III. Grand Strategies
A. A grand strategy is a master long-term plan that provides basic direction for major actions
directed toward achieving long-term business objectives. .
1. Grand strategies, often called master or business strategies, provide basic direction
for strategic actions.
a) They are the basis of coordinated and sustained efforts directed toward achieving long-term
business objectives.
2. The purpose of this section is twofold: (1) to list, describe, and discuss 15 grand
3. Grand strategies indicate the time period over which long-rang objectives are to be
achieved.
a) Thus, a grand strategy can be defined as a comprehensive general approach that
4. The 15 principal grand strategies are concentrated growth, market development,
a) Any one of these strategies could serve as the basis for achieving the major
b) But a firm involved with multiple industries, businesses, product lines, or
c) For clarity, each of the principal grand strategies is described independently in
B. Concentrated Growth
1. Many of the firms that fell victim to merger mania were once mistakenly convinced
a) Concentrated growth is the strategy of the firm that directs its resources to the
b) The main rationale for this approach, sometimes called a market penetration
2. Rationale for Superior Performance
a) Concentrated growth strategies lead to enhanced performance.
(1) The ability to assess market needs, knowledge of buyer behavior, customer
(2) Such core capabilities are a more important determinant of competitive
(3) The high success rates of new products also are tied to avoiding situations
b) A major misconception about the concentrated growth strategy is that the firm
practicing it will settle for little or no growth.
(1) This is certainly not true for a firm that correctly utilizes the strategy.
3. Conditions That Favor Concentrated Growth
a) Specific conditions in the firm’s environment are favorable to the concentrated
growth strategy.
(1) The first is a condition in which the firm’s industry is resistant to major
technological advancements.
b) An especially favorable market condition is one in which the firm’s targeted
markets are not product saturated.
(1) Markets with competitive gaps leave the firm with alternatives for growth,
c) A third condition that favors concentrated growth exists when the firm’s product
d) A fourth favorable condition exists when the firm’s in puts are stable in price
e) The pursuit of concentrated growth is also favored by a stable market—a market
f) A firm also can grow while concentrating, if it enjoys competitive advantages
(1) These advantages enable the firm to formulate advantageous pricing
policies.
(2) More efficient production methods and better handling of distribution also
(3) Exhibit 7.3, Top Strategist, profiles BNSF’s CEO Matthew Rose’s pursuit
g) Finally, the success of market generalists creates conditions favorable to
(1) While generalists succeed by using universal appeals, they avoid making
(2) The net result is that many small pockets are left open in the markets
4. Risk and Rewards of Concentrated Growth
a) Under stable conditions, concentrated growth poses lower risk than any other
(1) The greatest risk is that concentrating in a single product market makes a
(2) Slowed growth in this segment would jeopardize the firm because its
(3) It is difficult for the firm to attempt sudden changes if its product is
industry.
c) Entrenchment in a specific product market tends to make a concentrating firm
(1) However, any failure of such a firm to properly forecast major changes in
d) A firm pursuing a concentrated growth strategy is vulnerable also to the high
5. Concentrated Growth is Often the Most Viable Option
a) The limited additional resources necessary to implement concentrated growth,
b) The firm that chooses a concentrated growth strategy directs its resources to the
(1) Firms that remain within their chosen product market are able to extract the
(2) The success of a concentration strategy is founded on the firm’s use of
(3) Superior performance on these aspects of corporate strategy has been
c) A grand strategy of concentrated growth allows for a considerable range of
action.
(1) Broadly speaking, the firm can attempt to capture a larger market share by
(2) In turn, each of these options suggests more specific options, some of
development.
C. Market Development
1. Market development commonly ranks second only to concentration as the least
costly and least risky of the 15 grand strategies.
a) It consists of marketing present products, often with only cosmetic
2. Market development allows firms to leverage some of its traditional strengths by
a) Frequently, changes in media selection, promotional appeals, and distribution
signal the implementation of this strategy.
b) Exhibit 7.5, Top Strategist, describes how, under the leadership of CEO Muhtar
D. Product Development
1. Product development involves the substantial modification of existing products or
b) The idea is to attract satisfied customers to new products as a result of their
2. The product development strategy is based on the penetration of existing markets by
products with a clear connection to the existing product line.
E. Innovation
1. In many industries, it has become increasingly risky not to innovate.
strategy.
b) They seek to reap the initially high profits associated with customer acceptance
d) The underlying rationale of the grand strategy of innovation is to create a new
2. While most growth-oriented firms appreciate the need to be innovative, few firms use
3. Few innovative ideas prove profitable because the research, development, and pre-
a) A study by the Booz Allen & Hamilton management research department
provides some understanding of the risks.
b) As shown in Exhibit 7.6, Decay of New Product Ideas (51 Companies), Booz
c) Specifically, out of every 58 new product ideas, only 12 pass an initial screening
d) Of the three survivors, two appear to have profit potential after test marketing
F. Horizontal Acquisition
1. When a firm’s long-term strategy is based on growth through the acquisition of one
2. Such acquisitions eliminate competitors and provide the acquiring firm with access to
overall profitability.
4. Exhibit 7.8, Strategy in Action, profiles the horizontal acquisition strategy of Aon
Benfield.
G. Vertical Acquisition
1. When a firm’s grand strategy is to acquire firms that supply it with inputs (such as
2. Exhibit 7.9, Vertical and Horizontal Acquisition, depicts both horizontal and
a) The principal attractions of a horizontal acquisition grand strategy are readily
b) The acquiring firm is able to greatly expand its operations, thereby achieving
c) In addition, these benefits are achieved with only moderately increased risk,
3. The reasons for choosing a vertical acquisition grand strategy are more varied and
sometimes less obvious.
a) The main reason for backward integration is the desire to increase the
dependability of the supply or quality of the raw materials used as production
b) That desire is particularly grate when the number of suppliers is small and the
c) In this situation, the vertically integrating firm can better control its costs and,
d) Forward integration is a preferred grand strategy if great advantages accrue
e) A firm can increase the predictability of demand for its output though forward
4. Some increased risks are associated with both types of acquisition.
a) For horizontally integrated firms, the risks stem from increased commitment to
b) For vertically integrated firms, the risks result from the firm’s expansion into
H. Concentric Diversification
1. Concentric diversification involves the acquisition of businesses that are related to
the acquiring firm in terms of technology, markets, or products.
a) With this grand strategy, the selected new businesses possess a high degree of
b) The ideal concentric diversification occurs when the combined company profits
c) Thus, the acquiring firm searches for new businesses whose products, markets,
I. Conglomerate Diversification
1. Occasionally a firm, particularly a very large one, plans acquire a business because it
represents the most promising investment opportunity available.
a) This grand strategy is commonly known as conglomerate diversification.
(1) The principal concern, and often the sole concern, of the acquiring firm is
b) The principal difference between the two types of diversification is that
c) Several of the grand strategies discussed above, including concentric and
2. Motivation for Diversification
a) Grand strategies involving either concentric conglomerate diversification
(1) Diversifications occasionally are undertaken as unrelated investments,
b) Regardless of the approach taken, the motivations of the acquiring firms are the
same:
(1) Increase the firm’s stock value. In the past, mergers often have led to
(2) Increase the growth rate of the firm.
(7) Acquire needed resource quickly.
J. Turnaround
1. For any one of a large number of reasons, a firm can find itself with declining profits.
b) In may cases, strategic managers believe that such a firm can survive and
c) This grand strategy is known as turnaround.
or in combination:
2. Interestingly, the turnaround most commonly associated with this approach is in
management positions.
3. Strategic management research provides evidence that the firms that have used a
turnaround strategy have successfully confronted decline.
4. The model begins with a depiction of external and internal factors as causes of a
firm’s performance downturn.
5. A turnaround situation represents absolute and relative-to-industry declining
performance of a sufficient magnitude to warrant explicit turnaround actions.