## Chapter 5: Strategies in Action
In strategic management, **Chapter 5** is where the "planning" meets the "doing." It moves
from the theoretical vision and mission into the specific types of strategies a firm can use to
achieve its objectives. This chapter is vital because it provides a menu of strategic choices
available to any organization, regardless of its size or industry.
### 1. Long-Term Objectives
Before choosing a strategy, a firm must set **Long-Term Objectives**. These are the results an
organization seeks to achieve over a multi-year period (usually 2–5 years).
* **Characteristics:** They should be quantitative, measurable, realistic, understandable,
challenging, hierarchical, obtainable, and congruent among organizational units.
* **The Perils of Not Having Objectives:** Without clear objectives, an organization is like a ship
without a rudder—drifting toward "crisis management" rather than purposeful growth.
### 2. The Balanced Scorecard
The Balanced Scorecard is a strategy evaluation and control technique that balances financial
measures with non-financial measures. It prevents managers from focusing solely on short-
term financial performance at the expense of long-term health.
* **Financial:** How do we look to shareholders?
* **Customer:** How do customers see us?
* **Internal Business Processes:** What must we excel at?
* **Learning and Growth:** Can we continue to improve and create value?
### 3. Types of Strategies (The Strategy Menu)
Strategies are generally categorized into four main groups: **Integrative, Intensive,
Diversification, and Defensive.**
#### A. Integrative Strategies
These allow a firm to gain control over distributors, suppliers, or competitors.
1. **Forward Integration:** Gaining ownership or increased control over distributors or retailers.
(e.g., Apple opening its own retail stores).
2. **Backward Integration:** Seeking ownership or control of a firm’s suppliers. (e.g., A
Starbucks buying its own coffee bean farms).
3. **Horizontal Integration:** Seeking ownership or control over competitors. (e.g., One bank
merging with another).
#### B. Intensive Strategies
These require intensive efforts to improve a firm’s competitive position with existing products.
1. **Market Penetration:** Increasing market share for present products/services through
greater marketing efforts.
2. **Market Development:** Introducing present products/services into new geographic areas.
3. **Product Development:** Improving present products or developing new ones to increase
sales.
#### C. Diversification Strategies
1. **Related Diversification:** Adding new but related products or services. (e.g., Disney
acquiring Pixar).
2. **Unrelated Diversification:** Adding new, unrelated products or services. (e.g., A casino
company buying a furniture manufacturer).
#### D. Defensive Strategies
Strategies used when a firm is in trouble or needs to refocus.
1. **Retrenchment:** Regrouping through cost and asset reduction to reverse declining sales
and profits (also called "downsizing").
2. **Divestiture:** Selling a division or part of an organization.
3. **Liquidation:** Selling all of a company’s assets, in parts, for their tangible worth.
### 4. Michael Porter’s Generic Strategies
Porter argues that a firm’s relative position within its industry determines its profitability. There
are three primary "generic" ways to outperform competitors:
1. **Cost Leadership:** Producing standardized products at a very low per-unit cost for
consumers who are price-sensitive. (e.g., Walmart).
2. **Differentiation:** Producing products and services considered unique industry-wide and
directed at consumers who are relatively price-insensitive. (e.g., Tesla).
3. **Focus:** Producing products and services that fulfill the needs of small groups of
consumers (niche market).
### 5. Means for Achieving Strategies
How does a firm actually execute these strategies?
* **Joint Venture:** Two or more companies form a temporary partnership/consortium for the
purpose of capitalizing on some opportunity.
* **Mergers & Acquisitions (M&A):** A merger occurs when two organizations of about equal
size unite to form one enterprise; an acquisition occurs when a large organization purchases a
smaller firm.
* **First Mover Advantages:** The benefits a firm may achieve by entering a new market or
developing a new product before rival firms.
* **Outsourcing:** Having an outside provider take over specific functional areas like payroll, IT,
or manufacturing.
### 6. Strategic Management in Non-Profit and Governmental Organizations
Strategic management is not just for corporations.
* **Educational Institutions:** Use strategies to attract students and research funding.
* **Medical Organizations:** Use strategies to manage high costs and shifting regulations.
* **Governmental Agencies:** Use strategic planning to justify budget requests and improve
public service efficiency.
> **Key Takeaway:** Success is not just about picking a strategy; it is about picking the **right**
strategy for the **right** time. A firm that tries to do "Product Development" when it should be
doing "Retrenchment" risks total failure.
>
Should we look into a specific case study for one of these strategies, or do you want to move on
to the **Strategy Analysis and Choice (Chapter 6)** tools like the SWOT or SPACE Matrix?