31-Jan-12
STRATEGIES IN ACTION
Session 5
Professor Hilda L. Teodoro
Ateneo Graduate School of Business
AGENDA: STRATEGIES
Choices/Types of Strategies
Analytical Tools for Strategic Direction-Setting
SWOT,
BCG,
SPACE,
IE and
GRAND STRATEGY
Setting of Strategic Objectives
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
2
CHOICES & TYPES OF
STRATEGIES
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
3
TYPES OF STRATEGIES
Integration
•Forward Integration
•Backward Integration
•Horizontal Integration
Diversification
•Concentric Diversification
•Horizontal Diversification
•Conglomerate
Diversification
HILDA L. TEODORO
Intensive
•Market Penetration
•Market Development
•Product Development
Defensive
•Retrenchment
•Divestiture
•Liquidation
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Forward Integration
Gaining
ownership
or
increased
control
over
distributors.
FedEx completed a buyout of
Tianjin
Datian's
domestic
express delivery network as
part of the $400 million deal,
giving it 89 office locations
across China to help it
compete with UPS, DHL and
TNT in the booming Chinese
logistic market.
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
5
Backward Integration
Seeking ownership or increased control of firm’s
suppliers.
2007 - Symrise acquires Paris/Madagascar-based
Aromatics S.A.S. Symrise, one of the world's leading
manufacturers of flavors and fragrances, is
continuing to expand its international business
activities in the sector of natural raw materials and
extracts. “This backward integration in the field of
vanilla has successfully proven that it translates into
first-class raw materials and a secure supply chain,
as well as reliability and traceability for our
customers,” said Heinrich Schaper, President Flavor
& Nutrition EAME (Europe, Africa, Middle East) at
Symrise
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
6
Horizontal Integration
Seeking ownership of competitors.
2000: Pfizer, the manufacturer of Viagra, boosted its
market cap from $172 billion to $271 billion after
acquiring rival Warner-Lambert Co. rising from global No.
20 to No. 4.
2007: Pfizer has entered into an agreement to acquire
Coley Pharmaceutical Group, Inc.
a publicly-held
biopharmaceutical company specializing in vaccine
adjuvant
technology
and
a
new
class
of
immunomodulatory drug candidates designed to fight
cancers, allergy and asthma disorders, and autoimmune
diseases.
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
7
Market Penetration
Increasing market share for present products in present
markets through greater marketing efforts.
In the 1960s and early 1970s, PepsiCo was a much
more aggressive and innovative company than Coca
Cola. When Coke finally woke up-after losing its market
leadership--it did a terrific job of advertising, too. And
when Pepsi's managers responded by revving up their
already aggressive advertising, the result made history.
Industry growth has doubled, and both companies'
market shares were the highest ever.
http://www.thecoca-colacompany.com/presscenter/av_advertising.html
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
8
Market Development
Introducing present products in
new geographic area or finding
new market segments for present
products..
After years of speculation, last
June 2007 the iPhone, perhaps
the most hyped consumer
electronics device ever created,
started shipping in the US.
Jobs said Apple plans to bring
the iPhone to Europe in the
fourth calendar quarter of 2007,
and to Asia in 2008.
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
9
Product Development
increasing sales by improving
present products or developing
new ones.
Nokia is constantly developing
newer versions of their cell
phones.
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ATENEO GRADUATE SCHOOL
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Related (Concentric) Diversification
adding new but related products.
Telephone companies and cable firms offer
Internet access.
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ATENEO GRADUATE SCHOOL
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Unrelated Diversification
adding new unrelated products or services
Amazon.com originally offered books and CDs.
Now its assortment is huge with kitchen
sections, auction sections etc
GE makes power plants, locomotives,
lightbulbs, and refrigerators; GE manages more
credit cards than American Express.
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ATENEO GRADUATE SCHOOL
OF BUSINESS
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Retrenchment
Regroup through cost and asset reduction to reverse
declining profit.
In 2002 Club Med kicked off a cost-cutting program
expected to save up to $36 million a year by merging
regional offices and closing 17 of 120 resorts. "We're
shrinking temporarily to face lower demand," says
Bourguignon, Club Med CEO
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
13
Divestiture
Selling a division or part of an
organization.
In 1997 Sara Lee embarked on a
major restructuring designed to
boost both profits, which had
been growing by just 6 percent a
year since 1992. Sara Lee aimed
to shift from a manufacturing and
sales orientation to one focused
foremost on marketing the firm's
top brands. The company sold off
more than 110 manufacturing and
distribution facilities over the
next two years.
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
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Liquidation
Selling all of a company’s assets.
GM liquidated its Canadian factory that made Camaros
and Firebirds.
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
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Means For Achieving Strategies
Joint venture/Partnering – two firms
form another org for cooperative
purposes. Movielink is a joint venture
by five major movie studios aimed at
creating an Internet video-on-demand
service.
Merger – when two organizations of
about equal size unite to form one
enterprise. Equitable and PCI Bank
merge.
Acquisition – when a large
organization purchases a smaller
firm. Pfizer acquired Pharmacia for
$50 billion.
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
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Why Is It Not Advisable To Pursue Too Many
Strategies At Once?
Organizational resources are spread too thin.
All organizations have limited resources. No
organization can pursue all the strategies .
No more than a few strategies can be financed,
marketed, and managed effectively at the same
time.
Some practitioners say only a single strategy
should be pursued at a given time by a single
organization.
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
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Michael Porter’s Generic Strategies
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ATENEO GRADUATE SCHOOL
OF BUSINESS
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Cost Leadership Strategy
Successful cost leaders develop competitive
advantage by offering of comparable quality at
lower prices than most industry competitors.
Seeks efficient facilities, employs tight cost
controls
Probably most effective in those markets where
price is the most important factor (over service,
technology, or product characteristics).
Seek to exploit economies of scale and
experience by maximizing sales volume
01/14/96
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
19
Differentiation Strategy
Seeks to distinguish its
products and services
from competitors
Features what is important
& valuable to buyers
Firms must develop strong
marketing capabilities and
a reputation for quality or
uniqueness.
01/14/96
HILDA L. TEODORO
• technical
superiority
• quality
• support services
• guarantees
• image/prestige/r
eliability
• delivery
• style
• options
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Focus Strategy
These firms seek overall cost leadership or
perceived uniqueness, but they “focus” that
advantage on a particular market segment.
segment is big enough to be profitable
segment has good growth potential
Firm has superior ability to serve buyers in
segment
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
21
ANALYTICAL TOOLS FOR
STRATEGIC DIRECTION-SETTING
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
22
MATRIX
STRENGTHS
1
2 List
3 strengths
4
5
WEAKNESSES
1
2 List
3 weaknesses
4
5
OPPORTUNITIES
1
2 List
3 opportunites
4
5
SO Strategies
WO Strategies
1
2
3
4
5
1
2
3
4
5
THREATS
1
2 List
3 threats
4
5
ST Strategies
WT Strategies
1
2 Use strengths
3 to avoid
4 threats
5
1
2 Minimize
3 weaknesses &
4 avoid threats
5
HILDA L. TEODORO
Use strength
to take advantage of opportunities
ATENEO GRADUATE SCHOOL
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Overcome
weakness by
taking advantage
of opportunities
Fred David
23
SAMPLE SWOT
STRENGTHS--S
1. Good editorial quality.
2. High readership ratings.
3. Market leadership.
4. Strong staff loyalty.
5. United Board of Directors
WEAKNESSES—W
1. Profit margin squeeze.
2. No. 2 in classifieds.
3. Lack of a shared culture.
4. Complacency.
5. Lack of entrepreneurial spirit
OPPORTUNITIES—O
1. Better relations with
government.
2. The youth market
3. The lower income
markets.
4. Better newspaper
technology.
5. Digital advertising.
SO STRATEGIES
1. Introduce a new product for
the youth market (S1, S2,
S3,O1,O2)
2. Introduce a new product for
the lower income market
(S1,S2,S3, O1,O3)
3. Offer digital advertising
services (S3, O4, O5).
WO STRATEGIES
1. Develop a readership
program involving employees
(W3,W4,O2,O3).
2. Convert non-revenue earning
products into a youth publication
(W1,W2, O2).
THREATS--T
1. Television.
2. High newsprint costs.
3. Declining readership.
4. Slowdown in the
economy.
5. Internet and on-line
ST STRATEGIES
1. Introduce a free print medium.
(S1,S2,S3, T1,T4)
2. Introduce a youth website.
(S1,S3,T1,T5)
WT STRATEGIES
1. Set up regional printing sites
(W1, T2).
2. Merge non-revenue earning
classifieds products into the
main classifieds (W2,T2).
publications.
ATENEO GRADUATE SCHOOL
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HILDA L. TEODORO
24
Space Matrix
Internal Strategic Position
y-axis=fs + es
IFE
EFE
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
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Space Matrix Example
External Strategic Position
x-axis=ca + is
CPM
5
Forces
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x-axis=ca(-1.0)+is(5.6)= +4.6
y-axis=es(-5.2)+fs(2.0)= -3.2
Financial Strength
Conservative +6 Aggressive
+5
+4
+3
+2
+1
-6 -5 -4 -3 -2 -1
-2
-3
-4
-5
-6
Defensive
+1+2+3+4+5+6
(+4.6, -3.2)
Competitive
Environmental Stability
HILDA L. TEODORO
Industry Strength
MATRIX
Competitive Advantage
External Strategic Position
Internal Strategic Position
ATENEO GRADUATE SCHOOL
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The Company is
competing fairly
well in an
unstable
environment
27
THE STRATEGIC POSITION AND ACTION
EVALUATION (SPACE) MATRIX
CONSERVATIVE
Stay close to core comp,
No excessive risks
> Market Penetration
> Market Development
> Product Development
> Concentric Diversif
CA
-6 -5 -4 -3 -2
Rectify internal weaknesses
Avoid external threats
> Retrenchment
> Divestiture
> Liquidation
DEFENSIVE
HILDA L. TEODORO
+6FS_
+5 _
+4 _
+3 _
+2 _
+1 _
0
-1
-2
-3
-4
-5
-6
Fred David
AGGRESSIVE
> Market Penetration
> Market Development
> Product Development
> Integration
> Diversification
_ +1 +2 +3 +4 +5 +6
_ > Integration
_ > Market Penetration
_ > Market Development
_ > Product Development
_ > Joint Venture
ATENEO GRADUATE
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IS
COMPETITIVE
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Relative Market Share
(Internal Strengths)
H
1.0
(Industry Attractiveness)
H
M
0.50
STARS
Intensive strategies
Integration strategies
Diversification strategies
M
Grow
CASH COWS
L
QUESTION
MARKS
Intensive Strategies
Divest
Double or
QuitBCG
MATR
DOGS
Product Development
Retrenchment
Concentric Diversification Liquidation
Hold/Harve
Divestment
st
HILDA L. TEODORO
L
0.0
Divest
Fred David
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BCG MATRIX
Used for Portfolio Management.
Relative market share: ratio of a division’s own
market share to the market share held by the
largest rival firm. Dividing point is usually selected
to have only the two-three largest competitors fall in
the high market share region.
Industry Growth Rate: Dividing point is typically the
GNP’s growth rate.
Draws attention to the cash flow, investment
characteristics and needs of the organization’s
various divisions.
Pearce & Robinson
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ATENEO GRADUATE SCHOOL
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INTERNAL-EXTERNAL (IE) MATRIX
Fred David
TOTAL EFE WEIGHTED SCORES
TOTAL IFE WEIGHTED SCORES
Grow &
Build
HIGH
3.0-4.0
STRONG AVERAGE
3.0-4.0
2.0-2.99
I
Intensive
Integrative
MEDIUM
IVIntensive
2.0-2.99
Integrative
LOW
1.0-1.99
HILDA L. TEODORO
Market
VIIpenetration
Prod. devt
WEAK
1.0-1.99
II
Intensive
Integrative
III
V
Market
penetration
Prod. devt
VI
VIII
Divestment
ATENEO GRADUATE SCHOOL
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Hold &
Maintain
Market
penetration
Prod. devt
Divestment
IX
Divestment
Harvest &
Divest
31
TOTAL EFE WEIGHTED SCORE = 3.0
SAMPLE INTERNAL-EXTERNAL (IE)
MATRIX
TOTAL IFE WEIGHTED SCORE= 3.2
Intensive
Integrative
HIGH
3.0-4.0
STRONG AVERAGE
3.0-4.0
2.0-2.99
I
ABC
MEDIUM
IV
2.0-2.99
LOW
1.0-1.99
HILDA L. TEODORO
VII
WEAK
1.0-1.99
II
III
V
VI
VIII
IX
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THE GRAND STRATEGY MATRIX
RAPID MARKET GROWTH
Quadrant I
Quadrant II
W
E 1. market development
A 2. market penetration
K 3. product development
C 4. horizon integration
O 5. divestiture
M 6. liquidation
P
E
Quadrant III
T
1. retrenchment
I
2. concentric diversification
T
3. horizontal diversification
I
V 4. conglomerate diversification
E 5. divestiture
1.
2.
3.
4.
5.
6.
7.
market development
market penetration
product development
forward integration
backward integration
horizontal integration
concentric diversification
Quadrant IV
1.
2.
3.
4.
concentric diversification
horizontal diversification
conglomerate diversification
joint venture
6. liquidation
HILDA L. TEODORO
SLOW MARKET GROWTH
ATENEO GRADUATE SCHOOL
OF BUSINESS
Fred David
S
T
R
O
N
G
C
O
M
P
E
T
I
T
I
V
E
33
STRATEGIES SUMMARY
STRATEGY OPTIONS
TOWS
SPACE
IEM
GSM
TOTAL
INTEGRATION STRATEGIES
1
2
Forward Integration
Backward Integration
1
1
1
1
2
2
3
Horizontal Integration
INTENSIVE STRATEGIES
4
Market Penetration
5
Market Development
1
1
2
0
4
3
1
1
1
1
1
6
Product Development
DIVERSIFICATION STRATEGIES
1
1
1
3
0
7
8
1
1
1
2
1
Concentric Diversification
Conglomerate Diversification
9
Horizontal Diversification
DEFENSIVE STRATEGIES
1
1
1
1
0
10
Joint Venture
0
11
Retrenchment
0
12
Divestiture
0
13
Liquidation
0
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
34
THE QSP MATRIX (QSPM)
STEPS
1. List key external opportunites/threats and internal
strenths and weaknesses (identical to EFE &
IFE)
2. Assign weights(identical to EFE & IFE)
3. Examine stage 2 matrices/identify alternatives –
choose top 3 or 4 alternatives (see Matching
Strategies Summary)
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
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35
THE QSP MATRIX(QSPM)
4. determine attractiveness score (AS) - be sure not to
assign the same AS in a given row. Recall that dashes
should be inserted all the way across a given row when
used.
1. Not attractive
2. Somewhat attractive
3. Reasonably attractive
4. Highly attractive
AS: Does this factor affect the choice of strategies
being made? If the answer to the above question is no
then use a dash across set.
If you assign an AS score to one strategy, you must
assign an AS to the other strategies in the set
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
36
SAMPLE QSP MATRIX (QSPM)
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ATENEO GRADUATE SCHOOL
OF BUSINESS
37
SETTING OF STRATEGIC
OBJECTIVES
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ATENEO GRADUATE SCHOOL
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SETTING OF STRATEGIC
OBJECTIVES
Arriving at a clearer definition of where we want to go
and what we want to achieve in a given planning horizon.
An Objective must be:
•
•
•
•
•
Specific
Measurable
Achievable
Realistic
Time-bound
It must also be:
• Challenging
• Hierarchical
• Understandable
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
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39
OBJECTIVE-SETTING
TYPES OF OBJECTIVES: STRATEGIC & FINANCIAL
EXAMPLES
STRATEGIC OBJECTIVES
FINANCIAL OBJECTIVES
• A bigger market share
• Quicker design-to-market
times than rivals
• Higher product quality
• Lower costs relative to
competitors
• Broader or more attractive
product line
• Superior customer service
• Wider geographic coverage
• Growth in revenues
• Growth in earnings
• Wider profit margins
• Higher returns on invested
capital
• Attractive economic value
added (EVA) performance
• Bigger cash flows
• A rising stock price
• Earnings per Share
• Strong bond and credit
ratings
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ATENEO GRADUATE SCHOOL
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EXAMPLE
STRATEGIC OBJECTIVE: TO DOUBLE REVENUES IN FIVE
YEARS
STRATEGIES:
Improve product quality through the acquisition of new
production facilities with advance/better technology
Build a strong brand image through greater advertising
efforts
Strengthen sales and distribution system, and focus on the
institutional outlets
Enter the low-end market through the acquisition of XYZ
Company
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ATENEO GRADUATE SCHOOL
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EXAMPLE
STRATEGIC OBJECTIVE: To improve profitability from 6% to
12% by 2008
STRATEGIES:
To rationalize product line by eliminating low-margin and slowmoving products
To move from in-house selling, warehousing and distribution to
third-party distributorship system
To change packaging materials from imported to locally-sourced
ones
To reduce manpower complement by 20% by integrating the
Finance and HR functions, and the Marketing and Sales Units
HILDA L. TEODORO
ATENEO GRADUATE SCHOOL
OF BUSINESS
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