Chapter 5

Strategies in Action

Strategic Management:
Concepts & Cases
12th Edition
Fred David

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Ch 5 -1

Long-Term Objectives
Objectives
Quantifiable
Measurable
Realistic
Understandable
Challenging

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Ch 5 -2

Long-Term Objectives
Objectives
Hierarchical
Obtainable
Congruent
Timeline

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Ch 5 -3

Varying Performance Measures

by Organizational Level

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Ch 5 -4

Financial vs. Strategic

Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher earnings per share
Improved cash flow
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Ch 5 -5

Not Managing by Objective

Managing by Extrapolation If it aint broke, dont
fix it.
Managing by Crisis The true measure of a good
strategist is the ability to fix problems
Managing by Subjectives Do your own thing, the
best way you know how.
Managing by Hope The future is full of uncertainty
and if first you dont succeed, then you may on the
second or third try.
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Ch 5 -6

The Balanced Scorecard

Robert Kaplan & David Norton
Strategy evaluation & control technique
Balance financial measures with nonfinancial
measures
Balance shareholder objectives with customer
& operational objectives

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Ch 5 -7

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Ch 5 -8

Types of Strategies
Corp
Level

A Large Company

Division Level

Functional Level

Operational Level

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Ch 5 -9

Tall Organizational Structure

Large, complex organizations often require a taller hierarchy. In its simplest form, a tall
structure results in one long chain of command similar to the military. As an organization
grows, the number of management levels increases and the structure grows taller. In a
tall structure, managers form many ranks and each has a small area of control. Although
tall structures have more management levels than flat structures, there is no definitive
number that draws a line between the two.

Flat Organizational Structure

Flat structures have fewer management levels, with each level controlling a broad area
or group. Flat organizations focus on empowering employees rather than adhering to the
chain of command. By encouraging autonomy and self-direction, flat structures attempt
to tap into employees creative talents and to solve problems by collaboration.

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Ch 5 -10

Tall Structure Pros And Cons

The pros of tall structures lie in clarity and managerial control. The narrow span of
control allows for close supervision of employees. Tall structures provide a clear, distinct
layers with obvious lines of responsibility and control and a clear promotion structure.
Challenges begin when a structure gets too tall. Communication begins to take too long
to travel through all the levels. These communication problems hamper decision-making
and hinder progress.
Flat Structure Pros And Cons
Flat organizations offer more opportunities for employees to excel while promoting the
larger business vision. That is, there are more people at the top of each level. For flat
structures to work, leaders must share research and information instead of hoarding it. If
they can manage to be open, tolerant and even vulnerable, leaders excel in this
environment. Flatter structures are flexible and better able to adapt to changes. Faster
communication makes for quicker decisions, but managers may end up with a heavier
workload. Instead of the military style of tall structures, flat organizations lean toward a
more democratic style. The heavy managerial workload and large number of employees
reporting to each boss sometimes results in confusion over roles. Bosses must be team
leaders who generate ideas and help others make decisions. When too many people
report to a single manager, his job becomes impossible. Employees often worry that
others manipulate the system behind their backs by reporting to the boss; in a flat
organization, that means more employees distrusting higher levels of authority.
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Ch 5 -11

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Ch 5 -12

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Ch 5 -13

Types of Strategies
Forward
Integration

Vertical
Integration
Strategies

Backward
Integration

Horizontal
Integration

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Ch 5 -14

Types of Strategies
Market
Penetration

Intensive
Strategies

Market
Development

Product
Development

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Ch 5 -15

A market development strategy targets non-buying customers in currently targeted

segments. It also targets new customers in new segments.
Market development strategy entails expanding the potential market through new users
or new uses. New users can be defined as: new geographic segments, new
demographic segments, new institutional segments or new psychographic segments.
Another way is to expand sales through new uses for the product.

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Ch 5 -16

Types of Strategies
Related
Diversification

Diversification
Strategies

Unrelated
Diversification

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Ch 5 -17

Types of Strategies
Retrenchment

Defensive
Strategies

Divestiture

Liquidation

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Ch 5 -18

Natural Environment
Perspective
Reefs
in Trouble
Songbirds
Songbirds and
76 Coral
songbird
species
have

dramatically declined in numbers

Coral Reefs Trawl fishing destroys
coral reefs

Total area of fully protected

marine habitats in the US is only
50 square miles (93 million acres
of national wildlife refuges and
national parks)

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Ch 5 -19

2007 Examples
Forward
Integration

Southwest Airlines selling tickets

through Galileo

Backward
Integration

Hilton Hotels could acquire a large

furniture manufacturer

Horizontal
Integration

Huntington Bancshares and Sky

Financial Group merged

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Ch 5 -20

2007 Examples
Market
Penetration

McDonalds selling millions of

Shrek the Third items to a
healthier image

Market
Development

Burger King opened its first

restaurant in Japan

Product
Development

Google introduced Google

Presents to compete with
PowerPoint

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Ch 5 -21

2007 Examples
Related
Diversification

MGM Mirage is opening its first noncasino luxury hotel

Unrelated
Diversification

Ford Motor Company entered the

industrial bank business

Retrenchment

Discovery Channel closed 103 mallbased and stand-alone stores

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Ch 5 -22

2007 Examples
Divestiture

Whirlpool sold its struggling Hoover

floor-care business to Techtronic
Industries

Liquidation

Follow Me Charters sold all of its

assets and ceased doing business

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Ch 5 -23

Michael Porters Generic Strategies

Cost Leadership Strategies
(Low-Cost & Best-Value)

Differentiation Strategies
Focus Strategies
(Low-Cost Focus &
Best-Value Focus)

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Ch 5 -24

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Ch 5 -25

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Ch 5 -26

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Ch 5 -27

First Mover Advantages

Benefits a firm may achieve by entering a

new market or developing a new product or
service prior to rival firms

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Ch 5 -28

Outsourcing
Business-Process Outsourcing
(BPO)

Companies taking over the functional

operations of other firms

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Ch 5 -29

Global Perspective
Joint Ventures Mandatory for All Foreign Firms in
India
Indias experiencing fastest growth in over 18 years
Second fastest (behind China) growth rate at 10.7%
Also experiencing 6.6% inflation
Gap between rich and
poor widening
Joint venture mandatory
Vast majority of joint
ventures fail
Tourism also growing

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Ch 5 -30

Strategic Management in Nonprofit and

Governmental Organizations
Educational Institutions
Medical Organizations
Governmental Agencies and Departments

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Ch 5 -31

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

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Ch 5 -32