Lecture 13
Strategies in Action
Lecture Outline
• Defensive Strategies
Defensive Strategies
Retrenchment
Defensive
Strategies
Divestiture
Liquidation
Defensive Strategies
Retrenchment –
– Regrouping through cost and asset
reduction to reverse declining sales and
profit
Defensive Strategies
Guidelines for Retrenchment
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Firm has failed to meet its objectives and goals
consistently over time but has distinctive competencies
 Firm is one of the weaker competitors
 Inefficiency, low profitability, poor employee morale, and
pressure from stockholders to improve performance.
 When an organization’s strategic managers have failed
 Very quick growth to large organization where a major
internal reorganization is needed
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Defensive Strategies
Divestiture –
– Selling a division or part of an organization
Defensive Strategies
Guidelines for Divestiture –
When firm has pursued retrenchment but failed to attain
needed improvements
 When a division needs more resources than the firm can
provide
 When a division is responsible for the firm’s overall poor
performance
 When a division is a misfit with the organization
 When a large amount of cash is needed and cannot be
obtained from other sources.
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Recent Divestitures
Recent Divestitures
Parent Company
Part Being Divested
Acquiring Company
Dell Computer
Cititgroup
Maytag
Wescoast Energy
Westcoast Energy
Westcoast Energy
Credit Suisse
emerson Electric
General Motors
DuPont
web-hosting division
Citi Capital
Blodgett
British Columbia Gas
Union Energy
Westcoast Capital
CSFBdirect
Chromalox
Hughes Electronics
drug division
FON Group
GE Capital Fleet Services
Middleby Corporation
BC Gas
Epcor Utilities
Epcor Utilities
Bank of Montreal
JPMorgan Partners
Echostar Communications
Bristol-Myers Squibb
Defensive Strategies
Liquidation–
– Selling all of a company’s assets, in parts,
for their tangible worth
Defensive Strategies
Guidelines for Liquidation –
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When both retrenchment and divestiture have been
pursued unsuccessfully
If the only alternative is bankruptcy, liquidation is an
orderly alternative
When stockholders can minimize their losses by selling
the firm’s assets
Means for Achieving Strategies
Joint Venture/Partnering –
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Two or more companies form a temporary partnership
or consortium for purpose of capitalizing on some
opportunity.
Means for Achieving Strategies
Cooperative Arrangements –
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Research and development partnerships
Cross-distribution agreements
Cross-licensing agreements
Cross-manufacturing agreements
Joint-bidding consortia
Means for Achieving Strategies
Problems Causing Joint Ventures to Fail –
Managers who must collaborate daily not involved in
forming or shaping the venture
 Venture may benefit the companies but not the
customers
 Venture not supported equally by both partners
 Venture may begin to compete with one of the partners
more so than the other
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Means for Achieving Strategies
Guidelines for Joint Ventures –
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Combination of privately held and publicly held can be
synergistically combined
Domestic forms joint venture with foreign firm, can obtain local
management to reduce certain risks
Distinctive competencies of two or more firms are complementary
Overwhelming resources and risks where project is potentially very
profitable (e.g., Alaska pipeline)
Two or more smaller firms have trouble competing with larger firm
A need exists to introduce a new technology quickly
Recent Mergers
Acquiring Firm
Hewlett-Packard
Ebay
PepsiCo
Sara Lee
Phillips Petroleum
Devon
AMR
Tellabs
Acquired Firm
Compaq Comuter
HomesDirect
Quaker Oats
Earthgrains Company
Conoco
Anderson Exploration
TWA
Ocular Networks
Key Terms
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Acquisition
Backward Integration
Combination Strategy
Concentric Diversification
Conglomerate Diversification
Cooperative Arrangements
Cost Leadership
Key Terms
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Differentiation
Diversification Strategies
Divestiture
Focus
Forward Integration
Franchising
Generic Strategies
Key Terms
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Horizontal Diversification
Horizontal Integration
Integration Strategies
Intensive Strategies
Joint Venture
Liquidation
Long-Term Objectives
Key Terms
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Market Development
Market Penetration
Merger
Outsourcing
Product Development
Retrenchment
Takeover
Vertical Integration
Thank You