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Formulating Long-Term
Objectives and Grand
Strategies
Chapter Topics
• Long-Term Objectives
• Generic Strategies
• Grand Strategies
• Corporate Combinations
• Selection of Long-Term Objectives and Grand
Strategy Sets
• Sequence of Objectives and Strategy Selection
Types of Long-Term Objectives
• Profitability
• Productivity
• Competitive position
• Employee development
• Employee relations
• Technological leadership
• Public responsibility
Qualities of Long-Term Objectives
Achievable
Acceptable
Criteria used
Understandable in preparing Flexible
objectives
Suitable Measurable
Motivating
What is the Balanced Scorecard?
Financial performance
Customer knowledge
Internal business processes
Learning and growth
Exhibit 6-2: The Balanced Scorecard
Financial
‘To succeed financially,
how should we appear to
our shareholders?”
Internal
Customer Business
“To achieve Vision Process
our vision, “To satisfy our
and
how should shareholders
Strategy
we appear to and customers,
our what business
customers?” Learning and Growth processes must
‘To achieve our vision, we excel at?”
how will we sustain our
ability to change and
improve?”
The Value Disciplines
Low-cost Leadership
Differentiation Focus
Ex. 6-3: Requirements for Generic
Competitive Strategies
Concentric Diversification
• Involves acquisition of businesses related to acquiring
firm in terms of technology, markets, or products
Conglomerate Diversification
• Involves acquisition of a business because it
represents a promising investment opportunity
• Primary motivation is profit pattern of venture
• Difference between the approaches
• Concentric diversification emphasizes commonality whereas
conglomerate diversification emphasizes profits for each
individual unit
Turnaround Strategy
Divestiture Strategy
• Involves selling a firm or a major component of a
firm
• Reasons for divestiture
• Partial mismatches between acquired firm and parent firm
• Corporate financial needs
• Government antitrust action
Liquidation Strategy
• Involves selling parts of a firm, usually for its
tangible asset value and not as a going concern
The Strategy of Bankruptcy
• Two approaches
• Liquidation – Involves complete distribution of a firm’s
assets to creditors, most of whom receive a small fraction of
amount owed
• Reorganization – Involves creditors temporarily freezing
their claims while a firm reorganizes and rebuilds its
operations more profitably
• Advantage of a reorganization bankruptcy
• Proactive option offering maximum repayment of a firm’s
debt in the future if a recovery strategy is successful
Corporate Combination Strategies
Joint Ventures
• Involves establishing a third company (child), operated
for the benefit of the co-owners (parents)
Strategic Alliance
• Involves creating a partnership between two or more
companies that contribute skills and expertise to a
cooperative project
• Exists for a defined period
• Does not involve the exchange of equity
Corporate Combination Strategies
(contd.)
Cost leadership
Differentiation
Ex. 7-2: Evaluating a Business’s
Cost Leadership Opportunities
Working very Standardize dies, JIT delivery plus Use of Locate service Service
M
ar
closely with etc. and prod. partnering with laptops technicians at gi
n
suppliers to equipment to allow express mail linked customer
include their facilities that are
quick changeover services to ensure directly to geographically
choice of to new or special very rapid deliveryoperations to close
warehouse to order speed order
minimize process
delivery time
Inbound Operations Outbound logistics Mkt &
logistics sales
Activities Conducive to Building
Speed-Based Competitive
Advantage
Customer Product
responsiveness development
Product or cycles
service
improvements Speed in
Information
delivery or
sharing and
distribution
technology
Advantages of a Speed-Based
Strategy
Creates a way to lessen rivalry because firm has the
availability of something a rival may not
Allows firm to charge buyers more, engender loyalty, or
enhance its position relative to its buyers
Generates cooperation and concessions from suppliers
since they benefit from increased revenues
Substitutes and new entrants are trying to keep up with
the rapid changes rather than introducing them
Key Risks of a Speed-Based Strategy
Emerging Industries
Industries Transitioning to
Maturity
Mature and Decline Industries
Fragmented Industries
Global Industries
Characteristics of Markets in
Emerging Industries
• Proprietary technology and technological uncertainty
• Competitor uncertainty regarding inadequate information
• High initial cost structure
• Few entry barriers
• First-time buyers require initial inducements
• Inability to easily obtain raw materials and components
• Need for high-risk capital
Strategic Options for Emerging
Industries
Maximize strengths
Ex. 7-9: Model of Grand Strategy
Clusters
Rapid market growth
1. Concentrated 1. Reformulation of
growth concentrated growth
2. Vertical 2. Horizontal integration
Integration 3. Divestiture
3. Concentric 4. Liquidation
diversification
Strong competitive I II Weak competitive
position position
IV III
1. Concentric 1. Turnaround or retrenchment
diversification 2. Concentric diversification
2. Conglomerate 3. Conglomerate diversification
diversification 4. Divestiture
3. Joint venture 5. Liquidation
BCG Growth-
Share Matrix
Industry
Attractiveness- BCG’s Strategic
Business Strength Environments
Matrix Matrix
Life Cycle-
Competitive
Strength Matrix
Ex. 8-1: The BCG Growth-Share
Matrix
Cash Generation (Market Share)
Description of Dimensions
High Low Market share: sales relative
to those of other
Cash Use (Growth Rate)
Description of Dimensions
Growth Rate: Industry growth rate in constant dollars (diving
point is usually the GNP’s growth rate)
Ex. 8-3: Factors Considered in Constructing an
Industry Attractiveness-Business Strength Matrix
(Industry Attractiveness)
(Business Strength)
Description of
Dimensions
: ely Stage of Market Life
Competitive Strength
Fragmented Specialization
apparel, house building, pharmaceuticals, luxury cars,
Sources of Advantage
Many
jewelry retailing, sawmills chocolate confectionery
Stalemate Volume
basic chemicals, volume-grade jet engines, supermarkets,
Few
paper, ship owning, wholesale motorcycles, standard
banking microprocessors
Small Big
Size of Advantage
Contributions of Portfolio Approaches
(Operating Opportunities)
(Management Opportunities)
Type Purpose
How-to rules They spell out key features of how a process is executed –
“What makes our process unique?”
Boundary rules They focus managers on which opportunities can be
pursued and which are outside the pale.
Priority rules They help managers rank the accepted opportunities.