Bus 411
Day 9
Copyright 2005 Prentice Hall
1
Agenda
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Assignment #2 RE Corrected
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5 A’s, 1 B,1 C’s and 1 MIS
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Assignment 3 Due
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Assignment 4 posted (next Slide)
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Due March 3
One more assignment which will due after Spring
Break
Mid term Exam will be after Spring break and will be
a take home exam covering the first 9 chapters of
the text.
Finish Discussion of Strategies in Action and begin
looking at Strategic Analysis and Choice
Copyright 2005 Prentice Hall
Ch 3 -2
Chapter 5
Strategies in Action
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2005 Prentice Hall
Ch 3 -3
Assignment 4

For assignment 4, complete Experiential Exercise 5A on page
210 of your text.
 Change the name of your report to "Strategies for Google in
2008".
 A three page (single-spaced) report is about 1300-1500 words,
so if you are double-spacing your report, I expect about five to six
pages.
 Refer to the strategies listed in table 5-3 (page 173) and/or to
Porter’s five generic strategies (figure 5-3 on page 189) when
selecting and justifying strategies for Google.
 This assignment will be due on March 3 at the beginning of class.
 Make sure you provide the sources of your information (source
attribution does not count towards the length requirement).
Copyright 2005 Prentice Hall
Ch 3 -4
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies
Copyright 2005 Prentice Hall
Ch 3 -5
Copyright 2005 Prentice Hall
Ch 3 -6
Generic Strategies
Cost Leadership
(Type 1 and Type 2)
In conjunction with differentiation
Economies or diseconomies of
scale
Capacity utilization achieved
Linkages w/ suppliers & distributors
Copyright 2005 Prentice Hall
Ch 3 -7
Cost Leadership
Ways of ensuring total costs across value
chain are lower than competitors’ total costs

1.
2.
Perform value chain activities more efficiently
than rivals and control factors that drive costs
Revamp the firm’s overall value chain to
eliminate or bypass some cost-producing
activities
Copyright 2005 Prentice Hall
Ch 3 -8
Cost Leadership
Can be especially effective when:

1.
2.
3.
4.
5.
6.
7.
Price competition among rivals is vigorous
Rival’s products are identical and supplies are
readily available
There are few ways to achieve differentiation
Most buyers use the product in the same way
Buyers have low switching costs
Buyers are large and have significant power
Industry newcomers use low prices to attract
buyers
Copyright 2005 Prentice Hall
Ch 3 -9
Generic Strategies
Low Cost Producer Advantage
Many price-sensitive buyers
Few ways of achieving differentiation
Buyers not sensitive to brand
differences
Large # of buyers w/bargaining power
Copyright 2005 Prentice Hall
Ch 3 -10
Generic Strategies
Differentiation (Type 3)
Greater product flexibility
Greater compatibility
Lower costs
Improved service
Greater convenience
More features
Copyright 2005 Prentice Hall
Ch 3 -11
Differentiation
Can be especially effective when:

1.
2.
3.
4.
There are many ways to differentiate and many
buyers perceive the value of the differences
Buyer needs and uses are diverse
Few rival firms are following a similar
differentiation approach
Technology change is fast paced and
competition revolves around evolving product
features
Copyright 2005 Prentice Hall
Ch 3 -12
Generic Strategies
Focused Strategies (Type 4 & 5)
Industry segment of sufficient size
Good growth potential
Not crucial to success of major competitors
Copyright 2005 Prentice Hall
Ch 3 -13
Focused Strategy
Can be especially effective when:

1.
2.
3.
4.
5.
The target market niche is large, profitable, and
growing
Industry leaders do not consider the niche crucial
Industry leaders consider the niche too costly or
difficult to meet
The industry has many different niches and
segments
Few, if any, other rivals are attempting to
specialize in the same target segment
Copyright 2005 Prentice Hall
Ch 3 -14
Copyright 2005 Prentice Hall
Ch 3 -15
Means for Achieving Strategies
Joint Venture/Partnering 
Two or more companies form a temporary
partnership or consortium for purpose of
capitalizing on some opportunity
Copyright 2005 Prentice Hall
Ch 3 -16
Reasons why Mergers and Acquisitions Fail
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Integration difficulties
Inadequate evaluation of target
Large or extraordinary debt
Inability to achieve synergy
Copyright 2005 Prentice Hall
Ch 3 -17
Means for Achieving Strategies
Cooperative Arrangements 
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R&D partnerships
Cross-distribution agreements
Cross-licensing agreements
Cross-manufacturing agreements
Joint-bidding consortia
Copyright 2005 Prentice Hall
Ch 3 -18
Means for Achieving Strategies
Why Joint Ventures Fail 
Managers who must collaborate daily; not
involved in developing the venture
 Benefits the company not the customers
 Not supported equally by both partners
 May begin to compete with one of the
partners
Copyright 2005 Prentice Hall
Ch 3 -19
Joint Ventures
Guidelines -Synergies between private and publicly held
Domestic with foreign firm, local management can
reduce risk
Complementary distinctive competencies
Resources & risks where project is highly profitable
(e.g. Alaska Pipeline)
Two or more smaller firms competing w/larger firm
Need to introduce new technology quickly
Copyright 2005 Prentice Hall
Ch 3 -20
Means for Achieving Strategies
Mergers & Acquisitions

Provide improved capacity utilization
 Better use of existing sales force
 Reduce managerial staff
 Gain economies of scale
 Smooth out seasonal trends in sales
 Gain new technology
 Access to new suppliers, distributors, customers,
products, creditors
Copyright 2005 Prentice Hall
Ch 3 -21
Reasons why Mergers and Acquisitions Fail
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Too much diversification
Managers overly focused on acquisition
Too large an acquisition
Difficult to integrate different organizational
cultures
Reduced employee moral due to layoffs and
relocations
Copyright 2005 Prentice Hall
Ch 3 -22
Recent Mergers
Acquiring Firm
IBM
Philip Morris
U.S. Steel
Oracle
OSIM International Ltd
Adobe Systems
US Airways
United Parcel Service
Copyright 2005 Prentice Hall
Acquired Firm
Ascential Software
PT Hanjaya Mandala Samp
National Steel Corp
PeopleSoft
Brookstone
Macromedia
American West
Overnight Corp.
Ch 3 -23
First Mover Advantages

Benefits a firm may achieve by entering a
new market or developing a new product or
service prior to rival firms
Copyright 2005 Prentice Hall
Ch 3 -24
First Mover Advantages
Potential Advantages

Securing access to rare resources
 Gaining new knowledge of key factors &
issues
 Carving out market share
 Easy to defend position & costly for rival
firms to overtake
Copyright 2005 Prentice Hall
Ch 3 -25
Get Big Fast When …
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“Winner-take-all” dynamics apply
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Network effects (i.e., “viral”)
Scale economies (i.e., “scalable”)
Customer retention (i.e., “sticky”)
And, competitive risks are “reasonable”
And, lifetime value of customer exceeds
acquisition cost
And, you can fund aggressive growth
Copyright 2005 Prentice Hall
McGraw-Hill/Irwin
Ch 3 -26
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Phases of Investment Manias (Kindleberger)
Overtrading
- Entrants fight wars of escalation and attrition
- Early movers expand scope to exploit/sustain
valuation
Revulsion
- “Babies out with bathwater”
- Opportunities for those with cash,
courage
Euphoria
Copyright 2005 Prentice Hall
McGraw-Hill/Irwin
Ch 3 -27
© 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Get It Right First When…
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Protecting quality/brand is paramount
“Learning by doing” is important
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The first mover provides the “lessons learned”
Copyright 2005 Prentice Hall
Ch 3 -28
Outsourcing
Business-process outsourcing
(BPO)

Companies taking over the functional
operations of other firms
Copyright 2005 Prentice Hall
Ch 3 -29
Outsourcing
Benefits

Less expensive
 Allows firm to focus on core business
 Enables firm to provide better services
Copyright 2005 Prentice Hall
Ch 3 -30
Chapter 6
Strategy Analysis & Choice
Strategic Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2005 Prentice Hall
Ch 3 -31
Chapter Outline
The Nature of Strategy & Choice
A Comprehensive
Strategy-Formulation Framework
The Input Stage
Copyright 2005 Prentice Hall
Ch 3 -32
Chapter Outline (cont’d)
The Matching Stage
The Decision Stage
Cultural Aspects of Strategy Choice
Copyright 2005 Prentice Hall
Ch 3 -33
Chapter Outline (cont’d)
The Politics of Strategy Choice
Governance Issues
Copyright 2005 Prentice Hall
Ch 3 -34
Strategy Analysis & Choice
To acquire or not to acquire, that is the
question –
Robert J. Terry
Life is full of lousy options –
General P.X. Kelley
Copyright 2005 Prentice Hall
Ch 3 -35
Comprehensive strategic management model
External
Audit
Chapter 3
Vision
&
Mission
Chapter 2
Long-Term
Objectives
Generate,
Evaluate,
Select
Strategies
Implement
Strategies:
Mgmt Issues
Implement
Strategies:
Marketing,
Fin/Acct,
R&D, CIS
Measure &
Evaluate
Performance
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Internal
Audit
Chapter 4
Copyright 2005 Prentice Hall
Ch 3 -36
Strategy Analysis & Choice
Nature of Strategy Analysis & Choice
-- Establishing long-term objectives
-- Generating alternative strategies
-- Selecting strategies to pursue
-- Best alternative - achieve mission & objectives
Copyright 2005 Prentice Hall
Ch 3 -37
Strategy Analysis & Choice
Alternative Strategies Derive From -
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Vision
Mission
Objectives
External audit
Internal audit
Past successful strategies
Copyright 2005 Prentice Hall
Ch 3 -38
Strategy Analysis & Choice
Generating Alternatives -Participation in generating alternative
strategies should be as broad as
possible
Copyright 2005 Prentice Hall
Ch 3 -39
Comprehensive Strategy-Formulation
Framework
Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Copyright 2005 Prentice Hall
Stage 3:
The Decision Stage
Ch 3 -40
Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
Stage 1:
The Input Stage
External Factor Evaluation
Matrix (EFE)
Competitive Profile Matrix
(CPM)
Copyright 2005 Prentice Hall
Ch 3 -41
Stage 1: The Input Stage
Basic input information for the matching &
decision stage matrices
Requires strategists to quantify subjectivity
early in the process
Good intuitive judgment always needed
Copyright 2005 Prentice Hall
Ch 3 -42
Strategy-Formulation Analytical
Framework
SWOT Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy Matrix
Copyright 2005 Prentice Hall
Ch 3 -43
Stage 2: The Matching Stage
Match between organization’s internal
resources & skills and the opportunities & risks
created by its external factors
Copyright 2005 Prentice Hall
Ch 3 -44
Stage 2: The Matching Stage
SWOT Matrix
Strengths
Weaknesses
Opportunities
Threats
Copyright 2005 Prentice Hall
Ch 3 -45
SWOT Matrix
Four Types of Strategies
Strengths-Opportunities (SO)
Weaknesses-Opportunities (WO)
Strengths-Threats (ST)
Weaknesses-Threats (WT)
Copyright 2005 Prentice Hall
Ch 3 -46
SO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
Copyright 2005 Prentice Hall
SO
Strategies
Use a firm’s
internal strengths
to take advantage
of external
opportunities
Ch 3 -47
WO Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
Copyright 2005 Prentice Hall
WO
Strategies
Improving internal
weaknesses by
taking advantage
of external
opportunities
Ch 3 -48
ST Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
Copyright 2005 Prentice Hall
ST
Strategies
Use a firm’s
strengths
to avoid or
reduce the impact
of external
threats
Ch 3 -49
WT Strategies
Strengths
Weaknesses
Opportunities
Threats
SWOT
Copyright 2005 Prentice Hall
WT
Strategies
Defensive tactics
aimed at reducing
internal
weaknesses &
avoiding
environmental
threats
Ch 3 -50
SWOT Matrix
Developing the SWOT
List firm’s key internal
Strengths
List firm’s key internal
Weaknesses
List firm’s key external
Opportunities
List firm’s key external
Threats
Copyright 2005 Prentice Hall
Ch 3 -51
SWOT Matrix
Strengths – S
Weaknesses – W
List Strengths
List Weaknesses
Opportunities – O
SO Strategies
WO Strategies
List Opportunities
Use strengths to take
advantage of
opportunities
Overcoming weaknesses
by taking advantage of
opportunities
Threats – T
ST Strategies
WT Strategies
List Threats
Use strengths to avoid
threats
Minimize weaknesses and
avoid threats
Leave Blank
Copyright 2005 Prentice Hall
Ch 3 -52
Matching Key Factors to Formulate Alternative Strategies
Key Internal Factor
Key External Factor
Excess working capacity
(strength)
20% annual growth in
the cell phone industry
(opportunity)
Insufficient capacity
(weakness)
Strong R&D (strength)
Poor employee morale
(weakness)
+
Resultant Strategy
=
Acquire Cellfone, Inc.
Exit of two major foreign
+ competitors from the
=
industry (opportunity)
Pursue horizontal integration
by buying competitor's
facilities
Decreasing numbers of
young adults (threat)
Develop new products for
older adults
+
+
Strong union
activity (threat)
=
=
Develop a new
employee benefits
package
Ch 3 -53
Limitations with SWOT Matrix
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Does not show how to achieve a competitive
advantage
Provides a static assessment in time
May lead the firm to overemphasize a single
internal or external factor in formulating
strategies
Copyright 2005 Prentice Hall
Ch 3 -54