Strategic Management Concepts: A
Competitive Advantage Approach,
Concepts and Cases
Seventeenth Edition, Global Edition
Chapter 5
Strategies in Action
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Learning Objectives (1 of 2)
5.1 Identify and discuss five characteristics and ten benefits
of clear objectives.
5.2 Define and give an example of eleven types of
strategies.
5.3 Identify and discuss the three types of “Integration
Strategies.”
5.4 Give specific guidelines when market penetration,
market development, and product development are
especially effective strategies.
5.5 Explain when diversification is an effective business
strategy.
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Learning Objectives (2 of 2)
5.6 List guidelines for when retrenchment, divestiture, and
liquidation are especially effective strategies.
5.7 Identify and discuss Porter’s five generic strategies.
5.8 Compare (a) cooperation among competitors, (b) joint
venture and partnering, and (c) merger/acquisition as
key means for achieving strategies.
5.9 Discuss tactics to facilitate strategies, such as (a) being
a first mover, (b) outsourcing, and (c) reshoring.
5.10 Explain how strategic planning differs in for-profit, not-
for-profit, and small firms.
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Figure 5.1
A Comprehensive Strategic-Management Model
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, n o. 1
(February 1989): 91. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama
Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National
Construction Contractor of Indonesia,” Journal of Mathematics and Technology, n o. 4 (October 2010):
20.
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Long-Term Objectives
• The results expected from pursuing certain strategies
• 2-to-5 year timeframe
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The Nature of Long-Term Objectives
• Objectives
– provide direction
– allow synergy
– assist in evaluation
– establish priorities
– reduce uncertainty
– minimize conflicts
– stimulate exertion
– aid in both the allocation of resources and the design of
jobs
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Table 5.1 Five Characteristics of
Objectives
1. Quantitative: measurable
2. Understandable: clear
3. Challenging: achievable
4. Compatible: consistent vertically and horizontally in a
chain of command
5. Obtainable: realistic
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Financial Versus Strategic Objectives
• Financial objectives include growth in revenues, growth
in earnings, higher dividends, larger profit margins, greater
return on investment, higher earnings per share, a rising
stock price, improved cash flow, and so on.
• Strategic objectives include a larger market share,
quicker on-time delivery than rivals, shorter design-to-
market times than rivals, lower costs than rivals, higher
product quality than rivals, wider geographic coverage than
rivals, achieving technological leadership, consistently
getting new or improved products to market ahead of
rivals, and so on.
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Not Managing by Objectives
• Managing by Crisis
• Managing by Hope
• Managing by Extrapolation
• Managing by Mystery
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Types of Strategies
• Most organizations simultaneously pursue a combination
of two or more strategies, but a combination strategy can
be exceptionally risky if carried too far.
• No organization can afford to pursue all the strategies that
might benefit the firm.
• Difficult decisions must be made and priorities must be
established.
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Table 5.3 (1 of 2)
Alternative Strategies Defined and Exemplified
Strategy Definition Example
Gaining ownership or increased Amazon began rapid delivery
Forward Integration control over distributors or retailers services in some U.S. cities.
Seeking ownership or increased Starbucks purchased a coffee farm.
Backward Integration control of a firm’s suppliers
Seeking ownership or increased &T acquired Susquehanna
Horizontal Integration control over competitors Bancshares.
Seeking increased market share for Under Armour signed tennis
present products or services in present champion Andy Murray to a 4-year,
Market Penetration markets through greater marketing $23 million marketing deal.
efforts
Introducing present products or Gap opened its first five stores in
Market Development services into new geographic area China.
Seeking increased sales by improving Amazon just began offering its own
Product Development present products or services or line of baby diapers and wipes.
developing new ones
Alternative Strategies Defined and Recent Examples Given
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Table 5.3 (2 of 2)
Alternative Strategies Defined and Exemplified
Strategy Definition Example
Adding new but related products Facebook acquired the text-
Related or services messaging firm WhatsApp for
Diversification $19 billion.
Adding new, unrelated products or Kroger and Whole Foods
Unrelated services Market are cooking meals,
Diversification becoming restaurants.
Regrouping through cost and Staples closed 250 stores and
Retrenchment asset reduction to reverse reduced by 50% the size of
declining sales and profit other stores.
Selling a division or part of an Sears Holdings divested its
Divestiture organization Lands’ End division to Sears’
shareholders.
Selling all of a company’s assets, The Trump Taj Mahal in Atlantic
Liquidation in parts, for their City, New Jersey, faces
tangible worth liquidation.
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Figure 5.2
Levels of Strategies with Persons Most Responsible
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Table 5.4
Varying Performance Measures by Organizational Level
Organizational Level Basis for Annual Bonus or Merit Pay
Corporate 75% based on long-term objectives
25% based on annual objectives
Division 50% based on long-term objectives
50% based on annual objectives
Function 25% based on long-term objectives
75% based on annual objectives
Operational 25% based on long-term objectives
75% based on annual objectives
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Integration Strategies
• Forward Integration
– involves gaining ownership or increased control over
distributors or retailers
• Backward Integration
– strategy of seeking ownership or increased control of a
firm's suppliers
• Horizontal Integration
– a strategy of seeking ownership of or increased control
over a firm's competitors
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Forward Integration Guidelines
• When an organization’s present distributors are especially
expensive
• When the availability of quality distributors is so limited as
to offer a competitive advantage
• When an organization competes in an industry that is
growing
• When an organization has both capital and human
resources to manage distributing their own products
• When the advantages of stable production are particularly
high
• When present distributors or retailers have high profit
margins
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Backward Integration Guidelines
• When an organization’s present suppliers are especially
expensive or unreliable
• When the number of suppliers is small and the number of
competitors is large
• When the organization competes in a growing industry
• When an organization has both capital and human resources
• When the advantages of stable prices are particularly important
• When present suppliers have high profit margins
• When an organization needs to quickly acquire a needed
resource
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Horizontal Integration Guidelines
• When an organization can gain monopolistic
characteristics in a particular area or region without being
challenged by the federal government
• When an organization competes in a growing industry
• When increased economies of scale provide major
competitive advantages
• When an organization has both the capital and human
talent needed
• When competitors are faltering due to a lack of managerial
expertise
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