26-May-13STRATEGIES 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 •Forward Integration •Backward Integration •Horizontal Integration Integration •Market Penetration •Market Development •Product Development Intensive •Concentric Diversification •Horizontal Diversification •Conglomerate Diversification HILDA L. TEODORO Diversification •Retrenchment •Divestiture •Liquidation Defensive ATENEO GRADUATE SCHOOL OF BUSINESS 4 TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 5 .Forward Integration Gaining ownership or increased control over distributors. HILDA L. DHL and TNT in the booming Chinese logistic market. 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. as well as reliability and traceability for our customers. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 6 .Backward Integration Seeking ownership or increased control of firm’s suppliers. one of the world's leading manufacturers of flavors and fragrances. President Flavor & Nutrition EAME (Europe. 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.Symrise acquires Paris/Madagascar-based Aromatics S.A.‖ said Heinrich Schaper. Symrise. 2007 . Middle East) at Symrise HILDA L.S. Africa. allergy and asthma disorders. a publicly-held biopharmaceutical company specializing in vaccine adjuvant technology and a new class of immunomodulatory drug candidates designed to fight cancers. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 7 . the manufacturer of Viagra. HILDA L. 4. 2007: Pfizer has entered into an agreement to acquire Coley Pharmaceutical Group. rising from global No. 2000: Pfizer. boosted its market cap from $172 billion to $271 billion after acquiring rival Warner-Lambert Co. and autoimmune diseases. Inc. 20 to No.Horizontal Integration Seeking ownership of competitors. http://www.com/presscenter/av_advertising. and both companies' market shares were the highest ever. too. And when Pepsi's managers responded by revving up their already aggressive advertising. Industry growth has doubled. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 8 .Market Penetration Increasing market share for present products in present markets through greater marketing efforts.thecoca-colacompany. When Coke finally woke up-after losing its market leadership--it did a terrific job of advertising.html HILDA L. the result made history. In the 1960s and early 1970s. PepsiCo was a much more aggressive and innovative company than Coca Cola. last June 2007 the iPhone. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 9 . 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.Market Development Introducing present products in new geographic area or finding new market segments for present products.. After years of speculation. HILDA L. Nokia is constantly developing newer versions of their cell phones. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 10 . HILDA L.Product Development increasing sales by improving present products or developing new ones. Telephone companies and cable firms offer Internet access. HILDA L.Related (Concentric) Diversification adding new but related products. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 11 . and refrigerators.com originally offered books and CDs. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 12 . GE manages more credit cards than American Express. Now its assortment is huge with kitchen sections. locomotives. lightbulbs.Unrelated Diversification adding new unrelated products or services Amazon. HILDA L. auction sections etc GE makes power plants. Retrenchment Regroup through cost and asset reduction to reverse declining profit. "We're shrinking temporarily to face lower demand." says Bourguignon. 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. Club Med CEO HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 13 . 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. In 1997 Sara Lee embarked on a major restructuring designed to boost both profits. The company sold off more than 110 manufacturing and distribution facilities over the next two years. HILDA L.Divestiture Selling a division or part of an organization. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 14 . HILDA L. GM liquidated its Canadian factory that made Camaros and Firebirds.Liquidation Selling all of a company’s assets. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 15 . TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 16 . HILDA L. Pfizer acquired Pharmacia for $50 billion. 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.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. HILDA L. marketed. Some practitioners say only a single strategy should be pursued at a given time by a single organization. and managed effectively at the same time.Why Is It Not Advisable To Pursue Too Many Strategies At Once? Organizational resources are spread too thin. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 17 . No more than a few strategies can be financed. No organization can pursue all the strategies . All organizations have limited resources. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 18 .Michael Porter’s Generic Strategies HILDA L. Seeks efficient facilities. technology. or product characteristics).Cost Leadership Strategy Successful cost leaders develop competitive advantage by offering of comparable quality at lower prices than most industry competitors. Seek to exploit economies of scale and experience by maximizing sales volume 01/14/96 HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 19 . employs tight cost controls Probably most effective in those markets where price is the most important factor (over service. TEODORO • technical superiority • quality • support services • guarantees • image/prestige/r eliability • delivery • style • options ATENEO GRADUATE SCHOOL OF BUSINESS 20 . 01/14/96 HILDA L.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. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 21 . 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.Focus Strategy These firms seek overall cost leadership or perceived uniqueness. ANALYTICAL TOOLS FOR STRATEGIC DIRECTION-SETTING HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 22 . TEODORO .STRENGTHS 1 2 List 3 strengths 4 5 WEAKNESSES 1 2 List 3 weaknesses 4 5 SWOT MATRIX OPPORTUNITIES 1 2 List 3 opportunites 4 5 THREATS 1 2 List 3 threats 4 5 SO Strategies 1 2 3 4 5 Use strength to take advantage of opportunities WO Strategies 1 2 3 4 5 Overcome weakness by taking advantage of opportunities ST Strategies 1 2 Use strengths 3 to avoid 4 threats 5 ATENEO GRADUATE SCHOOL OF BUSINESS WT Strategies 1 2 Minimize 3 weaknesses & 4 avoid threats 5 Fred David 23 HILDA L. 2. Lack of a shared culture. S3.O3). Develop a readership program involving employees (W3. 5. S2. 2. Television. Slowdown in the economy. 4. No. 4. Better relations with government.S2. 3. 24 publications. Merge non-revenue earning classifieds products into the main classifieds (W2. 4. High readership ratings. O5).S2.T2). WT STRATEGIES 1. 5. Profit margin squeeze. Introduce a new product for the youth market (S1. Offer digital advertising services (S3.O2. O4. (S1. 2. Market leadership. Introduce a free print medium. 4. 2. Set up regional printing sites (W1. THREATS--T 1. 2. The youth market 3.O1. Convert non-revenue earning products into a youth publication (W1.O2) 2. Complacency. T2). 5.S3. Lack of entrepreneurial spirit SAMPLE SWOT OPPORTUNITIES—O 1.W2.T5) WO STRATEGIES 1. United Board of Directors WEAKNESSES—W 1. 3.S3. 2 in classifieds. T1. Introduce a new product for the lower income market (S1. Better newspaper technology. Internet and on-line SO STRATEGIES 1.T1.O3) 3. 5. 2. Introduce a youth website.T4) 2.STRENGTHS--S 1.W4. Declining readership. O2). High newsprint costs. Digital advertising. 3. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS . (S1. O1. Strong staff loyalty. HILDA L.S3. ST STRATEGIES 1. The lower income markets. Good editorial quality. Expenses up by 34% y-axis=fs + es Rating 1.0 -17.0 1.0 6. Current ratio down 4. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 25 .0 1.0 -5. High receivables 3. 24% increase in sales 5.0 2.-6=Worse) 1.0 -5. Profit margin down 2.2 Total Average Environmental Stability(-1=Best.1=Worse) 1.0 1. Broadsheet circulation decreasing 2.0 -6.0 -6. Decline in newspaper readership 3. Slow economic growth Total Average HILDA L.Space Matrix Internal Strategic Position Financial Strength(6=Best.0 10. 0 -1.0 Rating 6.Space Matrix Example External Strategic Position x-axis=ca + is Rating -1.-6=Worse) 1.0 28. Print ads cheaper than tv ads 5. Market leadership in advertising 3.0 6.0 6.0 5.0 6. Highest readership 2.0 4.0 -1. Strong competition among top players 2. Long shelf life Total Average HILDA L.0 -3. Highest credibility Total Average Industry Strength(6=Best. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 26 . Effective medium for direct response advertising 3.1=Worse) 1.0 -1. High entry and exit costs 4.6 Competitive Advantage(-1=Best. 6 y-axis=es(-5. -3.2)+fs(2.6.2 Competitive Advantage SPACE MATRIX Financial Strength Aggressive Conservative +6 +5 +4 +3 +2 +1 -6 -5 -4 -3 -2 -1 -2 -3 -4 -5 -6 Defensive +1+2+3+4+5+6 (+4.2) Competitive The Company is competing fairly well in an unstable environment 27 Industry Strength Environmental Stability HILDA L.0)= -3.6)= +4.0)+is(5. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS .External Strategic Position Internal Strategic Position x-axis=ca(-1. TEODORO -6 -5 -4 -3 -2 -1 Rectify internal weaknesses -2 Avoid external threats -3 > Retrenchment -4 > Divestiture -5 > Liquidation -6 DEFENSIVE _ +1 +2 +3 +4 +5 +6 _ > Integration _ > Market Penetration _ > Market Development _ > Product Development _ > Joint Venture COMPETITIVE 28 ATENEO GRADUATE ES SCHOOL OF BUSINESS . No excessive risks > Market Penetration > Market Development > Product Development > Concentric Diversif FS +6 _ +5 _ +4 _ +3 _ +2 _ +1 _ 0 Fred David AGGRESSIVE > Market Penetration > Market Development > Product Development > Integration > Diversification IS CA HILDA L.THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX CONSERVATIVE Stay close to core comp. 0 STARS Intensive strategies Integration strategies Intensive Strategies Diversification strategies Divest M CASH COWS DOGS Product Development Retrenchment Concentric Diversification Liquidation Divestment L HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS Fred David 29 BCG MATRIX .Relative Market Share (Internal Strengths) H 1.50 QUESTION MARKS L 0.0 H (Industry Attractiveness) M 0. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 30 .BCG MATRIX Used for Portfolio Management. Dividing point is usually selected to have only the two-three largest competitors fall in the high market share region. investment characteristics and needs of the organization’s various divisions. Pearce & Robinson HILDA L. Industry Growth Rate: Dividing point is typically the GNP’s growth rate. Relative market share: ratio of a division’s own market share to the market share held by the largest rival firm. Draws attention to the cash flow. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS Harvest & Divest 31 .99 III Market VI Divestment penetration Prod. devt Hold & Maintain II Intensive Integrative MEDIUM IVIntensive 2.0 I STRONG AVERAGE 3.99 Integrative LOW 1.0-4. devt IX Divestment Divestment HILDA L. devt V Market VIII penetration Prod.99 VIIMarket penetration Prod.0-2.99 Intensive Integrative WEAK 1.INTERNAL-EXTERNAL (IE) MATRIX Fred David TOTAL EFE WEIGHTED SCORES TOTAL IFE WEIGHTED SCORES Grow & Build HIGH 3.0-2.0-1.0-4.0 2.0-1. 0 2.0-4. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 32 .0 MEDIUM IV 2.0-2.0-2.99 III VI IX HIGH 3.0-1.99 VII HILDA L.99 I II V VIII WEAK 1.0 TOTAL IFE WEIGHTED SCORE= 3.2 Intensive Integrative STRONG AVERAGE 3.0-1.99 LOW 1.0-4.SAMPLE INTERNAL-EXTERNAL (IE) MATRIX TOTAL EFE WEIGHTED SCORE = 3. 4. 6. 5. 3. 6. 2. 2. TEODORO SLOW MARKET GROWTH ATENEO GRADUATE SCHOOL OF BUSINESS Fred David . 4. A 2. 3. joint venture HILDA L. 4. K C O M P E T I T I V E RAPID MARKET GROWTH Quadrant I Quadrant II market development market penetration product development horizon integration divestiture liquidation 3. retrenchment concentric diversification horizontal diversification conglomerate diversification divestiture liquidation Quadrant IV concentric diversification horizontal diversification conglomerate diversification 4. 1. 6. 5. 7. 3.THE GRAND STRATEGY MATRIX W E 1. 5. 2. 1. market development market penetration product development forward integration backward integration horizontal integration concentric diversification S T R O N G C O M P E T I T I V E 33 Quadrant III 1. STRATEGIES SUMMARY STRATEGY OPTIONS INTEGRATION STRATEGIES 1 Forward Integration 2 Backward Integration 3 Horizontal Integration INTENSIVE STRATEGIES 4 Market Penetration 5 Market Development 6 Product Development DIVERSIFICATION STRATEGIES 7 Concentric Diversification 8 Conglomerate Diversification 9 Horizontal Diversification DEFENSIVE STRATEGIES 10 11 12 13 Joint Venture Retrenchment Divestiture HILDA L. TEODORO TOWS SPACE IEM GSM TOTAL 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 0 4 3 3 0 2 1 1 0 0 0 0 0 Liquidation ATENEO GRADUATE SCHOOL OF BUSINESS 34 . List key external opportunites/threats and internal strenths and weaknesses (identical to EFE & IFE) 2. Assign weights(identical to EFE & IFE) 3.THE QSP MATRIX (QSPM) STEPS 1. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 35 . Examine stage 2 matrices/identify alternatives – choose top 3 or 4 alternatives (see Matching Strategies Summary) HILDA L. you must assign an AS to the other strategies in the set HILDA L. Reasonably attractive 4. Recall that dashes should be inserted all the way across a given row when used. If you assign an AS score to one strategy. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 36 . 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. 1. Not attractive 2.THE QSP MATRIX(QSPM) 4. determine attractiveness score (AS) .be sure not to assign the same AS in a given row. Somewhat attractive 3. Slow dow n in the economy. 3. High new sprint costs. Reach out to the low er income markets not reached by the broadsheet. Internet and on-line publications.30 0. No. Prof it margin squeeze. TOTAL 0.10 0. Better new spaper technology.10 0. STRENGTHS 1.05 0.05 3 3 3 4 0.60 0. 2 in classif ieds.60 0.00 OF BUSINESS 37 3.10 0. Better relations w ith the present government.30 0. 5.15 0. WEAKNESSES 1.00 5.30 3 4 0.05 0.60 4 4 2 3 0. Lack of shared corporate culture. 4. AS TAS Product Developm ent AS TAS Horizontal Integration AS TAS L. Continued market leadership. Television.60 0. HILDA Lack of Entrepreneurial Spirit ATENEO GRADUATE 0.15 0.40 2 2 0.15 0.40 4 3 3 3 0.20 3 2 3 4.45 0.15 0. 5.30 0.40 0.20 0. 4.45 0.10 0.30 3 0. TEODORO 5.15 0. 5.10 0.10 0. 2. 4. Strong loyalty of staf f to the company.20 0.15 0. THREATS 1.15 3 4 4 4 0.05 2 1 2 0. Reach out to the youth market.30 0.10 0. 3. 2.10 -SCHOOL 2.60 2 0.45 0.20 0. 4.60 0.30 0. 3.30 2 2 2 2 0.45 0. Decline in new spaper readership. 3. High readership ratings.05 0.45 0.15 0.20 Wgt.SAMPLE QSP MATRIX (QSPM) STRATEGIC ALTERNATIVES Market Penetration CRITICAL SUCCESS FACTORS OPPORTUNITIES 1.15 0.40 0.20 0.05 4 0.30 0.10 0.30 4 3 1 0.45 . Uited Board of Directors and good leadership. Resistance to change.10 4 3 0.90 0. 2. Good editorial quality.05 0. Digital advertising services.30 0.05 0.10 0. 2.45 2 2 1 2 0.10 0. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 38 .SETTING OF STRATEGIC OBJECTIVES HILDA L. 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. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 39 . An Objective must be: • • • • • Specific Measurable Achievable Realistic Time-bound It must also be: • Challenging • Hierarchical • Understandable HILDA L. TEODORO FINANCIAL OBJECTIVES • • • • • • • • • 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 40 ATENEO GRADUATE SCHOOL OF BUSINESS .OBJECTIVE-SETTING TYPES OF OBJECTIVES: STRATEGIC & FINANCIAL EXAMPLES STRATEGIC 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 HILDA L. 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 HILDA L. TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 41 . TEODORO ATENEO GRADUATE SCHOOL OF BUSINESS 42 . and the Marketing and Sales Units HILDA L. warehousing and distribution to third-party distributorship system To change packaging materials from imported to locallysourced ones To reduce manpower complement by 20% by integrating the Finance and HR functions.EXAMPLE STRATEGIC OBJECTIVE: To improve profitability from 6% to 12% by 2008 STRATEGIES: To rationalize product line by eliminating low-margin and slow-moving products To move from in-house selling.