Chapter 5

Strategies in Action

Strategic
Management:
Concepts & Cases
11th Edition
Fred David

Copyright 2007 Prentice Hall Ch 5 -1

Long-Term Objectives

Objectives --

Quantifiable
Measurable
Realistic
Understandable
Challenging

Copyright 2007 Prentice Hall Ch 5 -2

Long-Term Objectives

Objectives --

Hierarchical
Obtainable
Congruent
Time-line

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 Long-Term Objectives

Varying Performance Measures

by Organizational Level
Organizational
Basis for Annual Bonus/Merit Pay
Level
75% on long-term objectives
Corporate
25% on annual objectives
50% on long-term objectives
Division
50% on annual objectives
25% on long-term objectives
Function
75% on annual objectives
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Financial vs. Strategic
Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Higher profit margins
Higher earnings per share
Improved cash flow

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The Balanced Scorecard

Robert Kaplan & David Norton --

Strategy evaluation & control technique

Balance financial measures with non-financial
measures
Balance shareholder objectives with customer
& operational objectives

Copyright 2007 Prentice Hall Ch 5 -6

Types of Strategies
Corp
A Large Company Level

Division Level

Functional Level

Operational Level

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Types of Strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

Horizontal
Integration

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Types of Strategies

Market
Penetration

Intensive Market
Strategies Development

Product
Development

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Types of Strategies

Related
Diversification

Diversification
Strategies

Unrelated
Diversification

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Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation

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2003 Examples

Forward Budget Rent-a-Car is Opening

Integration car rental shops in Wal-Mart

Backward Hotels, Inc. purchased a

Integration furniture producer

Federated Department Stores

Horizontal
acquired May Department
Integration Stores

Copyright 2007 Prentice Hall Ch 5 -12

2003 Examples

Market Coca-Cola is spending millions

Penetration to advertise Coca-Cola Zero

Bank of America purchased a

Market
9% stake in China Construction
Development Bank

Advanced Medical Optics is

Product
using acquisition to obtain all
Development medical aspects of eye care

Copyright 2007 Prentice Hall Ch 5 -13

2003 Examples
UPS acquired Overnite to
Related diversify its packaging
Diversification business into the trucking
business
Tupperware Corp. has entered
Unrelated
and is growing its skin and
Diversification
Beauty business through
BeautiControl

Viacom is selling non-core

Retrenchment
assets

Copyright 2007 Prentice Hall Ch 5 -14

2003 Examples
Goodyear Tire & Rubber Co.
Divestiture sold its North American farm-
tire business to Titan
International
Britain’s last major car
manufacturer, MG Rover Group
Liquidation
Ltd., liquidated in 2005 and laid
off its 5,000 employees

Copyright 2007 Prentice Hall Ch 5 -15

Michael Porter’s Generic
Strategies

Cost Leadership Strategies

(Low-Cost & Best-Value)

Differentiation Strategies

Focus Strategies
(Low-Cost Focus &
Best-Value Focus)

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Recent Mergers
Acquiring Firm Acquired Firm
IBM Ascential Software
Philip Morris PT Hanjaya Mandala
Samp
U.S. Steel National Steel Corp
Oracle PeopleSoft
OSIM Int’l Ltd Brookstone
Adobe Systems Macromedia
US Airways American West
United Parcel Service Overnight Corp.
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 First Mover Advantages

 Benefits a firm may achieve by entering a

new market or developing a new product
or service prior to rival firms

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 Outsourcing
Business-process outsourcing
(BPO)

 Companies taking over the functional

operations of other firms

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