comprehensive outline( fadya )

8/6/2019 Comprehensive Outline( Fadya )

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IN MOST INDUSTRIES, CORPORATIONS ARE MUTUALLY DEPENDENT. ACOMPETITIVE MOVE BY ONE FIRM CAN BE EXPECTED TO HAVE ANOTICEABLE EFFECT ON ITS COMPETITORS AND THUS MAY CAUSERETALIATION OR COUNTEREFFORTS. FOR EXAMPLE, THE ENTRY BYMAIL ORDER COMPANIES SUCH AS DELL AND GATEWAY INTO A PCINDUSTRY PREVIOUSLY DOMINATED BY IBM, APPLE, AND COMPAQINCREASED THE LEVEL OF COMPETITIVE ACTIVITY TO SUCH ANEXTENT THAT ANY PRICE REDUCTION OR NEW PRODUCT INTRODUCTIONIS NOW QUICKLY FOLLOWED BY SIMILAR MOVES FROM OTHER PCMAKERS. ACCORDING TO PORTER, INTENSE RIVALRY IS RELATED TOTHE PRESENCE OF SEVERAL FACTORS, INCLUDING:..............13

Number of competitors. When competitors are few and roughly equal in size, such as in the U.S. auto andmajor home appliance industries, they watch each other carefully to make sure that any move by another firmis matched by an equal countermove................................................................................................................13Rate of industry growth. Any slowing in passenger traffic tends to set off price wars in the airline industrybecause the only path to growth is to take sales away from a competitor.........................................................13Product or service characteristics. Many people choose a videotape rental store based on location, variety ofselection, and pricing because they view videotapes as a commoditya product whose characteristics are thesame regardless of who sells it.........................................................................................................................13Amount of fixed costs. Because airlines must fly their planes on a schedule regardless of the number of payingpassengers for any one flight, they offer cheap standby fares whenever a plane has empty seats. ...................13Capacity. If the only way a manufacturer can increase capacity is in a large increment by building a new plant(as in the paper industry), it will run that new plant at full capacity to keep its unit costs as low as possiblethus producing so much that the selling price falls throughout the industry......................................................13Height of exit barriers. Exit barriers keep a company from leaving an industry. The brewing industry, forexample, has a low percentage of companies that leave the industry because breweries are specialized assetswith few uses except for making beer...............................................................................................................13Diversity of rivals. Rivals that have very different ideas of how to compete are likely to cross paths often andunknowingly challenge each others position...................................................................................................14

SUBSTITUTE PRODUCTS ARE THOSE PRODUCTS THAT APPEAR TO BE

DIFFERENT BUT CAN SATISFY THE SAME NEED AS ANOTHER PRODUCT.FOR EXAMPLE, THE FAX IS A SUBSTITUTE FOR FEDEX, NUTRASWEETIS A SUBSTITUTE FOR SUGAR, AND BOTTLED WATER IS ASUBSTITUTE FOR A COLA. ACCORDING TO PORTER, SUBSTITUTESLIMIT THE POTENTIAL RETURNS OF AN INDUSTRY BY PLACING ACEILING ON THE PRICES FIRMS IN THE INDUSTRY CAN PROFITABLYCHARGE.19 TO THE EXTENT THAT SWITCHING COSTS ARE LOW,SUBSTITUTES MAY HAVE A STRONG EFFECT ON AN INDUSTRY. TEACAN BE CONSIDERED A SUBSTITUTE FOR COFFEE. IF THE PRICE OFCOFFEE GOES UP HIGH ENOUGH, COFFEE DRINKERS WILL SLOWLYBEGIN SWITCHING TO TEA. THE PRICE OF TEA THUS PUTS A PRICE

CEILING ON THE PRICE OF COFFEE. SOMETIMES A DIFFICULT TASK,THE IDENTIFICATION OF POSSIBLE SUBSTITUTE PRODUCTS ORSERVICES MEANS SEARCHING FOR PRODUCTS OR SERVICES THAT CANPERFORM THE SAME FUNCTION, EVEN THOUGH THEY MAY NOT APPEARTO BE EASILY SUBSTITUTABLE. .............................15

BUYERS AFFECT AN INDUSTRY THROUGH THEIR ABILITY TO FORCEDOWN PRICES, BARGAIN FOR HIGHER QUALITY OR MORE SERVICES,AND PLAY COMPETITORS AGAINST EACH OTHER. A BUYER OR A GROUPOF BUYERS IS POWERFUL IF SOME OF THE FOLLOWING FACTORS HOLDTRUE:....................................................15

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RECOMMENDED STRATEGY .................................................................................................74

Introduction

Current Situation

Current Performance

Strategic Posture

Mission

Vision (What do we want to become?)& Mission ( What is

our business?)

Components of a Mission Statement:

a. Customers: Who are the firms customers?

b. Products or Services: What are the firms major

products or services?

c. Markets: Geographically, where does the firm

compete?

d. Concern for Survival, Growth, & Profitability: Is

the firm committed to growth and financial

soundness?

e. Philosophy: What are the basic beliefs, values,

aspirations, & ethical priorities of the firm?f. Self-Concept: What is the firms distinctive

competence or major competitive advantage?

g. Concern for Public Image: Is the firm responsive

to social, community & environmental concerns?

h. Concern for employees: Are employees a valuable

asset of the firm?

Objectives

Strategies

Policies

External Environment: Opportunities and Threats (SWOT)

Societal Environment (P.E.S.T Factors)

Political - Legal Factors

Government regulations & deregulations.

Changes in tax laws.

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Changes in patents() laws

Level of government subsidies

Country to other countries relationships

Import-export regulations

Political conditions in foreign countries

Size of government budgets

Antitrust regulations

Environmental protection laws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreign companies

Laws on hiring and promotion

Stability of government

ecological/environmental issues

current legislation home market

future legislation

European/international legislation

regulatory bodies and processes

government policies

government term and change

trading policies

funding, grants and initiatives

home market lobbying/pressure groups

international pressure groups

wars and conflict

political stability,

facilities for the entrance for new foreign

investment,

taxation law,

deregulation trend

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Demographics (age, size,)- continuous growth in the

world population

Whats socially acceptable?

Number of marriages, divorces, births, and deaths.

Social security programs

Per capita Income

Traffic congestion

Trust in government

Average level of education

Population changes by race, age, and sex

Air pollution

Lifestyle changes

Career expectations

Consumer activism

Rate of family formation

Growth rate of population

Age distribution of population

Regional shifts in population

Life expectancies

Birth rates

lifestyle trends

demographics

consumer attitudes and opinions

media views

law changes affecting social factors

brand, company, technology image

consumer buying patterns

fashion and role models

major events and influences

buying access and trends

ethnic/religious factors

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advertising and publicity

ethical issues

Technological Factors

The Internet; (rapid growth in the internet

infrastructure)

- The pace of technological change.

- The rate of development

- The presence of skilled persons

- Presence of technological capabilities.

Internet availability and usage

E-commerce

The rate of development

The presence of skilled persons

Presence of technological capabilities.

Substitute might replace the organizations

product.

Total government spending for R&D

Total industry spending for R&D

Focus of technological efforts

Patent protection

New products

New developments in technology transfer from lab

to marketplace

Productivity improvements through automation

competing technology development

research funding

associated/dependent technologies

replacement technology/solutions

maturity of technology

manufacturing maturity and capacity

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information and communications

consumer buying mechanisms/technology

technology legislation

innovation potential

technology access, licensing, patents

intellectual property issues

global communications

Task Environment (Industry)

Porters Approach

Michael Porter contends that a corporation is most

concerned with the intensity of competition within its

industry. The level of this intensity is determined by

basic competitive forces. The collective strength of these

forces, he contends, determines the ultimate profit

potential in the industry, where profit potential is

measured in terms of long-run return on invested capital.

In carefully scanning its industry, the corporation must

assess the importance to its success of each of the 6

forces: threat of new entrants, rivalry among existing

firms, threat of substitute products or services,bargaining power of buyers, bargaining power of suppliers,

and relative power of other stakeholders.

Threat of New Entrants

Rivalry among Existing Firms

Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders

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The bargaining power of buyers, how strong?

Criteria

A single or very few buyers purchase a high

proportion of total sale

Product volume purchased

Products are standard or undifferentiated

Low switching costs

Buyer is in low profit business = sensitive to

cost

Real threat of backward integration from buyerIndustry product not important for buyer quality

The buyer has full information on product

The bargaining power of suppliers, how strong?

Criteria

Dominated by few companies, more concentrated than

the target industry

The target industry is NOT important to the

supplier

Supplier product is unique, or high switching cost

Supplier product is critical for the business of

the target

Substitutes are not easily available

Real threat of forward integration from supplier

Threat of new entrants barriers to entry howhigh

Criteria

Powerful economies of scale

Strong customer loyalty by product

Rivalry among existing firms?

Criteria

Number of firms, few equally balanced giants

Industry growth rate

Very high or fixed storage cost

Commoditization, low differentiation

Capacity, intermittent overcapacity

Diversity of rivalry

High strategic/corporate stakes

High exit barriers

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differentiation

Large capital investment requirements

Switching cost for new products are high

Lack of access to distribution channels

Structural cost disadvantage

Government policy

Substitutes:

Criteria

Relative perceived value tending to improve

Where the threat is to another industry's cash cow

1- Threats of new entrants

Barriers to entry:

New entrants to an industry typically bring to it new capacity, a

desire to gain market share, and substantial resources. They

are, therefore, threats to an established corporation. The

threat of entry depends on the presence of entry barriers and

the reaction that can be expected from existing competitors. An

entry barrier is an obstruction that makes it difficult for a

company to enter an industry. For example, no new domestic

automobile companies have been successfully established in the

United States since the 1930s because of the high capital

requirements to build production facilities and to develop adealer distribution network. Some of the possible barriers to

entry are:

The need to gain economic of scale quickly

The need to gain technology and specialized know-how

The lack of experience

Strong customer loyalty

Strong brand preference

Large capital requirements

Lack of adequate distribution channels

The potential saturation of market.

Government regulatory

Capital intensity

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Economies of scale-- Scale economies in the production

and sale of mainframe computers, for example, gave IBM a

significant cost advantage over any new rival

Learning curve effects

Extent of vertical integration

Level of product differentiation

Ease of access to distribution channels

Amount of switching costs

Product Differentiation. Corporations like Procter &Gamble and General Mills, which manufacture products

like Tide and Cheerios, create high entry barriersthrough their high levels of advertising and promotion.

Capital Requirements. The need to invest huge financialresources in manufacturing facilities in order to

produce computer microprocessors creates a significant

barrier to entry to any competitor for Intel.

Switching Costs. Once a software program like Excel orWord becomes established in an office, office managers

are very reluctant to switch to a new program because

of the high training costs.

Access to Distribution Channels. Small entrepreneursoften have difficulty obtaining supermarket shelf space

for their goods because large retailers charge for

space on their shelves and give priority to the

established firms who can pay for the advertising

needed to generate high customer demand.

Cost Disadvantages Independent of Size. Microsoftsdevelopment of the first widely adopted operating

system (MS-DOS) for the IBM-type personal computer gaveit a significant advantage over potential competitors.

Its introduction of Windows helped to cement that

advantage.

Government Policy. Governments can limit entry into anindustry through licensing requirements by restricting

access to raw materials, such as off-shore oil

drilling sites.

Potential Entry of New Competitors

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Barriers to entry are important

Quality, pricing, and marketing can

overcome barriers

2- Rivalry among existing firms

In most industries, corporations are mutually dependent. A

competitive move by one firm can be expected to have a

noticeable effect on its competitors and thus may cause

retaliation or counterefforts. For example, the entry by mail

order companies such as Dell and Gateway into a PC industry

previously dominated by IBM, Apple, and Compaq increased the

level of competitive activity to such an extent that any

price reduction or new product introduction is now quickly

followed by similar moves from other PC makers. According to

Porter, intense rivalry is related to the presence of severalfactors, including:

Number of competitors. When competitors are few androughly equal in size, such as in the U.S. auto and

major home appliance industries, they watch each other

carefully to make sure that any move by another firm

is matched by an equal countermove.

Rate of industry growth.Any slowing in passenger traffic

tends to set off price wars in the airline industrybecause the only path to growth is to take sales away

from a competitor.

Product or service characteristics. Many people choose avideotape rental store based on location, variety of

selection, and pricing because they view videotapes as

a commoditya product whose characteristics are the

same regardless of who sells it.

Amount of fixed costs. Because airlines must fly their

planes on a schedule regardless of the number ofpaying passengers for any one flight, they offer cheap

standby fares whenever a plane has empty seats.

Capacity. If the only way a manufacturer can increasecapacity is in a large increment by building a new

plant (as in the paper industry), it will run that new

plant at full capacity to keep its unit costs as low

as possiblethus producing so much that the selling

price falls throughout the industry.

Height of exit barriers.Exit barriers keep a company from

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leaving an industry. The brewing industry, for

example, has a low percentage of companies that leave

the industry because breweries are specialized assets

with few uses except for making beer.

Diversity of rivals.Rivals that have very different ideasof how to compete are likely to cross paths often and

unknowingly challenge each others position.

Number of competitors

Relative size of competitors

Industry profitability

Stage in industry lifecycle

Possible gain from successful move

Capacity Intensity

Switching Costs

Level of product differentiation

Rivalry Among Competing Firms

Most powerful of the five forces

Focus on competitive advantage of strategies

3- Threats of substitutes

Availability of substitute products

Relative price of substitute products declines

Consumers switching cost decreases


Relative prices of substitutes

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Substitute products are those products that appear to be

different but can satisfy the same need as another product.

For example, the fax is a substitute for FedEx, Nutrasweet

is a substitute for sugar, and bottled water is a substitute

for a cola. According to Porter, Substitutes limit the

potential returns of an industry by placing a ceiling on the

prices firms in the industry can profitably charge.19 To

the extent that switching costs are low, substitutes may

have a strong effect on an industry. Tea can be considered a

substitute for coffee. If the price of coffee goes up high

enough, coffee drinkers will slowly begin switching to tea.

The price of tea thus puts a price ceiling on the price of

coffee. Sometimes a difficult task, the identification of

possible substitute products or services means searching for

products or services that can perform the same function,

even though they may not appear to be easily substitutable.

Potential Development of Substitute Products

Pressures increase when consumers

switching costs decrease

Firms plans for increased capacity &

market penetration

4- Bargaining power of Buyers

Buyers affect an industry through their ability to force downprices, bargain for higher quality or more services, and play

competitors against each other. A buyer or a group of buyers

is powerful if some of the following factors hold true:A buyer purchases a large proportion of the sellers

product or service (for example, oil filters purchased by

a major automaker).

A buyer has the potential to integrate backward by

producing the product itself (for example, a newspaper

chain could make its own paper).

Alternative suppliers are plentiful because the product

is standard or undifferentiated (for example,motorists can choose among many gas stations).

Changing suppliers costs very little (for example,

office supplies are easy to find).

The purchased product represents a high percentage of a

buyers costs, thus providing an incentive to shop

around for a lower price (for example, gasoline

purchased for resale by convenience stores makes up

half their costs).

A buyer earns low profits and is thus very sensitive to

costs and service differences (for example, grocery

stores have very small margins).

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The purchased product is unimportant to the final quality

or price of a buyers products or services and thus

can be easily substituted without affecting the final

product adversely (for example, electric wire bought

for use in lamps).

When customers are:

concentrated

large

buy in volume

Bargaining Power of Buyers

Customers concentrated or buy in

volume affects intensity of competition

Consumer power is higher where

products are standard or undifferentiated

Relative size of buyers

Number of buyers

Importance of buyers as major customers

Threat of backward integration


Uniqueness of product

Level of buyer profitability

5- Bargaining power of suppliers

Suppliers can affect an industry through their ability to

raise prices or reduce the quality of purchased goods and

services. A supplier or supplier group is powerful if

some of the following factors apply:

The supplier industry is dominated by a few companies,but it sells to many (for example, the petroleum

industry).

Its product or service is unique and/or it has built up

switching costs (for example, word processing

software).

Substitutes are not readily available (for example,

electricity).

Suppliers are able to integrate forward and compete

directly with their present customers (for example, a

microprocessor producer like Intel can make PCs).

A purchasing industry buys only a small portion of the

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supplier groups goods and services and is thus

unimportant to the supplier (for example, sales of

lawn mower tires are less important to the tire

industry than are sales of auto tires).

When suppliers are:

Few suppliers who supply the required products

The products have few substitutes

The switching cost is relatively high

Bargaining Power of Suppliers

Large number of suppliers & few substitutes affects

intensity of competition

Backward integration can gain control or ownership of

suppliers

Relative size of suppliers

Number of suppliers

Importance of suppliers as major

sources

Threat of forward integrationAmount of switching costs

Importance of products to buyer

Level of supplier profitability

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STRATEGIES

TACTICS

ACTIONS

INTERNALSTRENGTHS

1. Cash position

2. Luxury car image3. New car models

4. Location dose tosuppliers

5. Engineering andtechnology

INTERNALWEAKNESSES

1. High costs

2. Venturing intounrelated businesses

3. Organizationaldiversity

4. Reliance on pastsuccesses andbureaucracy

5. Long cycle for newmodel development

6. Relatively weak

position in JapanEXTERNALOPPORTUNITIES

1. Demand for luxury cars

2. Eastern Europe,especially East Germany

3. Prosperity through EC1992

4. Electronics technology

S-0 STRATEGY

1. Develop new models(using high-tech) andcharge premiumprices

2. Use financialresources to acquireother companies or

increased productioncapacity

W-0 STRATEGY

1. Reduce coststhrough automationand flexiblemanufacturing

2. Manufacture partsin Eastern Europe

3. Reorganizations

4. Daimler-Benzmanagementholding companies

EXTERNALTHREATS

5. Decrease in defenseneeds because of easing ofEastWest tensions

6. BMW, Volvo, Jaguar,

Lexus, Infinity in Europe7. BMW in Japan

8. Diesel emissions

9. Renault/Volvocooperation

10. Political instability inSouth Africa

S-T STRATEGY

1. Transform defensesector to consumersector

2. Develop new models

to compete especiallyin Europe

W-T STRATEGY

1. Retrench in SouthAfrica

2. Form strategicalliance with

Mitsubishi topenetrate theJapanese market

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Internal Environment: Strength and Weaknesses (SWOT)

Corporate Structure---- Changes in Strategies = changes in structure(Restructuring as a way to improve performance)

1. Changes in strategy often require changes in the way an organization is

structured for two major reasons:

a. First, structure largely dictates how objectives and policies will be established.For example, objectives and policies established under a geographic

organizational structure are couched in geographic terms. Objectives and

policies are stated largely in terms of products in an organization whose

structure is based on product groups. The structural formula for developing

objectives and policies can significantly impact all other strategy-implementation issues.

b. Second major reason why changes in strategy often require changes instructure is that structure dictates how resources will be allocated.

2. Changes in strategy lead to changes in organizational structure. Structure should

be designed to facilitate the strategic pursuit of a firm and, therefore, follow

strategy. The below illustrates a structure sequence repeated as organizations

grow and change over time.

3. There is not just one optimal organizational design or structure for a given

strategy or type of organization.

The Functional Structure

1. The most widely used structure is the functional or centralized type because this

structure is the simplest and least expensive of the seven alternatives.

2. A functional structure group's tasks and activities by business function such as

product/operations, marketing, finance/accounting, R&D, and computer

information systems.

a. Advantages: Besides being simple and inexpensive, a functional

structure also promotes specialization of labor, encourages efficiency,

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minimizes the need for an elaborate control system, and allows rapid

decision-making.

b. Disadvantages: Some disadvantages of a functional structure are that

it forces accountability to the top, minimizes career development

opportunities, and is sometimes characterized by low employee morale.

The Divisional Structure

1. The divisional or decentralized structure is the second most common type

used by American businesses.

2. The divisional structure can be organized in one of four ways: by

geographic area, product or service, customer, or process. With a divisional

structure, functional activities are performed both centrally and in each

separate division.

a. Advantages: A divisional structure has some clear advantages. First, and

perhaps foremost, is accountability. Other advantages of the divisional

structure are that it creates career development opportunities formanagers, allows local control of local situations, leads to a competitive

climate within an organization, and allows new businesses and products to

be added easily.

b. Disadvantages: Perhaps the most important limitation is that a divisional

structure is costly.

3. A divisional structure by geographic area is appropriate for organizations

whose strategies need to be tailored to fit the particular needs and

characteristics of customers in different geographic regions.

4. A division structure by product is most effective for implementingstrategies when specific products or services need special emphasis.

5. A division structure by process is similar to a functional structure,

because activities are organized according to the way work is actually

performed.

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The Strategic Business Unit (SBU) Structure

1. The SBU structure group's similar divisions into strategic business units and

delegate authority and responsibility for each unit to a senior executive who reports

directly to the CEO.

a. Advantages: This change in structure can facilitate strategy implementation by

improving coordination between similar divisions and channeling

accountability to distinct business units.

b. Disadvantages: Two disadvantages of an SBU structure are that it requires an

additional layer of management, which increases salary expenses, and the role

of the group vice president is often ambiguous.

The Matrix Structure

1. It is the most complex of all designs because it depends upon both vertical and

horizontal flows of authority and communication.

a. It can result in higher overhead because it creates more managerial positions.

b. It also creates dual lines of budget authority, dual sources of reward and

punishment, shared authority, and dual reporting channels.

c. Advantages are that project objectives are clear, there are many channels of

communication, workers can see visible results of work, and projects can be

shut down easily.

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Restructuring, Reengineering

Reshaping Corporate Landscape

1. Restructuring, also called downsizing, rightsizing, or delayering, involvesreducing the size of the firm in terms of number of employees, divisions or units,

and hierarchical levels in the firms organizational structure.

2. The Internet is ushering in a new wave of business transformations.

3. Reengineering is concerned more with employee and customer well-being than

with shareholder well-being.

Restructuring

1. Firms often employ restructuring when various ratios appear out of line withcompetitors, as determined through benchmarking exercises.

a. The primary benefit sought from restructuring is cost reduction. The downside ofrestructuring can be reduced employee commitment, creativity, and innovation

that accompanies the uncertainty and trauma associated with pending and actual

employee layoffs.

Reengineering

1. In reengineering, a firm uses information technology to break down functional

barriers and create a work system based on business processes, products, or outputs

rather than on functions or inputs.

2. A benefit of reengineering is that it offers employees the opportunity to see more

clearly how their particular jobs impact the final product or service being marketed

by the firm.

3. Reengineering, also called process management, process innovation, or process

redesign, involves reconfiguring or redesigning work, jobs, and processes for the

purpose of improving cost, quality, service, and speed.

The organization is the process of arranging people andother resources to work together to accomplish a goal and

as a result of the company strategy the organization

structure must be adjusted to cope with the new strategy

and achieve its goals.

The organization's strategy to grow and go more

international must be reflected on the organization

structure to achieve the required result.

Simple structure:

Owner-manager makes decisions.

Little specialization of tasks.

Few rules, little formalization.

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Advantages:

Provides high flexibility

Rapid product introduction

Few coordination problems

Leadership Style +HR Paper

According to behavioural approach, there are four styles:

1. Laissez-faire shows low concern for both people andtask. Turn most decisions over the work group and show

less interest in the work process or its results.

2. Directive or Autocratic, High concern for task and lowconcern for people. Make most of the decisions, gives

directions and expect his orders to be followed.3. Supportive or human relations leader shows high concern

for people and low concern for tasks. Warm in

interpersonal relationships, avoid conflict, and seek

harmony in decision-making.

4. Participative or democratic, shows high concern forboth people and task. Share decisions with the work

group, encourage participation and support the work

efforts of others.

According to situational Approach:

o Delegating, allowing the group to make and takeresponsibilty for task decisions(low task low

relationship style).

o Participating,emphasizing shared ideas andparticipation decsions on task directions (low task

high relationship style)

o Selling,explaining task directions in supportiveand persuasive way(high task high relationship

style)

o Telling,giving specific task directions and closelysupervising work ( high task low relationship style)

o Charismatic Leader , develops special leaderfollower relationships and inspire followers in

extraordinary way

o Transformational leader,inspirational leader thatgets people to do more in achievinh high performance

o Transactional leader, directs the feeorts of othersthrough task rewards and structure.

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2. It may take on such forms as sabotaging production

machines, absenteeism, filing unfounded grievances, and

unwillingness to cooperate.

3. Resistance to change can emerge at any stage or

level of the strategy-implementation process.

4. There are three commonly used strategies for

implementing change:

a) Force change strategy

b) Educative change strategy

c) Self-interest change strategy

5. It represents major threat to strategy

implementation, it could be in the form of sabotagingmachines, absenteeism, filing unfounded grievances, and

unwillingness to cooperate effectively

6. Thus, successful strategy implementation must

provide accurate information to employees and hinges

around developing a climate conductive to change.

7. Raises anxiety; fear concerning

a) Economic loss

b) Inconvenience

c) Uncertainty

d) Break in status-quo

Egyptian Culture needs:

- Culture of completion

- Focus on quality

- Encourage ethical practice

- Personal accountability

3 Main forces help to sustain the organization culture:

1- Selection method

2- The action of top management

3- Socilaization

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Corporate ResourcesMarketing (STP and 4Ps)

Market segmentation, Targeting and Positioning

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(A) Marketing segmentation (Level of marketsegmentation)

Determining distinct groups of buyers (segments) with

different needs, characteristics, or behavior.

Mass Marketing

o Same product to all consumers with Homogeneous

preferences; Implements mass production concept

o Very large segment

Niche Marketing

o Narrowly defined customer group seeking a distinctive

mix of benefits & willing to pay premium.

o Specialization; very small market segment

o Niche is relatively small market which doesnt attract

many other competitors; at the same time it has hugereturn (profit).

Local Marketing

o Marketing activities/programs tailored to the needs

and wants of local customer groups

o Grassroots (Cultural) Marketing

Individual Marketing

o Empowers consumers to design the product and service

offering of their choice.

o Micromarketing

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o One-to-One Marketing

o Customerization

Segmenting consumer markets

Geographic: World region, country, city, density,climate

Demographic: age, gender, family size, income,occupation ,, education, religion, racegeneration, nationality

Psychographic: social class, lifestyle, personality

Behavioral: occasions, benefits, user rate, loyalty,attitude toward product.

Market segment attractivness:

(B) Market Targeting

Evaluating each segments attractiveness and selecting

one or more segments to enter.

o Mass (undifferentiated) marketing

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o The same offer with the a advantage of economic of

scale

o Segment (differentiated) marketing

o Several segment with offer for each

o Concentrated (niche) marketingo Target Singles with a single marketing mix

o Local marketing

o Tailoring products for the local customer group needs

o Customization

o Tailoring products for the small group of people or

specific individuals needs.

Undifferentiated marketing (mass)Differential marketing

Concentrated Marketing

Micromarketing

(C) Positioning

Criteria of Positioning:

1. Feature / Benefits:

features or characteristics that is already included in

the product

benefit for customers

User Category:

How to position you based on users who use this product

ex:

Against Competitors:

Ex:

Hybrid:

Mixture between more than one criteria and it is the most

preferred.

Ex: fine tissues smooth for women (Feature + User)

Ex: Volvo dropped when Mercedes and BMW came out with

things beyond safety.

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Positioning by Packaging:

Packaging creates a distinct identity and brand image.

Many companies view the package as an important way to

communicate and create an impression of their brand in the

mind of consumers. Ex: Glittery Perfume package

Repositioning: Sometimes marketers want to reposition theproduct in marketplace due to some reasons like; change

in customer needs, showing the product in higher quality

or the current position become very competitive.

Arranging for a product to occupy a clear, distinctive, and

desirable place relative to competing products in the minds

of target consumers. i.e. Chevy Blazer is like a rock.

Begin by differentiating the companys marketing offer that

will deliver more value than the competitors thus gaining

competitive advantage

1.Choose a broad positioning for the product

This framework is based on the notion that in every market

there are three types of customers:

1. Some customers favor the firm that is advancing thetechnological frontier (product leadership).

2. Another customer group does not need the latestproducts but wants highly reliable and dependable

performance (operational excellence).

3. A final customer group prefers the firm that is mostresponsive and flexible in meeting their individual

needs (customer intimacy).

2.Choose a specific positioning for the product

Companies need to go beyond a broad positioning to express

a more concrete benefit and reason to buy. Many companies

advertise a single major benefit positioning, drawing from

such possibilities as:

Volvos case is interesting in that Volvo recognized that

in every country of the world, some car buyers make safety

their highest priority. In discovering this global niche,

Volvo is able to sell its cars all over the world. Volvo

has added a second benefit positioning of their automobile,

namely the claim that it is one of the most durable cars.

They use that second positioning in countries like Mexico,

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where the buyer is concerned more with buying a ling-

lasting car than with safety.

Best quality

Best performance

Most reliable

Most durable

Safest

Fastest

Best value for the money

Least expensive

Most prestigious

Best designed or styled Easiest to use

Most convenient

3.Choose a value positioning for the product

More for More

Companies can always be found that specialize in making the

most upscale version of the product and charging a high

price to cover their higher costs. Called luxury goods,

such products claim to be better in quality, craftsmanship,durability, performance, or style.

Yet more-for-more brands are vulnerable: They often invite

imitators who claim the same quality but are priced lower.

And luxury goods are at risk during economic downturns when

buyers become more cautious in their spending.

More for the Same

Companies have been able to attack a more for more brand

by introducing a brand claiming comparable quality and

performance but priced much lower . The Toyota companyintroduced its new Lexus automobile with more for the

same value positioning.

The Same for Less

It seems that everyone is happy when they can buy a typical

product or brand at less than the normal price. Everything

Arrow shirts, Goodyear tires, Panasonic TV setsseems to be

available at a lower price at some store or discount shop.

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one of its shoes as the best to wear for racing and

another as the best to wear for playing basketball.

User positioning: The product is positioned in terms of atarget user group, Apple Computer describes its computers

and software as the best for graphic designers.

Competitor positioning: The product suggests itssuperiority or difference from a competitors product.

Avis described itself as a company that tries harder

(than Hertz, by implication); 7 UP called itself the

Uncola,

Category positioning: The Company may describe itself asthe category leader, Xerox means copy machines.

Quality/price positioning: The product is positioned at a

certain quality and price level. Taco Bell represents itstacos as giving the most value for the money.

Companies must avoid the following errors inpositioning their brand:

Under-posirioning: Failing to present a strong centralbenefit or reason to buy this brand

Over-posirioning: Adopting such a narrow positioning thatsome potential customers may overlook the brand

Confused positioning: Claiming two or more benefits thatcontradict each other.

Irrelevant positioning: Claiming a benefit which fewprospects care about

Doubtful positioning: Claiming a benefit that people willdoubt the brand or company can actually deliver

Product & Service Strategy:

Methods used to improve/differentiate the product and

increase sales or target sales more effectively to

gain a competitive advantage e.g

4Ps

The

Distribution

Plan

ThePromotional

Plan

Pricing

Policies

and

Strategies

Product andService

Strategies

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Extension strategies

Specialized versions

New editions

Improvements real or otherwise!

Changed packaging

Technology, etc.

Product modification Strategies

1. Line extension: additional items in the same productunder the same brand

Advantage:

Saving cost

Minimize risk in introducing new products

Disadvantage:

Brand dilution

consumer confusion

Cannibalization on original product

2.brand extension: launching new product under thesame brand

Advantage:

Saving high advertising cost and build brand name

Give new products instant recognition and faster

acceptance

Disadvantage:

consumer confusion about the brand image and may

loose its positioning

may harm consumer attitude toward other product

under the same brand

3.multi branding: new brand name in the same productAdvantage:

establish different features

appeal to different buying motives

Disadvantage:

multi branding might gain only small market share

need resources on building different brands

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Optional pricing: The organisation sells optional extrasalong with the product to maximise its turnover. This

strategy is used commonly within the car industry.

Promotion:

Promotional Strategy:

Push Strategy: promotion to intermediaries in thedistribution channel to move or push products. For example;

bonus to retailers to spread good word of mouth and

recommend your product to the consumers.

Pull Strategy: promotion is designed to stimulateconsumers demand, usually though branding. For example;

free tooth brush with toothpaste.

Strategy Mix: is a combination of both, ideal strategy

Profile Strategy: used by companies on 2 occasions;1. Crisis or rumors

2. New company

Promotion strategies

Advertising

Used when:

Build up long term image

Cost efficient in reaching geographically dispersed

buyers

Trigger quick sales

Gives image of good value to the brand

Sales promotion

Used when:

Encourage trial or purchase

Short run effect

Boosting sagging sales

Public relation

Used when:

Building up good corporate image

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Heading off unfavorable rumors

Personal selling

Used when:

Making sales

Building customer relations preference,

conviction and solicit action

Build up buyers

Direct and interative marketing

Used when:

Targeted individual consumers

Localized and customized used to reach well defined

target segments

Distribution & Place:

Up-market: prestigious areaso Down-market: poor or non-prestigious area. Ex: displayingproducts that match people

o Some products go upper market only & this is unethical

but legal; ex: MacDonalds does not open any branches in

local areas.

Distribution strategies

Identify major alternatives channels

Number of intermediary:

Exclusive distribution

selective distribution

intensive distribution

Evaluting alternatives channels

Based on:

Channels cost

Sales output

Product complexity

Selecting channels

Based on:

Years on business

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Growth record

Financial strength

Service reputation

Finance

The interpretation of the ratios:

Liquidity ratios

The ratio indicates that the company is able to meet all

its current and immediate obligations to the creditors, as

it has the capability to generate cash in a short period

through liquidating the current assets.

It attempts to measure a company's ability to pay off itsshort-term debt obligations.

1. The concept behind this ratio isto ascertain whether a company's short-term assets (cash,cash equivalents, marketable securities, receivables andinventory) are readily available to pay off its short-termliabilities (notes/Accounts payable, current portion ofterm debt, payables, accrued expenses and taxes, tax debt,Current maturities of long-term debts, Short-term loans,Other accrued expenses).

o In this ratio we r going to test

or examine how much the C.A can cover the C.L, So if the

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ratio is 1 this will be good to the company & vise

versa.

o This ratio plays as indicator to

the suppliers because it reflects how quick the company

can settle its payables.

o The bankers are looking to this

ratio because it reflects how much the company is prompt

to the suppliers & its short term obligations.

In theory, the higher the current ratio, the better.

1.

= Current Assets Inventories/Current liabilities

This ratio is more effective because it reflects how quick

the company can convert its C.A into cash without selling

any of its inventories.

The quick ratio is more conservative than the current ratio

because it excludes inventory and other current assets,

which are more difficult to turn into cash. Therefore, a

higher ratio means a more liquid current position.

3.The cash ratio is the most stringent and conservative, it

only looks at the most liquid short-term assets of the

company, which are those that can be most easily used to

pay off current obligations. It also ignores inventory and

receivables, as there are no assurances that these two

accounts can be converted to cash in a timely matter to

meet current liabilities. Very few companies will have

enough cash and cash equivalents to fully cover current

liabilities, which isn't necessarily a bad thing, so don't

focus on this ratio being above 1:1.

Profitability Ratios

These ratios, give users a good understanding of how well

the company utilized its resources in generating profit and

shareholder value. The long-term profitability of a company

is vital for both the survivability of the company as well

as the benefit received by shareholders.

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Positive profit margin analysis translates into positive

investment quality. To a large degree, it is the quality,

and growth, of a company's earnings that drive its stock

price.

Return On Assets

This ratio indicates how profitable a company is relative

to its total assets. The need for investment in current and

non-current assets varies greatly among companies. Capital-

intensive businesses (with a large investment in fixed

assets) are going to be more asset heavy than technology or

service businesses.

As a rule of thumb, investment professionals like to see a

company's ROA come in at no less than 5%.The higher the

better.

o The ratio should go high. If the ratio goes lower,

this means that the firm is utilizing its assets in a

proper way. Also means that the firm is paying more

interest expenses which decrease the net income.

Return on Equity

This ratio indicates how profitable a company is by

comparing its net income to its average shareholders'

equity. The return on equity ratio (ROE) measures how much

the shareholders earned for their investment in the

company. The higher the ratio percentage, the moreefficient management is in utilizing its equity base andthe better return is to investors.

In general, financial analysts consider return on equityratios in the 15-20% range as representing attractive

levels of investment quality.

o The ratio should go high. If the ratio goes lower, this

means that the firm is using more debt to finance its

operations. This means that paying more interest expenses

which decrease the net income.

o If the result is relatively low, we recommend that the

firm should change its financial strategy to be more

dependants on equity rather than debt.

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o Also it should change its marketing strategy to increase

its sales in less operations cost to increase its net

income.

Debt Ratios

These ratios give users a general idea of the company's

overall debt load as well as its mix of equity and debt.

Debt ratios can be used to determine the overall level of

financial risk a company and its shareholders face. In

general, the greater the amount of debt held by a companythe greater the financial risk of bankruptcy.

The Debt Ratio

The debt ratio compares a company's total debt to its total

assets, which is used to gain a general idea as to the

amount of leverage being used by a company. In general, the

higher the ratio, the more risk that company is consideredto have taken on.

o Creditors prefer low debt ratios because the lower the

ratio, the greater the cushion against creditors'

losses in the event of liquidation.

o Stockholders, on the other hand, may want more

leverage because it magnifies expected earnings.

Debt-Equity Ratio

The debt-equity ratio is another leverage ratio that

compares a company's total liabilities to its total

shareholders' equity. This is a measurement of how much

suppliers, lenders, creditors and obligors have committed

to the company versus what the shareholders have committed.

Interest Coverage Ratio

The interest coverage ratio is used to determine how easily

a company can pay interest expenses on outstanding debt.

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Price/Earnings Ratio

The price/earnings ratio (P/E) is the best known of the

investment valuation indicators. The P/E ratio has its

imperfections, but it is nevertheless the most widely

reported and used valuation by investment professionals andthe investing public. The financial reporting of both

companies and investment research services use a basic

earnings per share (EPS) figure divided into the current

stock price to calculate the P/E multiple (i.e. how many

times a stock is trading (its price) per each dollar of

EPS).

Activity Ratios:

May be this is the only good sign regarding Sales / Total

assets where the current level is higher than the industry

average which means that the company is generating

sufficient volume of sales out of its assets, however this

doesnt mean that the company is gaining.

As for the collection period, this is a real problem where

the average collection period exceeds the market average by

22 days. This indicates that the company will not be able

to generate cash in the right time because of the delay in

collection, consequently it will have a liquidity squeeze.

This will prevent the company from using its productive

assets.

The sales ratio is below the average by 30.6 leading to the

conclusion that the working capital is not used efficiently

enough to generate acceptable volume of sales.

For the inventory turnover ratio the current level is far

below the average due to the fact that the company is

holding an excessive stock of inventory and this excess

stock are unproductive representing an investment with low

or zero rate of return.

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Human Resources (Restructuring as a way to improveperformance)

(Linking Performance & Pay to Strategies HR)

Human Resource Objectives

Helping the organization reach its goals.

Employing the skills and abilities of the workforce

efficiently.

Providing the organization with well-trained and well-

motivated employees.

Increasing to the fullest the employees job

satisfaction and self-actualization.

Developing and maintaining a quality of work life that

makes employment in the organization desirable.

Communicating HRM policies to all employees.

Helping to maintain ethical policies and socially

responsible behavior.

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1. Organizational objectives: to achieve the requiredorganization effectiveness and objectives and ensure that

the organization always has people with the right abilities

available to do the right work

HRM and Organizational Effectiveness

HRM activities play a major role in ensuring that an

organization will survive and prosper.

Organizational effectiveness or ineffectiveness is

described in terms of:

Performance

Employee satisfaction

Absenteeism and turnover

Training effectiveness and its return on

investment

Accident rates

2. Functional Objectives: maintain the departmentscontribution at a level appropriate to the org. needs

3. Societal Objective : respond ethically and socially to the

challenges of the environment while minimizing the negativeimpact of such demands on the organizations

4. Personal objectives:to assist retain and motivate theemployees for achieving their personal goals and guide them

to better achievement (most important )

Human Resource Policies and Programs (Key Strategic HRMConcepts That Must Be Applied)

- Preparation and selection: Review of the employees' job

description, job specification and job performancestandard to match the change of the organization.

- Succession Planning: the preparation of the companysuccession plan will enable the organization to stand any

future challenges.

- Career Path and development: the preparation of thecareer path for the employees will help the stability and

minimize the turnover of the employees.

- Recruitment: designing a good recruitment process

(Selection, interviews) with a high level of orientation

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to ensure the compatibility of the new recruited

employees with the existing culture to achieve

organizational objectives.

- Training and development:on-the- job training, Off-the-Job training and Provide career planning assistance foremployees.

- Incentive system will ensure the motivation of theemployees to better performance (linking incentive to

production)

- Compensation Policies and protection: What employees getin exchange for their contribution to the organization,

maintain, retain productive workforce, achieve the

org. objectives

- Testing: Will ensure the qualification of the candidatesand their fit in the organization culture.

- Managing workforce diversity( if the organization isgoing internationally)

- Enhance employee participation: in implementing ourstrategy, all employees from different organizational

levels must make a meaningful contribution in decision-

making .this will increase employee's involvement andenhance their working life balance.

- Enhance employee organizational commitment: by increasingjob involvement, which results in lower levels of

absenteeism and turnover.

- Implementing employee recognition programs:starting withpersonal attention and ending with appreciation for a job

well done.

- Develop effective staffing plans supporting theorganizational strategies by allowing to fill job

openings proactively (in terms of number and the quality

of the workforce for the short and long term) VIP in case

of international operations.( if the company is

multinational)

Human Resource Management (HRM) Activities:

Job analysis

Human resource planning

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Problem solving

Leadership

Recruiting/staffing

Employment law

Training and development

Technology

Forecasting

Compensation design

Benefits design and administration

Accounting and finance

Record keeping

HRMs Place in Management

HRM must:

Ascertain specific organizational needs for the

use of its competence.

Evaluate the use and satisfaction among otherdepartments.

Educate management and employees about the

availability and use of hrm services.

External Environmental Influences

Government (Laws and regulations)

The Union

Economic Conditions (Domestic and international)

Competitiveness ( competitive advantage)

Work Sector of the Organization ( Private and Public

Sector)

Composition and Diversity of the Labor Force

Geographic Location of the Organization

Internal Environmental Influences

Strategy

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Goals

Organization culture

Nature of the task (job)

Work group

Leaders style and experience

HRM Activities That Can Enhance and Sustain Competitive

Advantage

Employment security.

Selectivity in recruiting.

High wages.

Incentive pay.

Information sharing.

Participation and empowerment.

Teams and job redesign.

Training as skill development.

Cross-utilization and cross training.

Promotion from within

Measurement of practices.

Major HRM Problems for the International Corporation

Selecting and training local managers.

Companywide loyalty and motivation.

Speaking local language and understanding local

culture.

Appraising managers overseas performance.

Planning systematic management succession.

Hiring local sales personnel.

Compensating local foreign managers.

Hiring and training foreign technical employees.

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Selecting and training international managers for

overseas.

Dealing with foreign unions and labor laws.

Promoting or transferring foreign managers.

Compensating international managers for an overseas

assignment.

Contributions of HR to Business Strategy Implementation &

Formulation

Strategic HRD involves aligning HRD activities with the

company's vision, mission, and strategic goals, so that

enhancing the KSAs of employees at all levels grows both

the individual and the organization.

SHRD can ensure that employees possess the necessary KSAs

to manage new demands arising from changes in the

competitive environment so HRD can help implement

business strategy through :

1. Identifying what do our people need to be good at?

(and then helping to provide these KSAs)2. Fostering a learning climate that prepares people to

cope with uncertainty and mindset-shift

3. Supporting the development of change agents and

transformational leaders

4. Adjusting training to the companys business life-

cycle

5. Remedying top managers KSA discrepancies: leadership,

vision, communication, team building, etc.

6. Enabling employees to become more innovative and drive

business strategy from the bottom-up

And on other side HRD can help business strategy

integration through :

1. Enabling the implementation of cost reduction

strategies by helping remaining employees learn to do

more with less

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2. Enabling rapid adjustment to changes in market

conditions, and the implementation of customer

responsiveness strategies, requiring multi-skilling,

lean production, autonomous working groups,

empowerment, delay ring, matrix structures, project

based teams, etc. So employees will need to be

prepared for and helped to adjust to job enrichment

and teamwork

Outcomes of Strategic HR

At the end of all strategic HR process we expect an

increase in the competitive advantage to the organization

such as:

Increased performance

Customer and Employees Satisfaction

Enhanced Shareholder value

Analysis of Strategic Factors (SWOT)

Grand strategies (3 Direction Model)

Growth Stability RetrenchmentAdding newbusinesses

Maintain/ increase MKTshare

Cut into pieces(cut /drop

businesses)Market still booming (not

saturated)New product Same productNew market Same marketHigh R&D Flat R&D

High Investment Flat investmentHigh competition Stable environmentM&A, Integration,

StrategicAlliances, Joint

ventures

market penetration Bankruptcy, sell out,divest, liquidation

I Growth Strategies (Vertical Integration

Strategies)

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o Can be achieved by taking over a function previouslyprovided by a supplier or by a distributor. The company

grows by making its own supplies and/or by distributing

its own products.

o This may be done in order to reduce costs, gain controlover a scarce resource, guarantee quality of a key input,

or obtain access to potential customers.

o This growth can be achieved whether internally byexpanding current operations or externally through

acquisitions.

o Vertical growth is a logical strategy for a corporationor business unit with a strong competitive position in a

highly attractive industry-especially when technology is

predictable and markets are growing.

o To keep and even improve its competitive position, thecompany may used backward integration to minimize

resource acquisition costs and inefficient operations as

well as forward integration to gain more control over

product distribution.

o A companys degree of vertical integration canrange from total ownership of the value chain needed to

make and sell a product to no ownership at all.

o Under full integration, a firm internally makes 100% of

its key supplies and completely controls its

distributors. I.e. large oil companies.

o Long-term contracts are agreements between two separate

firms to provide agreed-upon g0oods and services to each

other for a specified period of time. This cant really

be considered to be vertical integration unless the

contract specifies that the supplier or distribute canthave a similar relationship with a competitive firm.

1. Backward integration (Ownership or Control -- Firms

suppliers)

Guidelines:

Current suppliers expensive or unreliable

# of suppliers is small; # competitors is large

High growth in industry sector

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Competes in growing industry

Increased economies of scale major competitive

advantages

Faltering due to lack of managerial expertise or need for

particular resource

A corporation can grow internally by

expanding its operations both globally and

domestically, or it can grow externally through

mergers, acquisitions, and strategic alliances.

- A merger is a transaction involving two or morecorporations in which stock is exchanged, but from which

only one corporation survives. Mergers usually occurbetween firms of somewhat similar size and are usually

friendly. The resulting firm is likely to have a name

derived from its composite firms.

- An acquisition is the purchase of a company that iscompletely absorbed as an operating subsidiary or division

of the acquiring corporation. Acquisitions usually occur

between firms of different sizes and can be within

friendly or hostile. Hostile acquisitions are often called

takeovers.

- A strategic alliance is a partnership of two or morecorporations or business units to achieve strategically

significant objectives that are mutually beneficial.

Growth is a very attractive strategy for two key reasons:

Larger firms also havemore bargaining power than do smallfirms and are more likely to obtain support from key

stakeholders in case of difficulty.

A growing firm offersmore opportunities for advancement,promotion, and interesting jobs. Growth itself is excitingand ego-enhancing for CEOs. The marketplace and potential

investors tend to view a growing corporation as a winner

or on the move. Executive compensation tends to get

bigger as an organization increases in size. Large firms

are also more difficult to acquire than are smaller ones;

thus an executives job is more secure.

II Intensive Strategies

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1.Market Penetration (Increased Market Share)

o Present products/services

o Present markets

o Greater marketing efforts

Guidelines:o Current markets not saturated

o Usage rate of present customers can be increased

significantly

o Shares of competitors declining; industry sales

increasing

o Increased economies of scale provide major

competitive advantage

Is a strategy for company growth by increasing sales ofcurrent products to current market segments without

changing the product.

-Increase sales to current users

-Attract users of competition- Convince non users of the product

2.Market Development (New Markets -- Present

products/services to new geographic areas)

Guidelines:o New channels of distribution reliable,inexpensive, good quality

o Firm is successful at what it does

o Untapped/unsaturated markets

o Excess production capacity

o Basic industry rapidly becoming global

o

Is a strategy for company growth by identifying and

developing new market segments for current products

-Develop new markets in the same area

-Develop more distribution channels

-Develop new markets in other areas

3.Product Development(Increased Sales -- Improving

present products/services, Developing new

products/services)

Guidelines:o Products in maturity stage of life cycle

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o Industry characterized by rapid technological

development

o Competitors offer better-quality products @

comparable prices

o Compete in high-growth industryo Strong R&D capabilities

Is a strategy for company growth by offering modified or

new products to current market segments.

-Improve or add on current product features

-Improve on current product quality

-Develop new product in the same category

III Diversification Strategies

***A series of choices for each product/market condition,

choices can be expressed in terms of five types of strategy:

1.Maintenance of the current competitive position.

2.Improvement of the current competitive position.

3.Harvesting, which involves reducing or relinquishing thecurrent competitive position in order to capitalize upon

short-term profit and improve cash flow.

4.Exiting, this typically occurs when the company issuffering from a weak competitive position or recognizes

that the cost of staying in the market and/ or improving

upon the position is too high.

5. Entry to a new sector.

- When an industry consolidates and becomes mature, mostof the surviving firms have reached the limits of growth

using vertical and horizontal growth strategies.

- Unless the competitors are able to expandinternationally into less mature markets, they may have

no choice but to diversify into different industries ifthey want to continue growing.

1.Concentric Diversification (New & related

products/services)

(Technologically related products /New & related

products/services) growth through concentric

diversification into a related industry may be a very

appropriate corporate strategy when a firm has a

strong competitive position but industry

attractiveness is low.

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- By focusing on the characteristics that have given thecompany its distinctive competence, the company uses

those very strengths as its means of diversification.

- The firm attempts to secure strategic fit in a newindustry where the firms product knowledge, itsmanufacturing capabilities, and the marketing skills it

used so effectively in the original industry can be put

to good use.

- The corporations products or processes are related insome way; they possess some common thread. The search is

for synergy, the concept that two businesses will

generated more profits together than they could

separately. The point of commonality may be similar

technology, customer usage, distribution, managerial

skills, or product similarity.- The firm may choose to diversify concentrically throughinternal / external means.

Guidelines:o Compete in no/slow growth industry

o New & related products increases sales of current

products

o New & related products offered at competitive

prices

o Current productsdecline stage of product life

cycle

o Strong management team

This strategy involves the add of a new but related

products or services. One may argue that this represent a

contradiction of policies if adopting the first

(retrenchment) strategy, I would say absolutely not as

saving the cost that will happen as a result of the first

strategy will make money available to develop a new

products that can match with the new trend in the market

where people are heading toward nutrition .

It is worth mentioning that the company will assume noextra costs to develop the new product as the platform of

the product exist and all what will it take is to change

the ingredients toward more natural and less fat

ingredients.

Implementation:

This will also involve change in organizational

structure.

Shift toward natural ingredients.

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Set a promotional plan to attract the consumer

depending on the brand that have become healthier and

contains low fats.

To diversify the distribution channel and not to give

a large share to one distributor plus emphasis morecontrol on the receivables.

Provide training to the staff through across the

various functions of the company.

2.Conglomerate Diversification (New & unrelated

products/services)

(Seeking non related products or markets) when

management realizes that the current industry is

unattractive and that the firm lacks outstandingabilities or skills that it could easily transfer to

related products or services in other industries, the

most likely strategy is conglomerate diversification.

- Conglomerate div., diversifying into an industryunrelated to its current one.

- Rather than maintaining a common thread throughouttheir organization, strategic managers who adopt this

strategy are primarily concerned with financial

considerations of cash flow or risk reduction.

- The emphasis in conglomerate diversification is onfinancial considerations rather than on the product-

market synergy common to concentric diversification.

- A cash-rich company with few opportunities for growthin its industry might move into another industry where

opportunities are great but cash is hard to find.

- Another instance of conglomerated diversification mightbe when a company with a seasonal and, uneven cash flow

purchases a firm in an unrelated industry with

complementing seasonal sales that will level out the cash

flow.Guidelines:

o Declining annual sales & profits

o Capital & managerial ability to compete in new

industry

o Financial synergy between acquired and acquiring

firms

o Current markets for present products saturated

3.Horizontal Diversification (New & unrelated

products/services for current customers)

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Guidelines:o Adding new products/services would significantly

increase revenues

o Highly competitive and/or no-growth industry; low

margins & returns

o Current distribution channels can be used

o New products have counter cyclical sales patterns

IV Defensive Strategies1.Retrenchment (Regrouping , Cost & asset reduction to

reverse declining sales & profit)

a company may pursue retrenchment strategies when it has

a weak competitive position in some or all of its

product lines resulting in poor performance-sales are

down and profits are becoming losses.

- These strategies impose a great deal of pressure toimprove performance. In an attempt to eliminate the

weaknesses that are dragging the company down, management

may follow one of several retrenchment strategies ranging

from turnaround or becoming a captive company to selling

out, bankruptcy, or liquidation.

Turnaround strategy emphasizes the improvement of

operational efficiency and is probably mostappropriate when a corporations problems are

pervasive but not yet critical.

- The two basic phases of a turnaround strategy arecontraction and consolidation.

- Contraction is the initial effort to quickly stop thebleeding with a general across-the-board cutback in size

and costs.

- The second phase, consolidation, implements a programto stabilize the now-leaner corporation.

- To streamline the company, plans are developed toreduce unnecessary overhead and to make functional

activities cost-justified. This is a crucial time for the

organization.

- If the consolidation phase is n

comprehensive outline( fadya )

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