Strategic Management MGT603
TYPES OF STRATEGIES
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
In addition to integrative, intensive, and diversification strategies, organizations also could pursue
retrenchment, divestiture, or liquidation.
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.
Compaq Computer Corp.
Kohlberg Kravis Roberts
Strategic Management MGT603
De La Rue PLC
Anaheim Might Ducks
North American Van Lines
Allied Van Lines
Harvard Industries, Inc.
Marks & Spencer PLC
U.S. Industries, Inc.
Silicon Graphics, Inc.
Eastman Kodak Co.
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
Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some
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.
Strategic Management MGT603
Research and development partnerships
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
Ice Cream Partners USA
Sport Utility Vehicle
Pacific Century Group
DaimlerChrysler Aerospace AG
Pacific Century Matrix
Ford Motor Company
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