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LONG-TERM OBJECTIVES
• Strategic managers recognize that short-run profit
maximization is rarely the best approach to achieving
sustained corporate growth and profitability
• To achieve long-term prosperity, strategic planners
commonly establish long-term objectives in seven areas:
Profitability – Productivity
Competitive Position – Employee Development
Employee Relations – Tech Leadership
Public Responsibility
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QUALITIES OF LONG-TERM OBJECTIVES
There are five criteria that should be used in
preparing long-term objectives:
Flexible
Measurable
Motivating
Suitable
Understandable
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THE VALUE DISCIPLINES
Operational Excellence
This strategy attempts to lead the industry in
price and convenience by pursuing a focus on
lean and efficient operations
Customer Intimacy
Customer intimacy means continually tailoring
and shaping products and services to fit an
increasingly refined definition of the customer
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THE VALUE DISCIPLINES (CONTD.)
Product Leadership
Companies that pursue the discipline of
product leadership strive to produce a
continuous state of state-of-the-art products
and services
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EX. 7.4 SPECIFIC OPTIONS -- CONCENTRATION
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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
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EX. 7.4 SPECIFIC OPTIONS – MARKET DEVELOPMENT
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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
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EX. 7.4 SPECIFIC OPTIONS – PRODUCT DEVELOPMENT
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INNOVATION
These companies seek to reap the initially high profits
associated with customer acceptance of a new or
greatly improved product
Then, rather than face stiffening competition as 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
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HORIZONTAL ACQUISITION
• When a firm’s long-term strategy is based on
growth through the acquisition of one or more
similar firms operating at the same stage of
the production-marketing chain, its grand
strategy is called horizontal acquisition
• Such acquisitions eliminate competitors and
provide the acquiring firm with access to new
markets
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VERTICAL ACQUISITION
• When a firm’s grand strategy is to acquire
firms that supply it with inputs (such as raw
materials) or are customers for its outputs
(such as warehouses for finished products),
vertical acquisition is involved
• The main reason for backward vertical
acquisition is the desire to increase the
dependability of the supply or quality of the
raw materials used as production inputs
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EX. 7.9 VERTICAL AND HORIZONTAL ACQUISITIONS
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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
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CONGLOMERATE DIVERSIFICATION
Occasionally a firm, particularly a very large one,
plans acquire a business because it represents
the most promising investment opportunity
available. This grand strategy is commonly
known as conglomerate diversification.
The principal concern of the acquiring firm is the
profit pattern of the venture
Unlike concentric diversification, conglomerate
diversification gives little concern to creating
product-market synergy with existing businesses
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TURNAROUND
The firm finds itself with declining profits
Among the reasons are economic recessions,
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.
Two forms of retrenchment:
Cost reduction
Asset reduction
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ELEMENTS OF TURNAROUND
• A turnaround situation represents absolute and relative-to-
industry declining performance of a sufficient magnitude to
warrant explicit turnaround actions
• The immediacy of the resulting threat to company survival
is known as situation severity
• Turnaround responses among successful firms typically
include two stages of strategic activities: retrenchment and
the recovery response
• The primary causes of the turnaround situation have been
associated with the second phase of the turnaround
process, the recovery response
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DIVESTITURE
• A divestiture strategy involves the sale of a firm or
a major component of a firm
• When retrenchment fails to accomplish 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
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LIQUIDATION
• When liquidation is the grand strategy, 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
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BANKRUPTCY
• Liquidation bankruptcy—agreeing to a
complete distribution of firm assets to
creditors, most of whom receive a small
fraction of the amount they are owed
• Reorganization bankruptcy—the managers
believe the firm can remain viable through
reorganization
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JOINT VENTURES
• Occasionally two or more capable firms lack a
necessary component for success in a particular
competitive environment
• The solution is a set of joint ventures, which are
commercial companies (children) created and
operated for the benefit of the co-owners (parents)
• The joint venture extends the supplier-consumer
relationship and has strategic advantages for both
partners
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STRATEGIC ALLIANCES
• Strategic alliances are distinguished from joint
ventures because the companies involved do
not take an equity position in one another
• In some instances, strategic alliances are
synonymous with licensing agreements
• Outsourcing arrangements vary
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CONSORTIA, KEIRETSUS, AND CHAEBOLS
• an association, typically of several business
companies.
• Consortia are defined as large interlocking
relationships between businesses of an industry
• In Japan such consortia are known as keiretsus,
in South Korea as chaebols
• Their cooperative nature is growing in evidence
as is their market success
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SELECTION OF LONG-TERM OBJECTIVES AND GRAND
STRATEGY SETS
When strategic planners study their opportunities,
they try to determine which are most likely to result in
achieving various long-range objectives
Almost simultaneously, they try to forecast whether an
available grand strategy can take advantage of
preferred opportunities so the tentative objectives can
be met
In essence, then, three distinct but highly
interdependent choices are being made at one time
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SEQUENCE OF SELECTION AND STRATEGY
OBJECTIVES
• The selection of long-range objectives and
grand strategies involves simultaneous, rather
than sequential, decisions
• While it is true that objectives are needed to
prevent the firm’s direction and progress from
being determined by random forces, it is
equally true that objectives can be achieved
only if strategies are implemented
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EXECUTING STRATEGY
Strategy Execution
Is operations-driven, involving management of both
people and business processes.
Is a job for the whole management team, not just a few
senior managers.
Can take years longer to develop as a real proficiency
than implementing strategy.
Requires a determined commitment to change, action,
and performance.
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A FRAMEWORK FOR EXECUTING STRATEGY
Committing to Executing a Strategy:
Entails figuring out the specific techniques, actions, and
behaviors necessary for a smooth strategy-supportive
operation.
Following through to get things done and deliver results.
Making things happen (leadership) and making them
happen right (management).
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FIGURE 10.1 The 10 Basic Tasks of the Strategy Execution Process
Committing to Executing a Strategy:
Entails figuring out the specific techniques, actions, and
behaviors necessary for a smooth strategy-supportive
operation.
Following through toThe getAction
things done and deliver results.
Agenda
Making things happen (leadership)
for Implementing and
Executing Strategy and making them
happen right (management).
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THE PRINCIPAL COMPONENTS OF
THE STRATEGY EXECUTION PROCESS
♦ Staff the organization with ♦ Adopt best practices and business
managers and employees processes that drive continuous
capable of executing the improvement of execution activities.
strategy well. ♦ Install information and operating
♦ Build the organization’s systems that enable personnel to
capabilities required for carry out their strategic roles
successful strategy execution. proficiently.
♦ Create a strategy-supportive ♦ Tie rewards and incentives directly to
organizational structure. the achievement of strategic and
♦ Allocate sufficient budgetary financial targets.
(and other) resources to the ♦ Instill a corporate culture that
strategy execution effort. promotes good strategy execution.
♦ Institute policies and procedures ♦ Exercise the internal leadership
that facilitate strategy execution. needed to propel strategy
implementation forward.
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