Topic 5

Strategies: are the means by which the Mission of

the Organization And the objectives of
the firm are attained.
Objectives: tell you WHAT results you are trying to
achieve and WHEN the results are
scheduled for achievement. In the
simulation, Performance Goals are your
Objectives. You must allocate 100% among
eight performance goals before 1st non-practice run.

Strategies answer the question HOW you will attain

objectives.

The order that you develop in logical sequence is:

1st develop a Mission and Vision
2nd develop Objectives to quantify and make your
mission specific
3rd come up with Strategies to attain objectives
Many of the strategies given below involve growth,
therefore, some type of growth strategy is
most popular type of strategy.

Strategic Management Model

Environmental
Scanning
External
Societal
Environment
General Forces
Task
Environment
Industry Analysis

Internal
Structure
Chain of Command
Culture
Beliefs, Expectations,
Values

Strategy
Formulation

Strategy
Implementation

Evaluation
and Control

Mission
Reason for
existence

Objectives
What results
to
accomplish
by when

Strategies
Plan to
achieve the
mission &
objectives

Go through decisionmaking process and

Determine alternative
strategy To select

Programs
Activities
needed to
accomplish
a plan

Resources
Assets, Skills
Competencies,
Knowledge

Budgets
Cost of the
programs

Procedures
Sequence
of steps
needed to
do the job

Feedback/Learning

Process
to monitor
performance
and take
corrective
action

Performance

Potential Groups of
Strategies that you can develop are given
in text in 5 groupings:
A)

Integration Strategies

B)

Intensive Strategies

C)

Diversification Strategies
1. Cooperative strategies
2. True Defensive strategies

D. Generic Competitive Strategies by Porter

E. Stability Strategies

A) Integration Strategies are those strategies where

you move vertically up or down your channel of
distribution or horizontally side-to-side.
Suppliers
MGFR
Distributor
Retailer
Consumer

Forward Integration You move down the channel

best used when you have ineffective channel members,
there are high margins, and you have capital/resources
and knowledge for success. An effective way to use this strategy
is by franchising.
Backward Integration You move up your channel of
distribution - best when you have ineffective
unreliable, high margin suppliers better in rapidly
growing, competitive industry.
Horizontal Integration You set up internally, or buy up
other companies (external) that are at your same level of
Channel of Distribution best when you can gain unchallenged monopoly , you
have resources, you can gain competitive advantage.

Which Integration Strategies Are

Most Successful

Vertical Growth
Horizontal Growth
Concentric
Conglomerate (least successful)

80%
50%
35%
27%

Supply Chain management and Joint Strategy

Planning are used to do Vertical Integration
often without buying out those in your vertical
channel.

B. Intensive Strategies
Old Product

New Product

Old
Market

Penetration

Product
Development

New
Market

Market
Development

Conglomerate
Strategies

Market Penetration You sell more products to your same customers

- you lower the price, add salespersons and outlets and try to increase use by
present customers.
Market Development you distribute goods to new
customers that havent traditionally been in your territory
or that havent been the type of customer to whom you market. Often useful
when a company has excess production capacity.
Product Development change or renew product that
is becoming perceptually, or technically inferior.
[Old Tide is New Tide with crystals In some cases products are is just
perceived as inferior so you change your advertising and call it a new product.
In other situations you actually redo your product.]

C.1.a. Diversification Strategies

Concentric Diversification Adding new, but related,
products or services.
Complementary and
Supplementary.
Horizontal Diversification Adding new, unrelated
products or services for
present customers.
Conglomerate Diversification Adding new, unrelated
products and services.
(Most risky of diversification strategies)

C.1.b. Strategic Alliances

Mutual Service Consortium - companies pool to
do tasks that would be too expensive
individually (Financial name syndication)
Examples: IGA, AG Wholesaling, use
Purchasing, Inventory, Company
Transportation consortium

C.1.b. Strategic Alliances

Joint Ventures - usually temporary
business unit set up to do particular
tasks
Most popular type of alliance
Useful in international trade
Licensing - agreement to produce or sell
product of other company (Patents,
Brands, Copyrights)

C.2. Defensive Strategies

Joint Venture

Two or more companies form a

temporary partnership to reduce each others

competition, or to survive in a highly

competitive situation.

Retrenchment When a organization regroups

through cost and asset reduction
Retrenchment Turnaround appropriate when industry is good and problems are
pervasive but not critical. (Chapter 11 reorganize and restructure debt is also a possibility. This could
be the best strategy for some companies.)

Captive Company Strategy-Become a captive of one of your larger Customers.

Outsourcing may be a way of getting rid of functions you no longer want

to perform.

Divestiture
Liquidation

Selling of part of organization

Selling of all of the companys
assets (extreme is total bankruptcy forced
on you by creditors.)

Combination

The use of several strategies

D. Porters Generic
Competitive Strategies:
Cost Leadership (Mass market)
Differentiation (Concentrate on major segment of
market, or major product lines)
Focus Differentiation (Focus on a segment with
customized products)
Cost Focus (Go after niche with lowest prices)
Quick response and flexibility is a strategy that is
recently being used.

Porters Generic Competitive Strategies

Lower Cost

Differentiation

Broad Target

Cost Leadership

Differentiation

Narrow Target

Competitive Scope

Competitive Advantage

Cost Focus

Focused
Differentiation

Source:Reprinted with permission of

The Free Press, an imprint of Simon
& Schuster, from The Competitive
Advantage of Nations by Michael E.
Porter, p. 39. Copyright 1990 by
Michael E. Porter.

Requirements for Generic Competitive

Strategies

Commonly Required Generic

Strategy Requirements

Overall Cost Leadership

and access to capital
Process engineering skills
Intense supervision of labor
Products designed for ease of manufacture
Low-cost distribution system
Differentiation
Product engineering
Creative flair
Strong capability in basic research
Corporate reputation for quality or
technological leadership
Long tradition in the industry or unique
combination of skills drawn from other
businesses
Strong cooperation from channels

Common Organizational
Skills and Resources

Sustained capital investment

Tight cost control
Frequent, detailed control reports
Structured organization and
responsibilities
Incentives based on meeting strict
quantitative targets.
Strong marketing abilities

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

Focus Combination of the above policies directed

at the particular strategic target
Combination of the above policies
directed
at the particular strategic target

E. Stability Strategies
Pause or Proceed with Caution - strategy used when
industry faces uncertain future, and/or a company
needs to consolidate after a period of growth.
No Change Strategy strategy used when company is
operating in medium attractiveness industry and is an
average firm. Small adjustments are made.
Short-term Profit Strategy strategy to run out profits
of firm for the short-run. This is not a useful longterm strategy.

What is the best strategy to pick?

1. It attains the objectives of the company

(Financial, Market rank, Best in Industry)

2. It fits the mission of the company
3. It narrow down the choices of directions of
the company and can be accomplished with
the resources of the company (We are looking
for competitive or distinctive advantage.)
2. It fits the risk characteristics of the company