Essentials of Strategic Management, 3/e
Charles W.L. Hill | Gareth
R. Jones
Chapter 8
Strategic Change:
Implementing
Strategies to Build and Develop a
Company
© 2012 South-Western, a part of Cengage Learning

Strategic Change
 The movement of a company away from its present state toward some desired future state to increase its competitive advantage and profitability
© 2012 South-Western, a part of Cengage Learning

The Change Process
 Distinct steps of the change process:
–
–
Determining the need for change
Determining the obstacles to change
– Managing and evaluating change
© 2012 South-Western, a part of Cengage Learning

Portfolio of Core Competencies
 A core competence is a core skill of a company
 Identifying these central value-creating capabilities tells a company which business opportunity to pursue
© 2012 South-Western, a part of Cengage Learning

Strategy Implementation
 Strategies implemented through:
 Internal new ventures
 Acquisitions
 Strategic alliances
© 2012 South-Western, a part of Cengage Learning

Internal New Ventures
 Involve creating the value-chain functions necessary to start a new business from scratch
 Typically used to leverage or recombine valuable competencies to enter a new business area
 Generally science-based companies tend to favor internal new ventures as a strategy implementation
© 2012 South-Western, a part of Cengage Learning

Internal New Ventures (cont’d)
 Although these can be profitable, the reported failure rate is very high
 Three reasons for failure:
 Market entry occurs on too small a scale
 Poor commercialization of the new product
 Poor corporate management of the venture
© 2012 South-Western, a part of Cengage Learning

Internal New Ventures (cont’d)
 Ways to limit risk:
 Adopt a structured approach to managing the venture
 Foster close links between R&D and marketing
 Set up project teams
 Choose ventures with greatest probability of commercial success
 Monitor projects closely
© 2012 South-Western, a part of Cengage Learning

Acquisitions
 Involve one company purchasing another company
 Usually done by a company that:
 wants to move fast
 is in a well established industry and has barriers of entry
 Used in two ways:
 To strengthen competitive positioning by purchasing a competitor
 To enter a new business or industry
© 2012 South-Western, a part of Cengage Learning

Acquisitions (cont’d)
Advantages
 Faster than building a new business
 Less risk than internal new ventures
 Ability to circumvent most entry barriers
Disadvantages
 Often end up dissipating value
 Often fail to realize anticipated benefits
 Tend to be expensive
 Difficult to integrate various corporate cultures
© 2012 South-Western, a part of Cengage Learning

Acquisitions (cont’d)
 Ways to limit risk:
 Target identification and pre-acquisition screening
 Bidding strategy (this works best when the stock market undervalues a company)
 Integration
© 2012 South-Western, a part of Cengage Learning

Strategic Alliances
 Cooperative agreements between companies to work together and share resources to achieve a common goal
 Can be informal or short-term agreements
 Can be joint ventures - a formal type of strategic alliance where two companies create a new separate company
© 2012 South-Western, a part of Cengage Learning

Strategic Alliances (cont’d)
Advantages
 Facilitate entry into a market
 Share the fixed costs and risks that arise
 Bring together complementary skills and assets
Disadvantages
 May provide competitors with access to valuable knowledge
© 2012 South-Western, a part of Cengage Learning

Strategic Alliances (cont’d)
 Ways to limit risk:
 Careful partner selection
 Alliance structure
 Alliance management
© 2012 South-Western, a part of Cengage Learning