Professional Documents
Culture Documents
Objectives:
This lecture brings strategic management to life with many contemporary examples. Sixteen types of strategies are defined and exemplified, including Michael Porter's generic strategies: cost leadership, differentiation, and focus. Guidelines are presented for determining when different types of strategies are most appropriate to pursue. An overview of strategic management in nonprofit organizations, governmental agencies, and small firms is provided. After reading this lecture you will be able to know about:
. . .
Types of Strategies
Integration strategies
Strategies in Action: Even if youre on the right track, youll get run over if you just sit there. -- Will Rogers
Hundreds of companies today embrace strategic planning because: Quest for higher revenues
Long term objectives Long-term objectives represent the results expected from pursuing certain strategies. Strategies
represent the actions to be taken to accomplish long-term objectives. The time frame for objectives and strategies should be consistent, usually from two to five years.
hard to imagine an organization or individual being successful without clear objectives. Success only rarely occurs by accident; rather, it is the result of hard work directed toward achieving certain objectives.
. .
79
Managing by Extrapolation
Managing by Crisis
. .
Managing by Subjective
Managing by Hope
Strategists should avoid the following alternative ways to "not managing by objectives." Managing by Extrapolationadheres to the principle "If it ain't broke, don't fix it." The idea is to keep on doing about the same things in the same ways because things are going well. Managing by Crisisbased on the belief that the true measure of a really good strategist is the ability to solve problems. Because there are plenty of crises and problems to go around for every person and every organization, strategists ought to bring their time and creative energy to bear on solving the most pressing problems of the day. Managing by crisis is actually a form of reacting rather than acting and of letting events dictate whats and whens of management decisions. Managing by Subjectivebuilt on the idea that there is no general plan for which way to go and what to do; just do the best you can to accomplish what you think should be done. In short, "Do your own thing, the best way you know how" (sometimes referred to as the mystery approach to
decision
making because subordinates are left to figure out what is happening and why).
Managing by Hopebased on the fact that the future is laden with great uncertainty, and that if we
try and do not succeed, then we hope our second (or third) attempt will succeed. Decisions are predicted on the hope that they will work and the good times are just around the corner, especially if luck and good fortune are on our side!
Types of Strategies
Defined and exemplified in Table, alternative strategies that an enterprise could pursue can be categorized into thirteen actionsforward integration, backward integration, horizontal integration, market penetration, market development, product development, concentric diversification, conglomerate diversification, horizontal diversification, joint venture, retrenchment, divestiture, and liquidationand a combination strategy. Each alternative strategy has countless variations. For example, market penetration can include adding salespersons, increasing advertising expenditures, coopering, and using similar actions to increase market share in a given geographic area.
A Comprehensive Strategic-Management Model Alternative Strategies Defined and Exemplified Strategy Definition Example
Forward Integration Gaining ownership or increased control over distributors or retailers General Motors is acquiring 10 percent of its dealers. Backward Integration Seeking ownership or increased control of a firm's suppliers Motel-8 acquired a furniture manufacturer. Horizontal Integration Seeking ownership or increased control over competitors Hilton recently acquired Promos. Market Penetration Seeking increased market share for present products or services in present markets through greater marketing efforts Ameritrade, the online broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions. Market Development Introducing present products or services into new geographic area Britain's leading supplier of buses, Henlys PLC, acquires Blue Bird Corp., North America's leading school bus maker. Product Development Seeking increased sales by improving present products or services or developing new ones Apple developed the G4 chip that runs at 500 megahertz. Concentric Diversification Adding new, but related, products or services National Westminister Bank PLC in Britain buys the leading British insurance company, Legal & General Group PLC. Conglomerate Diversification
Adding new, unrelated products or services H&R Block, the top tax preparation agency, said it will buy discount stock brokerage Olde Financial for $850 million in cash. Horizontal Diversification Adding new, unrelated products or services for present customers The New York Yankees baseball team is merging with the New Jersey Nets basketball team. Joint Venture Two or more sponsoring firms forming a separate organization for cooperative purposes Lucent Technologies and Philips Electronics NV formed Philips Consumer Communications to make and sell telephones. Retrenchment Regrouping through cost and asset reduction to reverse declining sales and profit Singer, the sewing machine maker, declared bankruptcy. 81 Divestiture Selling a division or part of an organization Harcourt General, the large U.S. publisher, selling its Neiman Marcus division. Liquidation Selling all of a company's assets, in parts, for their tangible worth Ribol sold all its assets and ceases business.
Integration Strategies:
Forward integration, backward integration, and horizontal integration are sometimes collectively referred to as vertical integration strategies. Vertical integration strategies allow a firm to gain control over distributors, suppliers, and/or competitors. Forward integration strategy refers to the transactions between the customers and firm. Similarly, the function for the particular supply which the firm is being intended to involve itself will be called backward integration. When the firm looks that other firm which may be taken over within the area of its own activity is called horizontal integration.
. .
Forward integration: Gaining ownership or increased control over distributors or retailers Forward integration involves gaining ownership or increased control over distributors or retailers.
You can gain ownership or control over the distributors, suppliers and Competitors using forward integration.
. . . . . .
Organization has both capital and human resources needed to manage new business of distribution
When your present distributors are expensive and you think that without affecting the quality of the goods you have to carry own the operations, forward integration is advisable. Similarly, if distributors are unreliable, they can not deliver with a sustained degree of timeliness or they are not in a proper way to meet the needs of the firm, forward integration is advisable. Availability of quality distributors is limited or it is difficult to get the quality of goods, then this need for a quality distributor, forward integration is best alternative. Suppose you have two industries, computers and mobile telephone which are progressing tremendously, it is advisable to think of forward integration due to the changing environment of the business. Organization has both capital and human resources needed to manage new business of distribution. A firm has all the basic elements to run the business safely in that case forward integration is best alternate. For stable production, stable supply is necessary. If you think that present distributors are charging high mark up, you may do that operation your self in order to avoid the mark up charges. It is advisable that firm itself involve in the operations. By gaining control, stability will be more and profitability will be enhanced.
Backward Integration
Seeking ownership or increased control of a firms suppliers Both manufacturers and retailers purchase needed materials from suppliers. Backward integration is a strategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especially appropriate when a firm's current suppliers are unreliable, too costly, or cannot meet the firm's needs.
. . . . . .
Firm has both capital and human resources to manage new business
When an organization has both capital and human resources to manage the new business of
supplying its own raw materials When the advantages of stable prices are particularly important; this is a factor because an organization can stabilize the cost of its raw materials and the associated price of its product through backward integration When present supplies have high profit margins, which suggests that the business of supplying products or services in the given industry is a worthwhile venture When an organization needs to acquire a needed resource quickly