Session 11
Long Term Objectives,
Generic and Grand
Strategies
1
Session Objectives
1. Setting your dominant long term
objective.
2. Define the 3 generic (drivers) of effective
competitive strategies.
3. Define and clarify 15 recurring grand
strategies.
2
Long-Term Objectives
Short-run profit maximization is rarely the best
approach to achieving sustained corporate
growth and profitability
Types of Long Term Objectives:
–
–
–
–
Profitability
Competitive Position
Employee Relations
Tech Leadership
–
–
–
–
Productivity
Employee development
Productivity
Public Responsibility
3
Usage Frequencies of Long
Term Objectives
(N = 82)
Profitability
Growth
Market Share
Social Responsibility
Employee Welfare
Product/Service Quality
R&D
Diversification
Efficiency
89%
82
66
65
62
60
54
51
50
4
Qualities of Long-Term
Objectives
Acceptable
Achievable
Understandable
Suitable
Flexible
Criteria used
in preparing
objectives
Measurable
Motivating
5
Forces Driving Industry
Competition
Potential
entrants
Threat of new
entrants
Bargaining power
of suppliers
Industry
competitors
Suppliers
Bargaining power
of buyers
Buyers
Rivalry Among
Existing Firms
Threat of substitute
products or services
Substitutes
6
Generic Strategies
A long-term BL strategy must be
based on a core idea about how
the firm can best compete in the
marketplace. The popular term
for this core idea is generic
strategy.
7
Three Generic Strategies
Low-cost
leadership
Differentiation
Focus
8
3 Generic Strategies
1.Striving for overall low-cost leadership in the
industry.
2.Striving to create and market unique products
for varied customer groups through
differentiation.
3.Striving to have special appeal to one or more
groups of consumers or industrial buyers,
focusing on their cost or differentiation
concerns
9
Low-Cost Leadership
Low-cost producers usually excel at cost
reductions and efficiencies
They maximize economies of scale,
implement cost-cutting technologies,
stress reductions in overhead and in
administrative expenses, and use
volume sales techniques to propel
themselves up the earning curve
A low-cost leader is able to use its cost
advantage to charge lower prices or to enjoy
higher profit margins
10
Differentiation
Strategies dependent on differentiation are
designed to appeal to customers with a special
sensitivity for a particular product attribute
By stressing the attribute above other product
qualities, the firm attempts to build customer
loyalty
Often such loyalty translates into a firm’s ability to
charge a premium price for its product
The product attribute also can be the marketing
channels through which it is delivered, its image
for excellence, the features it includes, and its
service network
11
Focus
A focus strategy, whether anchored in a low-cost
base or a differentiation base, attempts to attend to
the needs of a particular market segment
A firm pursuing a focus strategy is willing to service
isolated geographic areas; to satisfy the needs of
customers with special financing, inventory, or
servicing problems; or to tailor the product to the
somewhat unique demands of the small- to mediumsized customer
The focusing firms profit from their willingness to
serve otherwise ignored or underappreciated
customer segments
12
For each of the Three
Requirements
– Skills/resources
– Organizational
Risks
13
Requirements for Generic
Competitive Strategies
Generic
Strategy
Overall cost
leadership
Differentiation
Focus
Commonly Required Skills
and Resources
• Sustained capital investment and
access to capital
• Process engineering skills
• Intense supervision of labor
• Products designed for ease in
manufacture
• Low-cost distribution system
• Strong marketing abilities
• Product engineering
• Creative flare
• Strong capability in basic research
• Corporate reputation for quality or
technological leadership
• Unique combination of skills
• Strong cooperation from channels
• Combination of above policies
directed at the particular strategic
target
Common Organizational
Requirements
• Tight cost control
• Frequent, detailed control reports
• Structured organization and
responsibilities
• Incentives based on meeting strict
quantitative targets
• Strong coordination among
functions in R&D, product
development, and marketing
• Subjective measurement and
incentives instead of quantitative
measures
• Amenities to attract highly skilled
labor, scientists, or creative people
• Combination of above policies
directed at the regular strategic
target
14
Risks of the Generic Strategies
Risks of Cost
Leadership
Cost of leadership is not
sustained
• Competitors imitate
• Technology changes
• Other bases for cost
leadership erode
Proximity in
differentiation is lost
Risks of Differentiation
Differentiation is not
sustained
• Competitors imitate
• Bases for
differentiation
become less important
to buyers
Cost proximity is lost
Risks of Focus
Focus strategy is
imitated
Target segment becomes
unattractive
• Structure erodes
• Demand disappears
Broadly targeted
competitors overwhelm
segment
• Segment’s differences
from others narrow
Cost focusers achieve
even lower cost in
segments
Differentiation focusers
achieve greater
differentiation in
segments
• Advantages of broad
line increase
15
Types of Grand Strategies
Concentrated Growth
Conglomerate Diversification
Market Development
Turnaround
Product Development
Divestiture
Innovation
Liquidation
Horizontal Integration
Bankruptcy
Vertical Integration
Joint Ventures
Concentric Diversification
Strategic Alliances
Consortia
16
Concentrated Growth
A grand strategy in which a firm
directs its resources to the
profitable growth of a single
product, in a single market, with a
single dominant technology.
17
Example 1
In 2011, McDonald’s uses promotional
campaign “Monopoly” to increase the rate
of use of their current customers. If you
make a game out of it, people will
purchase your products to play.
http://www.associatedcontent.com/article/6
239272/increasing_your_sales_using_con
centrated.html?cat=3
Example 2
Best Buy focused on the ‘Concept Stores’
and the initiatives that improved its
performance and differentiated the
company from its main competitor.
http://www.ibscdc.org/businesscasebookspdfs/Growth%20Stratiges%20Vol.%20II.p
df
Example 3
Paypal revolutionized financial services
through its on-line person-to-person (P2P)
money transfer service. Paypal’s growth
strategy is to increase its customer base
and sales through focusing on its online
payment market.
http://www.ibscdc.org/businesscasebookspdfs/Growth%20Stratiges%20Vol.%20II.p
df
Market Development
A grand strategy of marketing
present products. Often with
only cosmetic modification, to
customers in related
marketing areas.
21
Example 1
Pacific Andes achieved considerable
growth in seafood and vegetable business
within a short span expanding into other
countries. It also increased its global
market share and gained a sustainable
competitive advantage through synergy.
http://www.ibscdc.org/businesscasebookspdfs/Growth%20Stratiges%20Vol.%20II.pdf
Example 2
Toyota expanded its presence in the
European car market. Toyota succeeded in
localizing its strategies in tune with the
needs of the European car market. Toyota
also analyzed its strategy in Europe in the
wake of currency fluctuations and the new
needs of the market.
http://www.ibscdc.org/businesscasebookspdfs/Growth%20Stratiges%20Vol.%20II.pdf
Product Development
A grand strategy that
involves the substantial
modification of existing
products that can be
marketed to current
customers.
24
Example 1
The entire Nikon group is implementing the
“Nikon Product Assessment” to create new
products which offer enhanced power
consumption efficiency, are smaller and
lighter, use less harmful substances, and
utilise Eco-glass.
http://www.nikon.com/about/csr/report/2004/
eco_e_09.pdf
Example 2
Miller/Coors with their Coors
Light cold themed packaging
bells and whistles: frost brewed,
cold activated can, wide
mouthed, cold filtered, home
keg…
26
Example 3
Sears Circa 1975 with their “buy
your stocks where you buy your
socks” expansion into financial
services: Discover Card, Dean
Witter, Coldwell Banker, Allstate
Insurance
27
Innovation
A grand strategy that seeks to
reap the premium margins
associated with creation and
customer acceptance of a new
product or service.
28
Example 1
Apple is one of the most creative
companies in the world. It designs and
launches every Mac, iPhone, iPad. Its
innovation on electronic products is so
successful that everyone wants to own the
new Apple products.
(I wrote it.)
Example 2
Google’s most recent innovation is on the
Android OS for smartphones. It will
challenge Apple's iPhone in the hotly
competitive world of mobile devices.
http://money.cnn.com/magazines/fortune/
mostadmired/2010/snapshots/11207.html
Example 2
Virgin Galactic – For
profit commercial and
consumer space travel
and transportation
31
Example 3
Google’s most recent innovation is on the
Android OS for smartphones. It will
challenge Apple's iPhone in the hotly
competitive world of mobile devices.
http://money.cnn.com/magazines/fortune/
mostadmired/2010/snapshots/11207.html
Horizontal Integration
A grand strategy based on
growth through the acquisition
of similar firms operating at the
same stage of the productionmarketing chain.
Example 1
Wachovia merging with First
Union only to be acquired by
Wells Fargo
34
Example 2
USAirways merging with
Piedmont Airlines
35
Example 3
Exxon Acquiring
Mobil in 2000 for
$85.1 Billion
Vertical Integration
A grand strategy based on the acquisition of firms
that supply the acquiring firm with inputs or new
customers for its outputs.
Backward VI is the desire to increase the
dependability of the supply or quality of the raw
materials used as production inputs
Forward VI is the desire to gain greater control of
the distribution/marketing/selling/service of
products or services
37
Example 1
AT&T has ownership over companies that
transmit equipments, including stations, cable
lines, telephones, etc. which tremendously
helped AT&T in providing one stop services
and products. Without paying AT&T for its
entitled infrastructure, other companies would
never be able to use or provide similar services
or products which AT&T is said to be a
“dominating winning mix”.
http://ccit300.wikispaces.com/Horizontal+Integr
ation
Example 2
Starbucks originally started as a roaster
and retailer of coffee-beans, when its
founder, Howard Schultz joined the
company as a young salesman. The
company is immensely vertically
integrated for one purpose alone,
maintaining perfect quality throughout the
value-chain.
http://www.techiteasy.org/2007/07/28/starb
ucks-an-example-of-vertical-integration/
Example 3
Apple figured out how to link the content, the hardware,
the software, and the pricing and distribution
mechanisms, all more or less under one company's
control. However, Apple is controlling the parts of the
operation that touch customer experience. Apple
aggressively uses contract manufacturing rather than
having to manage everything itself. Apple has dug even
deeper into vertical integration by announcing that it
now intends to design the very chips that go into some
of its products.
http://blogs.hbr.org/hbr/mcgrath/2009/12/verticalintegration-can-work.html
Vertical and Horizontal Integration
41
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
42
Example 1
The recent entry of Bell Atlantic
Corporation, a telephone company, into
the video programming business.
http://bizcovering.com/management/busin
ess-strategies-in-action/#ixzz1bC3scaBo
Example 2
Dell Computers is pursing concentric
diversification by manufacturing and marketing
consumer electronic products (Flat Panel TVs,
MP3 players, online music-downloading store.)
This is an example of Personal computer
business becoming more aligned with the
entertainment business because both are
becoming more and more digital.
thinkpositive.ciprasystems.com/Admin/Commo
n/163.ppt
Example 3
Bill Gates (sorry - ahem - MS) bought
Hotmail, which added a valuable e-mail
service to the other internet activities and
brought Microsoft a bright future.
http://www.thinkingmanagers.com/managem
ent/business-diversity.php
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
46
Example 1
General Electric is an example of a firm
that is highly diversified. GE makes
locomotives, light bulbs, and refrigerators.
GE manages more credit cards than
American Express. GE owns more aircraft
that American Airlines.
http://bizcovering.com/management/busin
ess-strategies-in-action/#ixzz1bC4CLca9
Example 2
ITC, a primarily cigarette company, is
pursing conglomerate diversification by
entering into hotel industry.
thinkpositive.ciprasystems.com/Admin/Co
mmon/163.ppt
Example 3
ESSAR GROUP is pursing conglomerate
diversification by entering into these fields:
iron and steel, oil support services,
shipping, and marine constructions.
thinkpositive.ciprasystems.com/Admin/Co
mmon/163.ppt
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
50
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
52
Bankruptcy
Liquidation (Chapter 7) 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 (Chapter 11)
bankruptcy—the managers believe the
firm can remain viable through
reorganization
53
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 supplierconsumer relationship and has strategic
advantages for both partners
54
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
55
Session Objectives
1. Setting your dominant long term
objective.
2. Define the 3 generic (drivers) of effective
competitive strategies.
3. Define and clarify 15 recurring grand
strategies.
56
Group Exercise
For your Case Company:
1. Are there examples of rivals that more
closely follow CL, Diff, and Focus?
2. Provide 5 different company examples
(hypothetical is ok) of rivals deploying
one of the named grand strategies.
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Break Out Reporting
Case:
Industry:
Rival Generic Strategy Examples:
Grand Strategy Examples:
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