Strategic Change: Implementing Strategies to Build and ...

Essentials of Strategic Management, 3/ eCharles W.L. Hill | Gareth R. Jones Chapter 8 Strategic Change: Implementing Strategies to Build and Develop a Company 2012 South-Western, a part of Cengage Learning Strategic Change The movement of a company away from its

present state toward some desired future state to increase its competitive advantage and profitability 2012 South-Western, a part of Cengage Learning The Change Process Distinct steps of the change process: Determining the need for change Determining the obstacles to change Managing and evaluating change

2012 South-Western, a part of Cengage Learning Portfolio of Core Competencies A core competence is a core skill of a company Identifying these central value-creating capabilities tells a company which business opportunity to pursue 2012 South-Western, a part of Cengage Learning Strategy Implementation Strategies implemented through:

Internal new ventures Acquisitions Strategic alliances 2012 South-Western, a part of Cengage Learning Internal New Ventures Involve creating the value-chain functions necessary to start a new business from scratch Typically used to leverage or recombine valuable competencies to enter a new business area

Generally science-based companies tend to favor internal new ventures as a strategy implementation 2012 South-Western, a part of Cengage Learning Internal New Ventures (contd) Although these can be profitable, the reported failure rate is very high Three reasons for failure: Market entry occurs on too small a scale

Poor commercialization of the new product Poor corporate management of the venture 2012 South-Western, a part of Cengage Learning Internal New Ventures (contd) Ways to limit risk:

Adopt a structured approach to managing the venture Foster close links between R&D and marketing Set up project teams Choose ventures with greatest probability of commercial success Monitor projects closely 2012 South-Western, a part of Cengage Learning Acquisitions Involve one company purchasing another company Usually done by a company that:

wants to move fast is in a well established industry and has barriers of entry Used in two ways: To strengthen competitive positioning by purchasing a competitor To enter a new business or industry 2012 South-Western, a part of Cengage Learning

Acquisitions (contd) Advantages Faster than building a new business Less risk than internal new ventures Ability to circumvent most entry barriers Disadvantages Often end up dissipating value Often fail to realize

anticipated benefits Tend to be expensive Difficult to integrate various corporate cultures 2012 South-Western, a part of Cengage Learning Acquisitions (contd) Ways to limit risk:

Target identification and pre-acquisition screening Bidding strategy (this works best when the stock market undervalues a company) Integration 2012 South-Western, a part of Cengage Learning Strategic Alliances Cooperative agreements between companies to work together and share resources to achieve a common goal Can be informal or short-term agreements Can be joint ventures- a formal type of strategic alliance where two companies

create a new separate company 2012 South-Western, a part of Cengage Learning Strategic Alliances (contd) Advantages Facilitate entry into a market Share the fixed costs and risks that

arise Bring together complementary skills and assets Disadvantages May provide competitors with access to valuable knowledge 2012 South-Western, a part of Cengage Learning Strategic Alliances (contd)

Ways to limit risk: Careful partner selection Alliance structure Alliance management 2012 South-Western, a part of Cengage Learning