Management 2/15/12

Portfolio Strategy

  • A corporate level strategy that minimizes risk by diversifying investment among various businesses or product lines
  • Corporate example: General Electric (has no dogs; 2 cash cows: appliance & lighting; 2 stars: security & healthcare; 2 question marks: renewable energy & consumer finance)
  • BCG Matrix: implement of portfolio strategy; shows whether a business has a larger or smaller share to other corporations as well as business growth rate
  • order from highest to lowest on BCG Matrix (stars: rapid growth; Cash cows: milk to finance question marks and stars; Question Marks : new ventures, risky, few become stars, others are divested; dogs: no investment, keep if some profit, consider divestment

Grand Strategy (2nd Corporate level strategy)

  • a broad corporate-level strategic plan used to achieve strategic goals
  • Growth: internal and external
  • internal growth: investing in expansion; development of new or changed products; expansion of current products into new markets (Avon from internet to mall kiosks)
  • External growth: Acquiring additional business divisions; acquisition of businesses related to current product lines (AT&T + Cingular); acquisition of businesses that take the corporation into new areas (Procter & Gamble + Iams Company)
  • Stability: a pause strategy means that the organization wants to remain the same size
  • Retrenchment: shrinking the current business units; the selling off or liquidating entire businesses
  • Divestiture: selling off businesses that no longer seem central to the corporation (JCPenny sold its Eckerd chain of drugstores)

Three Parts of Grand strategy

  1. Growth
  2. Stability
  3. Retrenchment

Porter’s 5 Forces Affecting Industry Competition

  1. Potential new entrants; internet reduces barriers to entry (makes competition easier)
  2. Bargaining power of buyers (they must have informed information)(internet increases buyer power)
  3. bargaining power of suppliers (De Beers)(internet tends to increase the bargaining power of suppliers)
  4. Threat of substitute products (more substitutes, more competition)(sugar v Splenda & agave… high competition)(internet expands the market size, but creates new substitution threats)
  5. Rivalry among competitors (McDonalds v Burger King)(internet blurs differences among competitors so it increases competition)

Competitive strategies

  1. Differentiation: distinguish products or services from others in the industry (Hilton Hotel & the box company from the SWOT example)
  2. Cost Leadership: seek efficient facilities, pursue cost reductions, and use tight cost controls to produce products more efficiently than competitors (SouthWest Airlines & Motel 6, used by relatively small companies)
  3. Focus: concentrate on a specific regional market or buyer group (SouthWest focused on three cities in the beginning years of company)

Collaboration Strategies

  1. Acquisitions: one company buys another
  2. Mergers: 2 companies come together and share the company name
  3. Joint ventures: a new company is funded by two separate companies; shared risks and costs
  4. Strategic Business Partnering (major hotel companies making a website to compete with Expedia… relatively low)
  5. Preferred Supplier Arrangements

Functional Level Strategies

  1. Marketing (important for differentiation strategy by setting product apart)
  2. Human resources (under differentiation strategy, would provide good training)
  3. Finance (if a cost leadership strategy implemented, find ways to save money)
  4. Research and development (cost leadership strategy, find ways to cut costs)

Effective Strategy Implementation

  1. Build commitment to the strategy
  2. Devise a clear implementation plan
  3. Pay attention to culture
  4. Take advantage of employees’ knowledge and skills
  5. Communicate, communicate, communicate

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