the very chips that
    go into some of its products.
  • http//blogs.hbr.org/hbr/mcgrath/2009/12/vertical-
    integration-can-work.html

41
Vertical and Horizontal Integration
42
Concentric Diversification
  • Concentric diversification involves the
    acquisition of businesses that are related to the
    acquiring firm in terms of technology, markets,
    or products
  • With this grand strategy, the selected new
    businesses possess a high degree of compatibility
    with the firms current businesses
  • The ideal concentric diversification occurs when
    the combined company profits increase the
    strengths and opportunities and decrease the
    weaknesses and exposure to risk

43
Example 1
  • The recent entry of Bell Atlantic Corporation, a
    telephone company, into the video programming
    business.
  • http//bizcovering.com/management/business-strateg
    ies-in-action/ixzz1bC3scaBo

44
Example 2
  • Dell Computers is pursing concentric
    diversification by manufacturing and marketing
    consumer electronic products (Flat Panel TVs, MP3
    players, online music-downloading store.) This is
    an example of Personal computer business becoming
    more aligned with the entertainment business
    because both are becoming more and more digital.
  • thinkpositive.ciprasystems.com/Admin/Common/163.pp
    t

45
Example 3
  • Bill Gates (sorry - ahem - MS) bought Hotmail,
    which added a valuable e-mail service to the
    other internet activities and brought Microsoft a
    bright future.
  • http//www.thinkingmanagers.com/management/busines
    s-diversity.php

46
Conglomerate Diversification
  • Occasionally a firm, particularly a very large
    one, plans acquire a business because it
    represents the most promising investment
    opportunity available. This grand strategy is
    commonly known as conglomerate diversification.
  • The principal concern of the acquiring firm is
    the profit pattern of the venture
  • Unlike concentric diversification, conglomerate
    diversification gives little concern to creating
    product-market synergy with existing businesses

47
Example 1
  • General Electric is an example of a firm that is
    highly diversified. GE makes locomotives, light
    bulbs, and refrigerators. GE manages more credit
    cards than American Express. GE owns more
    aircraft that American Airlines.
  • http//bizcovering.com/management/business-strateg
    ies-in-action/ixzz1bC4CLca9

48
Example 2
  • ITC, a primarily cigarette company, is pursing
    conglomerate diversification by entering into
    hotel industry.
  • thinkpositive.ciprasystems.com/Admin/Common/163.pp
    t

49
Example 3
  • ESSAR GROUP is pursing conglomerate
    diversification by entering into these fields
    iron and steel, oil support services, shipping,
    and marine constructions.
  • thinkpositive.ciprasystems.com/Admin/Common/163.pp
    t

50
Turnaround
  • The firm finds itself with declining profits
  • Among the reasons are economic recessions,
    production inefficiencies, and innovative
    breakthroughs by competitors
  • Strategic managers often believe the firm can
    survive and eventually recover if a concerted
    effort is made over a period of a few years to
    fortify its distinctive competences. This is
    turnaround.
  • Two forms of retrenchment
  • Cost reduction
  • Asset reduction

51
Divestiture
  • A divestiture strategy involves the sale of a
    firm or a major component of a firm
  • When retrenchment fails to accomplish the desired
    turnaround, or when a nonintegrated business
    activity achieves an unusually high market value,
    strategic managers often decide to sell the firm
  • Reasons for divestiture vary

52
Liquidation
  • When liquidation is the grand strategy, the firm
    typically is sold in parts, only occasionally as
    a wholebut for its tangible asset value and not
    as a going concern
  • Planned liquidation can be worthwhile

53
Bankruptcy
  • Liquidation (Chapter 7) bankruptcyagreeing to a
    complete distribution of firm assets to
    creditors, most of whom receive a small fraction
    of the amount they are owed
  • Reorganization (Chapter 11) bankruptcythe
    managers believe the firm can remain viable
    through reorganization

54
Joint Ventures
  • Occasionally two or more capable firms lack a
    necessary component for success in a particular
    competitive environment
  • The solution is a set of joint ventures, which
    are commercial companies (children) created and
    operated for the benefit of the co-owners
    (parents)
  • The joint venture extends the supplier-consumer
    relationship and has strategic advantages for
    both partners

55
Strategic Alliances
  • Strategic alliances are distinguished from joint
    ventures because the companies involved do not
    take an equity position in one another
  • In some instances, strategic alliances are
    synonymous with licensing agreements
  • Outsourcing arrangements vary

56
Session Objectives
  1. Setting your dominant long term objective.
  2. Define the 3 generic (drivers) of effective
    competitive strategies.
  3. Define and clarify 15 recurring grand strategies.

57
Group Exercise
  • For your Case Company
  • Are there examples of rivals that more closely
    follow CL, Diff, and Focus?
  • Provide 5 different company examples
    (hypothetical is ok) of rivals deploying one of
    the named grand strategies.

58
Break Out Reporting
  • Case
  • Industry
  • Rival Generic Strategy Examples
  • Grand Strategy Examples
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