Long Term Objectives, Generic and Grand Strategies

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Session 11

• Long Term Objectives, Generic and Grand Strategies

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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.

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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

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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

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Qualities of Long-Term Objectives
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Forces Driving Industry Competition
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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.

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Three Generic Strategies
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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

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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

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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

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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

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For each of the Three

• Requirements
• Skills/resources
• Organizational
• Risks

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Requirements for Generic Competitive Strategies
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Risks of the Generic Strategies
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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
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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.

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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
  

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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

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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

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Market Development

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

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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

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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

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Product Development

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

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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

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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

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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

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Innovation

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

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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.)

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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

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Example 2

• Virgin Galactic For profit commercial and
  consumer space travel and transportation

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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

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Horizontal Integration

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

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Example 1

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

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Example 2

• USAirways merging with Piedmont Airlines

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Example 3

• Exxon Acquiring Mobil in 2000 for 85.1 Billion

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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

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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

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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/

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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

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Vertical and Horizontal Integration
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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

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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

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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

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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

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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

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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

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Example 2

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

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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

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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

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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

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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

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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

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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

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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

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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.

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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.

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Break Out Reporting

• Case
• Industry
• Rival Generic Strategy Examples
• Grand Strategy Examples