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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 21
TYPES OF STRATEGIES
Objectives:
This lecture brings strategic management to life with many contemporary examples. Sixteen types of
strategies are defined and exemplified, including Michael Porter's generic strategies: cost leadership,
differentiation, and focus. Guidelines are presented for determining when different types of strategies are
most appropriate to pursue. An overview of strategic management in nonprofit organizations, governmental
agencies, and small firms is provided. After reading this lecture you will be able to know about:
Types of Strategies
Diversification strategies
Diversification Strategies
Diversification Strategies
Concentric
Diversification
Conglomerate
Diversification
Diversification
Strategies
Horizontal
Diversification
There are three general types of diversification strategies: concentric, horizontal, and conglomerate. Over all,
diversification strategies are becoming less popular as organizations are finding it more difficult to manage
diverse business activities. In the 1960s and 1970s, the trend was to diversify so as not to be dependent on
any single industry, but the 1980s saw a general reversal of that thinking. Diversification is now on the
retreat.
Concentric Diversification
Adding new, but related, products or services
Adding new, but related, products or services is widely called concentric diversification. An example of this
strategy is AT&T recently spending $120 billion acquiring cable television companies in order to wire
America with fast Internet service over cable rather than telephone lines. AT&T's concentric diversification
strategy has led the firm into talks with America Online (AOL) about a possible joint venture or merger to
provide AOL customers cable access to the Internet.
Guidelines for Concentric Diversification
Five guidelines when concentric diversification may be an effective strategy are provided below:
Competes in no- or slow-growth industry
Adding new & related products increases sales of current products
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Strategic Management ­ MGT603
VU
New & related products offered at competitive prices
Current products are in decline stage of the product life cycle
Strong management team
Conglomerate Diversification
Adding new, unrelated products or services
Adding new, unrelated products or services is called conglomerate diversification. Some firms pursue
conglomerate diversification based in part on an expectation of profits from breaking up acquired firms and
selling divisions piecemeal.
Guidelines for Conglomerate Diversification
Four guidelines when conglomerate diversification may be an effective strategy are provided below:
Declining annual sales and profits
Capital and managerial talent to compete successfully in a new industry
Financial synergy between the acquired and acquiring firms
Exiting markets for present products are saturated
Horizontal Diversification
Adding new, unrelated products or services for present customers is called horizontal diversification. This
strategy is not as risky as conglomerate diversification because a firm already should be familiar with its
present customers.
Guidelines for Horizontal Diversification
Four guidelines when horizontal diversification may be an especially effective strategy are:
Revenues from current products/services would increase significantly by adding the new unrelated
products
Highly competitive and/or no-growth industry w/low margins and returns
Present distribution channels can be used to market new products to current customers
New products have counter cyclical sales patterns compared to existing products
Defensive Strategies
In addition to integrative, intensive, and diversification strategies, organizations also could pursue
retrenchment, divestiture, or liquidation.
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Strategic Management ­ MGT603
VU
Defensive Strategies
Retrenchment
Divestiture
Defensive
Strategies
Liquidation
Retrenchment
Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining
sales and profits. Sometimes called a turnaround or reorganization strategy, retrenchment is designed to
fortify an organization's basic distinctive competence. During retrenchment, strategists work with limited
resources and face pressure from shareholders, employees, and the media. Retrenchment can entail selling
off land and buildings to raise needed cash, pruning product lines, closing marginal businesses, closing
obsolete factories, automating processes, reducing the number of employees, and instituting expense
control systems.
Guidelines for Retrenchment
Five guidelines when retrenchment may be an especially effective strategy to pursue are as follows:
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
When an organization has grown so large so quickly that major internal reorganization is needed
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning