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89 terms

Chapter 5

STUDY
PLAY
long-term objectives
represent the results expected from pursuing certain strategies.
nature of long-term objectives
should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable, and congruent among organizational units
at what levels are long-term objectives needed?
corporate, divisional, and functional levels in the organization
incentive should be attached to...
both long-term and annual objectives
in what way are objectives vital to success?
1.Help stakeholders understand their role in organizations future 2. Provide a basis for consistent decision-making by managers with differing attitudes and values. Space 3. Set forth organizational priorities and simulate exertion and accomplishment. 4. Service standards by which the entire organization can be evaluated 5. basis for designing jobs in organizing activities to be performed 6. Provide direction and allow for organizational synergy
note
a firm can do certain things to maximize short-term financial objectives that would harm long-term strategic objectives
best way to meet financial objectives
by focusing first and foremost on achievement of strategic objectives that improve a firm's competitiveness and market strength
strategists should avoid
1. Managing by extrapolation 2. Managing by crisis 3. Managing vast objectives 4. Managing the hope
managing by extrapolation
if it ain't broke don't fix it... doing the same things the same way because things are going well
managing by crisis
based on the belief that true measure of a really good strategists is the ability to solve problems
managing by subjectives
"do your own thing, the best way you know how"
managing the hope
decisions are predicated on the hope that they will work in the good times are just around the corner, especially of luck and good fortune are on our side.
an effective balance scorecard contains...
a carefully chosen combination of strategic and financial objectives tailored to a company's business
the aim of the balanced scorecard is...
... to balance shareholder objectives with customer and operational objectives
combination strategies
can be exceptionally risky if carried too far. Priority must be established.
forward integration strategy
gaining ownership or increase control over distributors or retailers. E.g. Southwest Airlinesjust began selling tickets through Galileo
backward integration strategy
seeking ownership or increase control over firm suppliers. E.g. Hilton Hotels could acquire a large furniture manufacturer
horizontal integration strategy
seeking ownership or increase control over competitors. E.g. Huntington's Bancshares and sky financial group in Ohio merged
market penetration
increased market share for present products or services in present markets through greater marketing efforts. E.g. McDonald's is spending millions on its "Shrek the third" promotions aimed at convincing consumers it offers healthy items
market development
introducing present products or services into new geographic areas. E.g. Burger King opened its first restaurant in Japan
product development
seeking increased sales by improving present products or services or developing new ones. The e.g. Google introduced "Google presents" to compete with Microsoft's PowerPoint
related diversification
adding new but related products or services. E.g. MGM Mirage is opening its first non-casino luxury hotel
unrelated diversification
adding new, unrelated products or services. E.g. Ford Motor Company entered the industrial Bank business
retrenchment
regrouping through cost and asset reduction to reverse declining sales and profits. E.g. Discovery Channel closed 103 mall-based and stand-alone stores to focus on the Internet, laying off 25% of its workforce
divestiture
selling a division or part of the organization. E.g. whirlpools so that struggling Hoover floor care business to Techtronic Industries
liquidation
selling all of a company's assets, in parts, for their tangible worth. E.g.Follow Me Charters sold all of its assets and cease doing business
forward integration, backward integration, and horizontal integration are sometimes collectively referred to as...
vertical integration strategies
and example of forward integration is...
franchising. Businesses can expand rapidly by franchising because cost in opportunities are spread among many individuals.
Franchise note...
sometimes franchisees outperform their parent franchisor
integration may be especially effective when...
... present distributors are especially expensive, or unreliable, or incapable of meeting the firm's distribution needs.... Availability of quality distributors is so limited as to offer a competitive advantage to those firms integrate forward.... An organization competes in an industry that is growing and is expected to continue to grow markedly ... an organization has both the capital and human resources needed to manage the new business of distributing its own products. ... Advantages of stable production are particularly high. ... Present distributors or retailers have high profit margins
integration strategy examples
1. Forward integration 2. Backward integration 3. Horizontal integration
intensive strategy examples
1. Market penetration 2. Market development 3. Product development
diversification strategies examples
1. Related diversification 2. Unrelated diversification
defensive strategies examples
1. Retrenchment 2. Divestiture 3. Liquidation
Michael Porter's five generic strategies
1.cost leadership strategies (type I and type II) 2. Differentiation strategies (type III) 3. Focus strategies (4 and type V) 4. Strategies competing in turbulent, high velocity markets
means for achieving strategies
1. Joint venture/partnering 2. Merger/acquisition 3. Private -- equity acquisitions 4. First mover advantage 5. Outsourcing
acquisition
what a large organization purchases (requires) a small firm, or vice versa
merger
into organizations of about equal size unite to form one enterprise
friendly merger
an acquisition that is desired by both firms
takeover or hostile takeover
a merger or acquisition not desired by both parties
joint venture
when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity
turbulent, high velocity markets
industries that are changing extremely fast
bankruptcy
type of recruitment strategy. Chapter 7, chapter 9, chapter 11, chapter 12, and chapter 13 bankruptcy.
Chapter 7 bankruptcy
all the organizations assets are sold in parts for their tangible worth
Chapter 9 bankruptcy
bankruptcy for municipalities
Chapter 11 bankruptcy
allows organizations to reorganize and come back after filing a petition for protection
chapter 12 bankruptcy
1987 law provide special relief to family farmers with debt equal to or less than $1.5 million
chapter 13 bankruptcy
similar to Chapter 11 bankruptcy, but is available only to small businesses owned by individuals with unsecured debts of less than $100,000 in secured debts of less than $350,000
cooperative arrangements
a type of joint ventures/partnering strategy. Examples are development partnerships, cross distribution agreements, cross licensing agreement, cross manufacturing agreements, and joint bidding consortia.
Business -- processing outsourcing (BPO)
type of outsourcing strategy. A rapidly growing new business that involves companies taking over the functional operations, such as human resources, information systems, payroll, accounting, customer service, and even marketing of other firms.
First mover advantages
benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.
Leveraged buyout
a corporation shareholders are bought (yes buyout) by the companies management and other private investors using borrowed funds (hence leverage).
Combination strategy
organization simultaneously pursue a combination of two or more strategies (page 146)
cost leadership
producing standardized product at a very low per unit cost for consumers who are price sensitive. (Page 160)
deintegration
moving away from either backward or forward integration. (Page 160)
differentiation
a type of generic strategy. Producing products and services considered unique industrywide and directed at consumers who are relatively price insensitive. (Page 160)
focus
a type of generic strategy. Producing products and services that fulfill the needs of small groups of consumers. (Page 160)
two alternative types of focus strategies
Type 4. Low-cost focus strategy... offers products or services to a small range (Mitch group) of customers at the lowest price available on the market area. Type 5. Best value focus strategy... offers products or services to a small range of customers at the best price -- value available on the market. (Sometimes called focused differentiation) (page 160)
Michael Porter's five generic strategies
Type 1... low cost strategy. Type 2... best value strategy.(target a large market). Type 3... differentiation.(targeted large or small market) Type 4... low-cost focus strategy. Type 5... best value focused strategy. (Target small-market) (page 160)
Which type of generic strategy incorporates focus?
Type 4 and Type 5 (page 161)
When considering porters generic strategy of differentiation what type is used?
Type 3 (page 161)
Cost leadership incorporates what types of generic strategies?
Type 1 and Type 2 (page 161)
Examples of market penetration
1. United airlines in 2007 one a four-way contest provide service to China. 2 General Motors sold more cars outside the United States in both 2005 and 2006 inside the United States. 3. Ford Motor and other domestic firms have greater revenue and profits from business outside the United States than inside the United States
Value of long-term objectives
without long-term objectives, and organization would drift aimlessly toward some unknown end. It's hard to be successful without clear objectives. Success only rarely occurs by accident; rather, it is the result of hard work drifted toward achieving certain objectives.
Name 16 types of business strategies
11 alternative strategies: forward, backward, horizontal integration, market penetration, market and product development, related and unrelated diversification, retrenchment, divestiture, and liquidation. 5 strategies of Michael Porter: cost leadership -- low-cost, cost leadership -- best value, differentiation, focus -- low-cost, focus -- best value.
Some key reasons why mergers and acquisitions fail:
integration difficulties, in adequate evaluation of target, large or extraordinary debt, inability to achieve synergy, too much diversification, managers overly focused on acquisitions, too large an acquisition, difficult to integrate different organizational cultures, reduced employee morale due to layoffs and relocations.
All mergers are effective and successful (T. or F.)
false
risk of being a fast mover
unexpected or unanticipated problems and costs that occur from being the first firm doing business in a new market. Can be leapfrogged by a fast follower or late mover.
First mover advantage is clearly offset first mover disadvantage is most the time (true or false)
true
when his first mover advantage the greatest?
Competitors are roughly the same size possess similar resources.
Not being a first mover does not mean failure. (True or false)
false. It sometimes can result in failure. E.g. eBay expanded into Japan in 1999 but was five months behind rival Yahoo, which launched its own auction site that yearin partnership with Japan's Softbank Corp. eBay never caught up with Yahoo.
Why would a company choose to outsource their functional operations?
1. Less expensive 2. Allows the firm to focus on its core businesses 3. Enables the firm to provide better services 4. The firm can align itself with "best in world" suppliers to focus on performing a special task 5. Allows flexibility should customer needs shift unexpectedly. 6. Firm can concentrate on other internal value chain activities critical to sustaining competitive advantage.
How does strategic management help nonprofit or government organization?
Strategic management provides an excellent vehicle for developing and justifying request for needed financial support.
Why are educational institutions looking more toward strategic management?
1. To consider plans for dealing with national population shifts.
Why are medical organizations looking more toward strategic management?
Many private and state supported medical institutions are in financial as a result of traditionally taking a reactive approach rather than a proactive approach in dealing with their industry.
What are some current strategies being used by hospitals to day?
Creating home healthcare services, establishing nursing homes, forming rehabilitation centers, using backward integration strategies like acquiring ambulance services, waste disposal services, and diagnostic services.
How has the balance of power changed between doctor and patient?
A motivated patient using the Internet can gain knowledge on a particular subject far beyond his or her doctor's knowledge, a patient only has to deal with his ailment wears a doctor has to deal with a multitude of ailments.
How do researchers break down the percentages for merger results?
20% are successful, 60% produced disappointing results, and point percent are clear failures.
How do private equity firms work?
They acquire companies and then sell them at a premium price. The intent of course is to buy low and sell high.
Name some reasons why joint ventures can fail.
1. Managers involved in operating the venture are not involved in forming in shaping. 2.While the venture may benefit the companies it may not benefit customers who then complain or criticize a company. 3. Venture may not be supported equally by both partners. 4. Venture may begin to compete with one partner more than others.
Which is more important while competing in turbulent, high velocity markets, "react to change strategy" or "anticipate change strategy"?
"Anticipate change strategy" is more important as it would entail devising and following through with plans for dealing with the expected changes. "React change strategy" is still needed in some situations.
Cost leadership generally must be pursued in conjunction with differentiation. (True or false)
True.
What is the basic idea of of being a low-cost producer?
To underprice competitors and thereby gain market share and sales, entirely driving some competitors out of the market. If adopting Type one or Type 2 cost leadership strategy it must be done in ways that are difficult for competitors to copy or match.
How does a company successfully employ low cost leadership strategy?
A firm must ensure its total cost across its overall value chain are lower than competitors total cost. 1. Perform and control value chain activities and factors more efficiently than rivals. E.g. altering plant layout, mastering new technologies, simplifying product design. 2. Revamp overall value chain to eliminate or bypass some cost producing activities. E.g. relocating facilities, avoid labor union etc.
product development is an example of a strategy that offers...
... the advantages of differentiation.
Why most firms find durable sources of uniqueness?
So that they cannot be imitated quickly or cheaply by rival firms.
Examples of competitive aspects of differentiation:
Mountain Dew and root beer have a unique taste; Lowe's, Home Depot, and Wal-Mart offer wide selection in one-stop shopping; Dell Computer and FedEx offer superior service; BMW and Porsche offer engineering design and performance; IBM and Hewlett-Packard offer wide range of products; in E*TRADE and Ameritrade offer Internet convenience.
Differentiation opportunities exist in very small select areas of the value chain. (True or false)
False. Differentiation opportunities exist or can potentially be developed anywhere along the firms value chain including areas like supply-chain, R&D, production and technological activities, manufacturing, HR management, or marketing.
Under what conditions can Type 3 differentiation strategy be effective?
When there are are many ways to differentiate and many buyers perceive these as having value. When buyers needs and uses are diverse. When a few rival firms are following a similar differentiation approach. Any fast technologically changing market where competition is focused on rapid product changes.