Session 9 PP(1)

Session 9 PP(1) - Session 9 Long Term Objectives, Long...

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Unformatted text preview: Session 9 Long Term Objectives, Long Generic and Grand Strategies Strategies 1 Long-Term Objectives Short-run profit maximization is rarely the best Short-run approach to achieving sustained corporate growth and profitability Types of Long Term Objectives: – – – – Profitability Competitive Position Employee Relations Tech Leadership – – – – Productivity Employee development Productivity Public Responsibility 2 Usage Frequencies of Long Usage Term Objectives Term (N = 82) Profitability Growth Market Share Social Responsibility Employee Welfare Product/Service Quality R&D Diversification Efficiency 89% 82 66 65 62 60 54 51 50 3 Qualities of Long-Term Qualities Objectives Objectives Acceptable Achievable Criteria used in preparing objectives Flexible Understandable Measurable Suitable Motivating 4 Forces Driving Industry Forces Competition Competition Potential entrants Threat of new entrants Bargaining power of suppliers Industry competitors Rivalry Among Existing Firms Bargaining power of buyers Suppliers Buyers Threat of substitute products or services Substitutes 5 Generic Strategies A llong-term BL strategy must be ong-term 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. strategy 6 Three Generic Strategies Low-cost leadership Differentiation Focus 7 3 Generic Strategies 1.Striving for overall low-cost leadership in the Striving low-cost industry. 2.Striving to create and market unique products 2.Striving for varied customer groups through differentiation. differentiation 3.Striving to have special appeal to one or more 3.Striving groups of consumers or industrial buyers, focusing on their cost or differentiation focusing concerns concerns 8 Low-Cost Leadership Low-cost producers usually excel at cost Low-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 higher 9 Differentiation Strategies dependent on differentiation are Strategies 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 firm’s 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 service 10 10 Focus A focus strategy, whether anchored in a low-cost focus base or a differentiation base, attempts to attend to the needs of a particular market segment the A firm pursuing a focus strategy is willing to service firm 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 mediumsomewhat sized customer sized The focusing firms profit from their willingness to serve otherwise ignored or underappreciated customer segments 11 11 For each of the Three For Requirements – Skills/resources – Organizational Organizational Risks Risks 12 Requirements for Generic Requirements Competitive Strategies Competitive Generic Strategy Commonly Required Skills and Resources • Sustained capital investment and access to capital • Process engineering skills • Intense supervision of labor • Products designed for ease in manufacture • Low-cost distribution system • Strong marketing abilities • Product engineering • Creative flare • Strong capability in basic research • Corporate reputation for quality or technological leadership • Unique combination of skills • Strong cooperation from channels Common Organizational Requirements Overall cost leadership • Tight cost control • Frequent, detailed control reports • Structured organization and responsibilities • Incentives based on meeting strict quantitative targets • Strong coordination among functions in R&D, product development, and marketing • Subjective measurement and incentives instead of quantitative measures • Amenities to attract highly skilled labor, scientists, or creative people • Combination of above policies directed at the regular strategic target 13 13 Differentiation Focus • Combination of above policies directed at the particular strategic target Risks of the Generic Strategies Risks of Cost Leadership Cost of leadership is not sustained Risks of Differentiation Differentiation is not sustained Risks of Focus Focus strategy is imitated Target segment becomes unattractive • Competitors imitate • Technology changes • Other bases for cost leadership erode Proximity in differentiation is lost • Competitors imitate • Bases for differentiation become less important to buyers Cost proximity is lost • Structure erodes • Demand disappears Broadly targeted competitors overwhelm segment • Segment’s differences from others narrow Cost focusers achieve even lower cost in segments Differentiation focusers achieve greater differentiation in segments • Advantages of broad line increase 14 14 Types of Grand Strategies Concentrated Growth Market Development Product Development Innovation Horizontal Integration Vertical Integration Concentric Diversification Consortia 15 15 Conglomerate Diversification Turnaround Divestiture Liquidation Bankruptcy Joint Ventures Strategic Alliances Concentrated Growth Concentrated growth directs its resources to the profitable growth of a single product, in a single market, with a single dominant technology single 16 16 Market Development Market development commonly ranks second only to concentration as the least costly and least risky of the 15 grand strategies It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach 17 17 Product Development Product development involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels 18 18 Innovation These companies seek to reap the initially high These profits associated with customer acceptance of a new or greatly improved product new Then, rather than face stiffening competition as Then, the basis of profitability shifts from innovation to production or marketing competence, they search for other original or novel ideas The underlying rationale of the grand strategy of innovation is to create a new product life cycle and thereby make similar existing products obsolete 19 19 Horizontal Integration When a firm’s long-term strategy is When based on growth through the acquisition of one or more similar firms operating at the same stage of the productionthe marketing chain, its grand strategy is marketing called horizontal integration horizontal Such acquisitions eliminate competitors and provide the acquiring firm with access to new markets 20 20 Vertical Integration When a firm’s grand strategy is to acquire When firms that supply it with inputs (such as raw materials) or are customers for its outputs (such as warehouses for finished products), vertical integration is involved vertical The main reason for backward integration is the desire to increase the dependability of the supply or quality of the raw materials used as production inputs 21 21 Vertical and Horizontal Integration 22 22 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 firm’s 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 23 23 Conglomerate Diversification Occasionally a firm, particularly a very large Occasionally one, plans acquire a business because it represents the most promising investment opportunity available. This grand strategy is commonly known as conglomerate diversification. diversification The principal concern of the acquiring firm is the profit pattern of the venture the Unlike concentric diversification, conglomerate Unlike diversification gives little concern to creating product-market synergy with existing businesses 24 24 Turnaround The firm finds itself with declining profits Among the reasons are economic recessions, Among 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. turnaround Two forms of retrenchment: Two – – Cost reduction Cost Asset reduction Asset 25 25 Divestiture A divestiture strategy involves the sale divestiture of a firm or a major component of a firm of When retrenchment fails to accomplish When 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 Reasons 26 26 Liquidation When liquidation is the grand strategy, When the firm typically is sold in parts, only occasionally as a whole—but for its tangible asset value and not as a going concern Planned liquidation can be worthwhile 27 27 Bankruptcy Liquidation (Chapter 7) bankruptcy—agreeing —agreeing 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) bankruptcy Reorganization —the managers believe the firm can —the remain viable through reorganization remain 28 28 Joint Ventures Occasionally two or more capable firms Occasionally lack a necessary component for success in a particular competitive environment in The solution is a set of joint ventures, The joint which are commercial companies (children) created and operated for the benefit of the co-owners (parents) benefit The joint venture extends the supplierconsumer relationship and has strategic consumer advantages for both partners advantages 29 29 Strategic Alliances Strategic alliances are distinguished from joint ventures because the companies involved do not take an equity position in one another equity In some instances, strategic alliances In are synonymous with licensing agreements Outsourcing arrangements vary Outsourcing 30 30 Group Exercise Group For your Case Company: 1. Are there examples of rivals that more Are closely follow CL, Diff, and Focus? closely 2. Provide 5 different company examples Provide (hypothetical is ok) of rivals deploying one of the named grand strategies. one 31 Break Out Reporting Break Case: Industry: Rival Generic Strategy Examples: Grand Strategy Examples: 32 ...
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This note was uploaded on 02/19/2011 for the course ACCT 509 taught by Professor Co during the Spring '11 term at Winthrop.

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