Tailoring Strategies to Fit Specific Industry and Company Situations.
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Transcript of Tailoring Strategies to Fit Specific Industry and Company Situations.
Tailoring Strategies to Fit Specific Industry and Company Situations
Life Cycle
Unit Sales
Profits
Life CycleEmerging
EmbryonicIntroduction
Growth Mature Decline
Industry Life Cycle Introduction Growth Mature Decline
Growth Low Large Lower Negative
Segments Few Some Many Few
Competition Low Increasing Intense ???
Emphasis V High Prod
High Prod V High Process
Stability
Functional R&D Sales & Marketing
Production Admin., mgt. & finance
Objectives Market Awareness
Create Demand
Defend Share and Extend
Consolidate Maintain, harvest, or exit
Challenges of Emerging Industries
• Uncertain market conditions and characteristics
• Competing/unknown proprietary technologies and varied marketing/service/distribution tactics
• Lack of complementary products• Limited/poor quality and high costs, which
deter acceptance• Low entry barriers• Education of users• Innovators vs. Initial adopters
vs. Mass-market.
Alternatives in Emerging Industry
• Move fast/early with superior product or technology
• Track the Dominant Design• Build alliances/merge with key suppliers or
those that provide complementary products to out position rivals
• Seek new customer groups, new applications for your product
• Make it cheap/easy for early adopters to try/buy your product.
High Technology Industries
Battle over technical standard, format, and dominant design Set by decree, cooperation, public domain, but
mostly through consumer choices
Benefits for Standards
Compatibility Reduce consumer uncertainty Reduce production costs Increase in complementary products –
Network effects – which greatly enhances sustainability
Challenges of Mature Industries
• Slow growth fight for market share• Sophisticated buyers• Costs, prices and service critical• Excess capacity and oversupply• Innovation and new uses more difficult• International competition• Falling profitability• Consolidation• Segmentation.
Alternatives in Mature Industries
• Prune product line• Process innovation & cost reductions in value
chain• Sell more to current buyers• Purchase rivals at low prices• Go international.
Fragmented Industries
Low entry barriers Lack of economies of scale High segmentation Local Advantages Diverse preferences
Alternatives in Fragmented Industries
• Formula facilities -• Low cost operations -• Become the specialized vendor of choice -• Focus on a customer type -• Focus on a geographic segment -
Other Runner-up Strategies
• Vacant Niche Strategy -• Specialists Strategy - • Superior Products Strategy - • Distinctive Image Strategy - • Content Follower –
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Strategic Management
Part II: Strategic Actions: Strategy Formulation
Chapter 6: Corporate-Level Strategy
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Corporate-level strategy
Specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets Expected to help firm earn above-average returns Value ultimately determined by degree to which “the
businesses in the portfolio are worth more under the management of the company then they would be under any other ownership
Product diversification (PD): primary form of corporate-level strategy
Goals of Corporate Strategy
Moves to enter new businesses
Boosting combined performance of the businesses
Capturing synergies and turning them into competitive advantages
Establishing investment priorities and steering resources into business units
4 Conditions of Successful Diversification• 1) Growing industries with complementary
products and technologies• Apple IPhone
• 2) Leverage existing capabilities which match the KSFs in other arenas• Disney Cruise Lines
• 3) Closely related moves which reduce costs• Kroger & Fred Meyer
• 4) Powerful brand and reputation• Margueritaville, NASCAR Café, or Emril’s
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Levels of Diversification (N=3)
1. Low Levels Single Business Strategy
Corporate-level strategy in which the firm generates 95% or more of its sales revenue from its core business area
Dominant Business Diversification Strategy Corporate-level strategy whereby firm generates 70-95% of total
sales revenue within a single business area
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Levels of Diversification (N=3) (Cont’d)
2. Moderate to High Levels Related Constrained Diversification Strategy
Less than 70% of revenue comes from the dominant business
Direct links (I.e., share products, technology and distribution linkages) between the firm's businesses
Related Linked Diversification Strategy (Mixed related and unrelated)
Less than 70% of revenue comes from the dominant business
Mixed: Linked firms sharing fewer resources and assets among their businesses (compared with related constrained, above), concentrating on the transfer of knowledge and competencies among the businesses
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Levels of Diversification (N=3 ) (Cont’d)
3. Very High Levels: Unrelated Less than 70% of revenue comes from dominant business
No relationships between businesses
Drawbacks for Unrelated
Demanding requirements Limited to no opportunities to share
advantages
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Levels and Types of Diversification
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Strategic Management: Concepts and Cases
Part II: Strategic Actions: Strategy Formulation
Chapter 7: Acquisition and Restructuring Strategies
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Cross-Border Acquisitions: Increased Trend
Number of cross-border deals continues to increase in all corners of the world
Acquisitions by emerging-country firms occurring in developed countries, especially in the U.S., UK and Europe Developed economies have more open policies
allowing emerging-country economies to make inroads, especially in more mature businesses including steel, aluminum and cement; or basic services such as management of airports and railroads, or infrastructure management, such as toll roads
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Introduction: Popularity of M&A Strategies
Popular strategy among U.S. firms for many years Can be used because of uncertainty in the
competitive landscape Increase market power because of competitive threat Spread risk due to uncertain environment Shift core business into different markets
Due to industry or regularity changes Intent: increase firm’s strategic competitiveness
and value – the reality, however, is returns are close to zero
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Introduction: Merger vs. Acquisition vs. Takeover (Cont’d)
Merger Two firms agree to integrate their operations on a
relatively co-equal basis Acquisition
One firm buys a controlling, 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio.
Takeover Special type of acquisition strategy wherein the target
firm did not solicit the acquiring firm's bid Hostile Takeover: Unfriendly takeover that is
unexpected and undesired by the target firm
Mergers and Acquisitions
Reasons of Acquisitions
Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
New Technologies/Capabilities
Diversify
Gain Competitive Advantages
Mergers and AcquisitionsProblems with Acquisitions
Integration of two firms
Overpayment/Debt
Overestimation of Synergy
Overdiversification
Managerial energy absorption
Become too large
Substitute for innovation
Inadequate evaluation
Mergers and Acquisitions
Results
Poor Performance
Who Wins?
Acquired FirmShareholders
Failures of Acquisitions
30 - 40% average acquisition premium
Acquiring firm’s value drops 4% in the 3 months following acquisitions
30 - 50% of acquisitions are later divested
Acquirers underperform S&P by 14%, peers by 4%
3 month performance before and after 30% substantial losses, 20% some losses,
33% marginal returns, 17% substantial returns
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The Curvilinear Relationship between Diversification and Performance
Why, then, do executives acquire?
Often, for personal reasons
Firm size and executive compensation are related
When do executives loss their jobs? 1) Acquired - larger firms harder to acquire 2) Performing poorly - employment risk is
reduced as returns are less volatile
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Effective Acquisitions
Complementary assets or resources Friendly acquisitions facilitate integration of firms Effective due-diligence process (assessment of target firm
by acquirer, such as books, culture, etc.) Financial slack Low debt position
High debt can… Increase the likelihood of bankruptcy
Lead to a downgrade in the firm’s credit rating
Preclude needed investment in activities that contribute to the firm’s long-term success
Innovation Flexibility and adaptability
When/Why to Diversify?
To create shareholder value
Porter’s Three Point Test
1) Attractiveness Test
2) Cost of Entry Test
3) Better off Test
Should pass all 3