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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 22
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
Defensive strategies
Defensive Strategies
In addition to integrative, intensive, and diversification strategies, organizations also could pursue
retrenchment, divestiture, or liquidation.
Divestiture
Selling a division or part of an organization is called divestiture. Divestiture often is used to raise capital for
further strategic acquisitions or investments. Divestiture can be part of an overall retrenchment strategy to
rid an organization of businesses that are unprofitable, that require too much capital, or that do not fit well
with the firm's other activities.
Guidelines for Divestiture
Five guidelines when divestiture may be an especially effective strategy to pursue are listed below:
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.
Divestiture has become a very popular strategy as firms try to focus on their core strengths, lessening their
level of diversification.
For example, retailer Venator Group, formerly Woolworth, in 1999 divested eight divisions in order to
become solely an athletic footwear and apparel company. The eight divisions were Music Box, Randy River,
Foot Locker Outlets, Colorado U.S., Team Edition, Going to the Game, Weekend Edition, and Burger
King. Venator several years ago was a $4.6 billion conglomerate before CEO Farah divested thirty-five of
Venator's forty-two divisions, including all Woolworth and Kinney Shoe stores. A few divestitures
consummated in 2000 are given in Table.
Recent Divestitures
Parent Company
Divested Company
Microsoft
Sidewalk Entertainment
AlliedSignal
Laminate-Systems
Monsanto
NutraSweet
Compaq Computer Corp.
AltaVista
Dupont
Conoco
Mead Corp.
Northwood, Inc.
IBM
Networking Technology
Kohlberg Kravis Roberts
Gillette
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Strategic Management ­ MGT603
VU
Borg-Warner Automotive
Kuhlman Electric
De La Rue PLC
Smart Cards
Walt Disney
Anaheim Angels
Walt Disney
Anaheim Might Ducks
Walt Disney
Fairchild Publications
Harcourt General
Neiman Marcus
3Com
Palm Computing
North American Van Lines
Allied Van Lines
Harvard Industries, Inc.
Kingston-Warren
Cendant Corp.
Entertainment Publications
Marks & Spencer PLC
Kings Supermarket
U.S. Industries, Inc.
USI Diversified
Silicon Graphics, Inc.
Cray Supercomputer
Eastman Kodak Co.
Image Bank
Microsoft
Expedia
Kellogg Company
Lender's Bagels
Sabre Holdings
Travelocity.com
Liquidation
Selling all of a company's assets, in parts, for their tangible worth
Selling all of a company's assets, in parts, for their tangible worth is called liquidation. Liquidation is
recognition of defeat and, consequently, can be an emotionally difficult strategy. However, it may be better
to cease operating than to continue losing large sums of money.
Guidelines for Liquidation
Three guidelines when liquidation may be an especially effective strategy to pursue are:
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 of achieving strategies: Joint Venture and Combination Strategies
Joint Venture
Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some
opportunity.
Joint venture is a popular strategy that occurs when two or more companies form a temporary partnership or
consortium for the purpose of capitalizing on some opportunity. Often, the two or more sponsoring firms
form a separate organization and have shared equity ownership in the new entity. Other types of cooperative
arrangements include research and development partnerships, cross-distribution agreements, cross-licensing
agreements, cross-manufacturing agreements, and joint-bidding consortia.
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Strategic Management ­ MGT603
VU
Cooperative Arrangements
Research and development partnerships
Cross-distribution agreements
Cross-licensing agreements
Cross-manufacturing agreements
Joint-bidding consortia
Joint ventures and cooperative arrangements are being used increasingly because they allow companies to
improve communications and networking, to globalize operations, and to minimize risk.
Nestlé and Pillsbury recently formed a joint venture named Ice Cream Partners USA based in northern
California. The new company primarily sells super premium ice cream that is high in fat--and price. Super
premium ice cream sales were up nearly 13 percent in 1998.
When a privately owned organization is forming a joint venture with a publicly owned organization; there
are some advantages of being privately held, such as close ownership; there are some advantages of being
publicly held, such as access to stock issuances as a source of capital. Sometimes, the unique advantages of
being privately and publicly held can be synergistically combined in a joint venture
Guidelines for Joint Ventures
Six guidelines when joint venture may be an especially effective strategy to purse are:
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
Some Recent Example Joint Ventures
Parent Company #1
Parent Company #2
Newly Created Company
AOL
Bertelsmann AG
AOL Europe
Walt Disney
Infoseek
Go Network
Nestlé
Pillsbury
Ice Cream Partners USA
Dow Jones
Pearson
Vedomosti
Volkswagen AG
Porsche
Sport Utility Vehicle
Pacific Century Group
DaimlerChrysler Aerospace AG
Pacific Century Matrix
Microsoft
Ford Motor Company
CarPoint
EBay
Microsoft
Fair Market
Excite At Home
Tele Columbus Gmblt
At Home Deutschland
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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 2000’s 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 Porter’s 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