Formulating Long-Term Objectives and Grand Strategies

Formulating Long-Term Objectives
and Grand Strategies

Types of Long-Term Objectives
• Profitability
• Productivity
• Competitive position
• Employee development
• Employee relations
• Technological leadership
• Public responsibility
Qualities of Long-Term Objectives
• Acceptable
• Achievable
• Flexible
• Measurable
• Motivating
• Suitable
• Understandable
Generic strategy
• Generic strategy is a concept concerning the
competitive strategies that companies adopt to
help them gain the best position they can in a
certain industry. There are five strategies that are
commonly used. They include low cost provider
strategy, a broad-differentiation strategy, a best
cost provider strategy, focus strategy based on low
cost, and a differentiation focus strategy. The
concept of generic strategy originated with Michael
Porter in 1980.
Generic Strategy Map
The Balanced Scorecard
The Balanced Scorecard is a set of
measures that are directly linked to the
company’s strategy. It directs a company
to link its own long-term strategy with
tangible goals and actions.
The Balanced Scorecard
5 Generic Competitive Strategies
Menu of Strategy Options
for Winning in the Marketplace
Porter's Generic Strategies
GENERIC STRATEGIES
• Low-Cost Leadership
A strategy aimed at producing standardized products
at low per-unit cost for consumers who are price-
sensitive .
Examples:
H.J Heinz – because beans and canned vegetables do not
permit much of a mark-up, the profit comes from the large
volume of cans sold. Thus, Heinz goes to extraordinary
lengths to reduce costs – by even one-twentieth of a cent
per can.
• Wal-Mart is famous for squeezing its suppliers to
ensure low prices for its goods especially that they
are famous for their Every Day Low Pricing strategy
(EDLP)
• Dell Computer initially achieved market share by

keeping inventories low and only building computers
to order.
GENERIC STRATEGIES
• Differentiation
A strategy aimed at producing products and
services considered unique industry-wide and
directed at consumers who are relatively price-
insensitive .
Differentiation Themes
• unique taste – Dr. Pepper
• multiple features – Microsoft Office
• wide selection and one-stop shopping – Home
Depot, Wal-Mart
• engineering design and performance – BMW,
Ferrari
• rapid product innovation
• prestige and distinctiveness – Rolex, Chanel,
Mercedes Benz
• top-of-the-line image and reputation – Starbucks,
Tiffany
GENERIC STRATEGIES
• Focus
A strategy aimed at producing products and
services that fulfill the needs of small groups of
customers .
Example:
RTW stores selling plus-size clothes
Generic strategies
Risks of Generic Strategies
Risks of Cost Risks of Risks of Focus
Leadership Differentiation
Cost leadership is not Differentiation is not Focus strategy is

sustained sustained imitated
•Competitors imitate •Competitors imitate •Target segment
•Technology changes •Bases for becomes unattractive
•Other bases for cost differentiation become •Structure erodes
leadership erode less important to •Demand disappears
•Proximity in buyers •Broadly target
differentiation is lost •Cost proximity is lost competitors
•Cost focusers achieve •Differentiation overwhelm segments
even lower cost in focusers achieve •Segment’s differences
segments greater differentiation from others narrow
in segments •Advantages of broad
line increase
The Value Disciplines
• Operational Excellence
A specific strategic approach to the
production and delivery of products and
services. A company that follows this strategy
attempts to lead its industry in price and
convenience by pursuing a focus on lean and
efficient operations.
• Customer Intimacy
Companies excelling in customer intimacy
combine detailed customer knowledge with
operational flexibility. They are willing to spend
money now to build customer loyalty for the long-
term, considering each customer’s lifetime value
to the company, not the profit of any single
transaction.
• Product Leadership
Companies that pursue the discipline of
product leadership strive to produce a
continuous stream of state-of-the-art products
and services. The 3 challenges that must be met
are:
Creativity
Commercialize ideas quickly
Release their own improvements
Grand Strategy
comprehensive, long-term plan of essential
actions by which a firm plans to achieve its
major objectives. Key factors of
this strategy may include market, product,
and/or organizational
development through acquisition, divestiture, di
versification, joint ventures, or strategic
alliances
GRAND STRATEGIES
Types of Grand Strategies
• Concentrated growth • Conglomerate

• Market development diversification
• Product development • Turnaround
• Innovation • Divestiture
• Horizontal integration • Liquidation
• Vertical integration • Bankruptcy
• Concentric • Joint ventures
diversification • Strategic alliances
• Consortia
Characteristics of a Concentrated Growth Strategy
• Involves focusing resources on the profitable
growth of a single product, in a single market,
with a single dominant technology
• Rationale – Firm develops and exploits its
expertise in a delimited competitive arena
• Determinants of competitive market success
– Ability to assess market needs
– Knowledge of buyer behavior
– Customer price sensitivity
– Effectiveness of promotion
Strategies of Market & Product Development
• Market development
– Consists of marketing present products, often
with only cosmetic modifications to customers
in related market areas by
• Adding channels of distribution or
• Changing content of advertising or
promotion
Strategies of Market & Product Development
• Product development
• Involves substantial modification of existing
products or creation of new but related products
• Based on penetrating existing market by
- Incorporating product modifications into existing
items or
- Developing new products connected to existing
products
Innovation Strategy
Involves creating a new product life cycle,

thereby making similar existing products
obsolete.
Horizontal and Vertical Integration Strategies
Horizontal Integration
• Based on growth via acquisition of one or
more similar firms operating at the same
stage of the production-marketing chain
Horizontal and Vertical Integration Strategies
Vertical Integration
• Involves acquiring firms
• That supply acquiring firm with inputs
(backward integration) or
• Are customers for firm’s outputs (forward
integration)
Vertical and Horizontal Integrations
Textile producer Textile producer
Shirt manufacturer Shirt manufacturer
Clothing store Clothing store

Motivations for Diversification
 Increase firm’s stock value
 Increase growth rate of firm
 Investment is better use of funds than using them
for internal growth
 Improves stability of earnings and sales
 Balance or fill out product line
 Diversify product line
 Acquire a needed resource quickly
 Achieve tax savings
 Increase efficiency and profitability
Diversification Strategies
Concentric Diversification
• Involves acquisition of businesses related to
acquiring firm in terms of technology, markets, or
products
Diversification Strategies
Conglomerate Diversification
• Involves acquisition of a business because it
represents a promising investment opportunity
• Primary motivation is profit pattern of venture
Turnaround Strategy
• A turnaround situation represents absolute and
relative-to-industry declining performance of a
sufficient magnitude to warrant explicit turnaround
actions
• The immediacy of the resulting threat to company
survival posed by the turnaround situation is known
as situation severity
• Turnaround responses typically include two stages of
strategic activities
– Retrenchment
– Recovery response
Divestiture and Liquidation Strategies
Divestiture Strategy
• Involves selling a firm or a major component of
a firm
• Reasons for divestiture
• Partial mismatches between acquired firm and
parent firm
• Corporate financial needs
• Government antitrust action
Divestiture and Liquidation Strategies
Liquidation Strategy
• Involves selling parts of a firm, usually for its
tangible asset value and not as a going
concern
The Strategy of Bankruptcy
• Two approaches
• Liquidation – Involves complete distribution of a firm’s
assets to creditors, most of whom receive a small
fraction of amount owed
• Reorganization – Involves creditors temporarily
freezing their claims while a firm reorganizes and
rebuilds its operations more profitably
• Advantage of a reorganization bankruptcy

• Proactive option offering maximum repayment of a
firm’s debt in the future if a recovery strategy is
successful
Corporate Combination Strategies
Joint Ventures
• Involves establishing a third company (child), operated
for the benefit of the co-owners (parents)
Strategic Alliance
• Involves creating a partnership between two or more
companies that contribute skills and expertise to a
cooperative project
• Exists for a defined period
• Does not involve the exchange of equity
Corporate Combination Strategies
• Consortia are defined as large interlocking
relationships between businesses of an industry. In
Japan such consortia are known as keiretsus, in South
Korea as chaebols
• A Japanese keiretsu is an undertaking involving up to
50 different firms that are joined around a large
trading company or bank and are coordinated through
interlocking directories and stock exchanges
• Chaebols are typically financed through government
banking groups and largely are run by professional
managers trained by participating firms expressly for
the job

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Formulating Long-Term Objectives

and Grand Strategies

• Dell Computer initially achieved market share by

Cost leadership is not Differentiation is not Focus strategy is

• Concentrated growth • Conglomerate

Involves creating a new product life cycle,

Textile producer Textile producer

Shirt manufacturer Shirt manufacturer

Clothing store Clothing store

• Advantage of a reorganization bankruptcy

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