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whole or part.
Chapter 7
Long-Term Objectives and Strategies
Chapter Summary
Before we learn how strategic decisions are made, it is important to understand the two principal
Long-term objectives are defined as the result a firm seeks to achieve over a specified period,
typically five years. Seven common long-term objectives are discussed: profitability, productivity,
Grand strategies are defined as comprehensive approaches guiding the major actions designed to
Learning Objectives
1. Discuss seven different topics for long-term corporate objectives.
2. Describe the five qualities of long-term corporate objectives that make them especially
useful to strategic managers.
3. Explain the generic strategies of low-cost leadership, differentiation, and focus.
Lecture Outline
I. Long-Term Objectives
A. Strategic managers recognize that short-run profit maximization is rarely the best approach
to achieving sustained corporate growth and profitability.
1. An often repeated adage states that if impoverished people are given food, they will
eat it and remain impoverished, whereas if they are given seeds and tools and shown
a) Should they eat the seeds to improve the near-term profit picture and make
back on research and development?
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b) Or should they sow the seeds in the effort to reap long-term rewards by
2. For most strategic managers, the solution is clear—distribute a small amount of profit
3. To achieve long-term prosperity, strategic planners commonly establish long-term
objectives in seven areas:
a) Profitability
(1) The ability of any firm to operate in the long run depends on attaining
b) Productivity
(1) Strategic managers constantly try to increase the productivity of their
systems.
c) Competitive Position
(1) One measure of corporate success is relative dominance in the
d) Employee Development
(1) Employees value education and training, in part because they lead to
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e) Employee Relations
(1) Whether or not they are bound by union contracts, firms actively seek
good employee relations.
(2) In fact, proactive steps in anticipation of employee needs and
expectations are characteristic of strategic managers.
f) Technological Leadership
(1) Firms must decide whether to lead or follow in the marketplace.
g) Public Responsibility
(1) Managers recognize their responsibilities to their customers and to
society at large.
B. Qualities of Long-Term Objectives
1. There are five criteria that should be used in preparing long-term objectives: flexible,
measurable over time, motivating, suitable, and understandable.
a) Flexible
(1) Objectives should be adaptable to unforeseen or extraordinary changes
(3) One way of providing flexibility while minimizing its negative effects is
b) Measurable
(1) Objectives must clearly and concretely state what will be achieved and
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whole or part.
c) Motivating
(1) People are most productive when objectives are set at a motivating
(3) A broad objective that challenges one group frustrates another and
(4) One valuable recommendation is that objectives be tailored to specific
(6) Objectives must also be achievable
d) Suitable
(1) Objectives must be suited to the broad aims of the firm, which are
expressed in its mission statement.
e) Understandable
(1) Strategic managers at all levels must understand what is to be achieved.
(2) They also must understand the major criteria by which their
C. The Balanced Scorecard
1. The balanced scorecard is a set of measures that are directly linked to the
company’s strategy.
a) Developed by Robert S. Kaplan and David P. Norton, it directs a company to
2. The balanced scorecard, as shown in Exhibit 7.1, The Balanced Scorecard,
contains a concise definition of the company’s vision and strategy.
a) Surrounding the vision and strategy are four additional boxes, each box
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(1) The box at the top of Exhibit 7.1 represents the financial perspective, and
answers the question “To succeed financially, how should we appear to our
shareholders?”
(2) The box to the right represents the internal business process perspective
b) All of the boxes are connected by arrows to illustrate that the objectives and
c) Achieving one perspective’s targets should lead to desired improvements in
3. A properly constructed scorecard is balanced between short-and long-term
4. The balanced scorecard is a management system that can be used at the central
D. Generic Strategies
1. Many planning experts believe that the general philosophy of doing business
a) In other words, a long-term or grand strategy must be based on a core idea
about how the firm can best compete in the marketplace.
(1) Striving for overall low-cost leadership in the industry.
d) Advocates of generic strategies believe that each of these options can
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2. Low-Cost Leadership
a) Low-cost leaders depend on some fairly unique capabilities to achieve and
sustain their low-cost position.
(1) Low-cost producers usually excel at cost reductions and efficiencies.
(2) They maximize economies of scale, implement cost-cutting
b) A low-cost leader is able to use its cost advantage to charge lower prices or
to enjoy higher profit margins.
(1) By doing so, the firm effectively can defend itself in price wars, attack
c) In the wake of the tremendous successes of such low-cost leaders as Wal-
Mart and Target, only a rare few companies can ignore the mandate to reduce
cost.
(1) Yet, doing so without compromising the key attributes of a company’s
3. Differentiation
a) Strategies dependent on differentiation are designed to appeal to customers
(1) By stressing the attribute above other product qualities, the firm
(2) Often such loyalty translates into a firm’s ability to charge a premium
price for its product.
b) The product attribute also can be the marketing channels through which it is
(1) As a result of the importance of these attributes, competitors often face
4. Focus
a) A focus strategy, whether anchored in a low-cost base or a differentiation
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(1) Likely segments are those that are ignored by marketing appeals to
(2) A firm pursuing a focus strategy is willing to service isolated
(3) The focusing firms profit from their willingness to serve otherwise
(4) The classic example is cable television. An entire industry was born
b) While each of the generic strategies enables a firm to maximize certain
II. The Value Disciplines
A. Operational excellence refers to providing customers with convenient and reliable
products or services at competitive prices.
1. Customer intimacy involves offerings tailored to match the demands of identified
niches.
a) Product leadership, the third discipline, involves offering customers leading-
edge products and services that make rivals’ goods obsolete.
2. Companies that specialize in one of these disciplines, while simultaneously
meeting industry standards in the other two, gain a sustainable lead in their
markets.
a) This lead is derived from the firm’s focus on one discipline, aligning all
aspects of operations with it.
b) Having decided on the value that must be conveyed to customers, firms
understand more clearly what must be done to attain the desired results.
the tweaking that discipline leaders need.
B. Operational Excellence
1. Operational excellence is a specific strategic approach to the production and
a) A company that follows this strategy attempts to lead its industry in price and
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(1) Companies that employ operational excellence work to minimize costs
(2) The focus is on delivering products or services to customers at
competitive prices with minimal inconvenience.
b) Firms that implement the strategy of operational excellence typically
cost transactions.
2. Customer Intimacy
a) Companies that implement a strategy of customer intimacy continually tailor
and shape products and services to fit an increasingly refined definition of
the customer.
(1) Companies excelling in customer intimacy combine detailed customer
b) Customer-intimate companies are willing to spend money now to build
c) Companies engaged in customer intimacy understand the difference between
(1) The company’s profitability depends in part on its maintaining a system
d) Businesses that select a customer intimacy strategy have decided to stress
flexibility and responsiveness.
(1) They collect and analyze data from many sources.
(2) Their organizational structure emphasizes empowerment of employees
close to customers.
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3. Product Leadership
a) Companies that pursue the discipline of product leadership strive to produce
a continuous state of state-of-the-art products and services.
(1) Three challenges must be met to attain that goal.
(2) Creativity is the first challenge.
b) Like other product leaders, Johnson & Johnson creates and maintains an
environment that encourages employees to share ideas.
(1) Additionally, product leaders continually scan the environment for new-
product or service possibilities and rush to capitalize them.
(2) Product leaders also avoid bureaucracy because it slows down
commercialization of their ideas.
c) The strength of product leaders lies in reacting to situations as they occur.
d) Product leaders act as their own competition.
(1) These firms continually make the products and services they have