Class Activity: Applying Different Types of Strategies in Real-Life Scenarios
Objective: To help students understand different types of strategies used by companies in real-life
situations and how they can change their Strategy based on threshold analysis.
Instructions:
1. Divide the class into groups.
2. Provide each group with a list of different types of strategies, including forward integration,
backward integration, horizontal integration, acquisition, mergers, market development, market
penetration, product development, cost leadership, and differentiation.
3. Ask each group to research and find a real-life scenario where a company has applied one or more
of these strategies.
4. Once the scenario has been identified, ask the group to describe the threshold point or transition
point that led the company to change its strategy.
5. Finally, ask the group to explain how the company applied the new strategy to overcome the
challenge and achieve success.
Example: Group 1: Market Penetration Strategy
Scenario: Applet s market penetration strategy to increase iPhone sales in China.
Threshold Point: When Apple realized that its market share was declining in China due to increased
competition from domestic smartphone brands.
New Strategy: Apple implemented a market penetration strategy by reducing the price of the iPhone in
China and offering installment plans to make it more affordable for Chinese consumers.
Outcome: Apple's market share in China increased, and it became the fourth-largest smartphone brand in
China, with a market share of 14.8% in 2020.
Group 2: Product Development Strategy
Scenario: Coca-Cola's product development strategy to introduce new beverages to its product line.
Threshold Point: When Coca-Cola realized that its sales were declining due to changing consumer
preferences and increased competition from other beverage brands.
New Strategy: Coca-Cola implemented a product development strategy by introducing new beverages,
such as Coke Zero, Diet Coke, and Fanta, to its product line to cater to changing consumer preferences.
Outcome: Coca-Cola's sales increased, and it became one of the leading beverage brands in the world.
Group 3: Backward Integration Strategy
Scenario: Tesla's backward integration strategy to produce its own batteries.
Threshold Point: When Tesla realized that its production was limited due to the limited supply of batteries
from its suppliers.
New Strategy: Tesla implemented a backward integration strategy by acquiring SolarCity, a company
that produced solar panels and energy storage solutions' to produce its own batteries.
Outcome: Tesla's production capacity increased, and it became the leading electric car manufacturer
in the world.
Group 4: Horizontal Integration Strategy
Scenario: Facebookts horizontal integration strategy to acquire Instagram.
Threshold Point: When Facebook realized that it was losing its popularity among younger audiences
and needed to expand its user base. (Demographics work as unstable attractors through positive
feedback)
New Strategy: Facebook implemented a horizontal inte gration strategy by acquiring Instagram, a
popular photo-sharing app among younger audiences, to expand its user base.
Outcome: Facebook's user base increased, and it became one of the leading social media platforms in
the world.
Group 5: Cost Leadership Strategy
Scenario: Walmart's cost leadership strategy to offer low prices to its customers.
Threshold Point: When Walmart realized that its sales were declining due to increased competition
from other retailers. (Competition (entreprenership process) work as unstable attractors through positive
feedback)
New Strategy: Walmart implemented a cost leadership strategy by optimizing its supply chain and
reducing its operating costs to offer low prices to its customers.
Outcome: Walmart's sales increased, and it became the leading retail chain in the world.
Group 6: Differentiation Strategy
Scenario: Nike's differentiation strategy to offer high-quality and innovative products to its customers.
Threshold Point: When Nike realized that its sales were declining due to increased competition from
other sports apparel brands.
New Strategy: Nike implemented a differentiation strategy by introducing innovative products, such as
Flywire and Flyknit, and focusing on high-quality materials
after
taxes
Darf
number of common shares
stock oustanding
better.
total assets
2. ROE profit after tax$
total
current asseb
stockholder's
equity
3.
Gross profit margin
sales — cost of goods sold sales
ties above current level of cosS. Larger
firm.
is Larger
usually better.
A measure of
sales
available
A measure of the ability of a firm to
cover
to cover
operating expenses and generate a profit.
Larger is usually bette
A measure of profit available to owners of
common stock Larger. is usually better.
4. Eamings per share profits (after taxes) — preferred stock dividends number of
shares of common stock outstanding
5.
Price eamings ratio (p/e)
currént markét price/share
after-hx eamings/share
is usually
A measure of retum on total equity investment in a firm.
Larger is usually
6. Cash flow per shar
Liquidity Ratios
1. Current ratio
2. Quick ratio
usually better.
Larger IS
2. Debt to equity
3. Times interest eamed after-tax profit + depreciaüon
Amgasure of funds
available to fgnd activi-
current liabilides
Leverage Ratios
1. Debt to asses
A measure of antidpated firm
performance--—a high p/e ratio tends to
indicate that the stock market
antidpates strong future performan•ce.
total debt
total assets
total debt
current liabilities current liabilities
with.asses that can be converted
into cash in the *lort term.
Recommended in the range of.2
to 3.
measure of the ability of a firm
to meet its short-term
obligations without selling off its current
inventory. A
rado of 1 is
thought to be in
many
industries.
A measure of the extent to which debt
has financed a firm's business acüvities.
The higher, the greater the risk of
bankrupicy.
A measure of the use of debt versus equity
to
equity finance a firm's busines activities. Generally recommended
less than 1. profit before interest
A measure of how much a firm's profib can
and taxes
Chapfer J: Whal Is Sfrafegg onJ Ike interest charges
Managemenf mess? 15
decline and still meet interest obligations.
Should be well above 1.
Activity Ratios
A measure of the speed with which a
1. Inventory turnover
2.
firm's inventory is tuming over.
Accounts receivable turnover
sales
inventory
3.
Average collection period
Slmlegic
annual credit sales
accounb receivable
accounts
receivable
average daily sales
A measure of the average time it take a
firm
to collect on credit sales.
A measure of the time it takes a firm to
receive payment after a sale has been
made.
standards and principles are not applied in generating a firm's accounting
statements, or to the extent that different firms use different accounting standards
and principles in generating their statements, it can be difficult to compare the
accounting performance of firms. As described in the Global Perspectives feature,
these issues can be particularly challenging when comparing the performance of
firms in different countries around the world.
One way to use a firm's accounting statements to measure its competitive
advantage is through the use of accounting ratios. Accounting ratios are simply
numbers taken from a firm's finanäal statements that are manipulated in ways
that describe various aspects of a firm's performance. Some of the most common
accounüng ratios that can be used to characterize a firm's performance are
presented in Table 1.4. These measures of firm accounting performance can be
grouped into four categories: (1) profitability ratios, or ratios with some measure
of profit in the numerator and some measure of firm size or assets in the
denominator; (2) liquidity ratios, or that focus on the ability of a firm to meet ib
shortterm finandal obligations; (3) leverage ratios, or raüos that focus on the level
of a firm's financial flexibility, including its ability to obtain more debt; and (4)
activity ratios, or ratios that focus on the level of activity in a firm's business.
Of course, these ratios, by themselves, say very little about a firm. To
determine how a firm is performing, its accounting ratios must be compared
with some standard. In general, that standard is the average of accounå.ng ratios
of other firms in the same industry. Using ratio analysis, a firm earns above
average accounting performance when its performance is greater than the
industry average. Such firms typically have competitive
sustained or
otherwise. A firm earns average accounting performance when its performance
is equal to the industry average. These firms generally enjoy only compeåtive
parity. A firm eams below average accounting performance when its
performance is less than the industry average. These firms generally experience
competitive disadvantages.
Consider, for example, the performance of Apple Computer. Apple's
financial statemenG for 2007 and 2008 are presented in Table 1.5. Losses in
this table would be presented in parentheses. Several ratio measures of
accounting performance are calculated for Apple in these two years in Table
1•6•
Apple's sales increased dramatically from 2007 to 2008, from just over
$24 billion to just under $32.5 billion. However, some profitability accounting
ratios suggest that its profitability dropped somewhat during this same time
period, from a return on total assets (ROA) of 0.138 to 0.122, and from a retum
on equity (ROE) of 0.241 to 0.230. On the other hand, Apple's gross profit
margin increased from 0.340 to 0.343. So its sales went up, its overall
profitability went