Types of Strategies

Vertical Integration Strategies Intensive Strategies Diversification Strategies Defensive Strategies

Types of Strategies
Forward Integration

Vertical Integration Strategies

Backward Integration

Horizontal Integration

Forward Integration Strategies

Attempts to gain control over: Distributors and Retailers
Some guidelines:
Current distributors expensive or unreliable Availability of quality distributors limited Firm competing in industry expected to grow markedly Firm has both capital & HR to manage new business of distribution Current distributors have high profit margins

Backward Integration Strategies

Control of Firms suppliers
Guidelines: Current suppliers expensive or unreliable # of suppliers is small; # of competitors is large High growth in industry sector Firm has both capital & HR to manage new business Stable prices are important Current suppliers have high profit margins

Horizontal Integration Strategies

Control of Firms Competitors
Guidelines: Gain monopolistic characteristics w/o federal government challenge Competes in growing industry Increased economies of scale major competitive advantages Faltering due to lack of managerial expertise or need for particular resource

Types of Strategies
Market Penetration

Intensive Strategies

Market Development

Product Development

Market Penetration Strategies: Increased Market Share of Present products/services or Present markets

Strategy should be adopted when :

Current markets not saturated Rate of present customers can be increased significantly Shares of competitors declining; industry sales increasing

Increased economies of scale (increase units of production cause reduction in average cost to produce a unit) provide major competitive advantage

Market Development Strategies: New Markets -- Present products/services to new geographic areas Strategy should be adopted when :

New channels of distribution reliable, inexpensive, good quality

When Firm is successful at what it does Untapped/unsaturated markets Excess production capacity Basic industry rapidly becoming global

Product Development Strategies: Increased Sales -- Improving present products/services or developing new products/services

Products in maturity stage of life cycle Industry characterized by rapid technological development Competitors offer better-quality products @ comparable prices Strong R&D capabilities

Types of Strategies
Related Diversification

Diversification Strategies

Unrelated Diversification

Diversification
Related When their value chains posses competitively valuable cross-business strategic fits Unrelated When their value chains are so dissimilar that no competitively valuable cross-business relationships exist

Related Diversification Preferred To Capitalize on:

Combining the related activities of separate businesses into a single operation to lower costs Cross-business collaboration to create competitively valuable resource strengths and capabilities

Related Diversification May be Effective When:

An organization competes in a no-growth or a slow growth industry New, but related, products have seasonal sales levels that counterbalance an organizations existing peaks and valleys An organizations products are currently in the declining stage of the products life cycle

Unrelated Diversification
Favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance Entails hunting to acquire companies:
Whose assets are undervalued That are financially distressed With high growth potential but are short on investment capital

Unrelated Diversification May be Effective When:

An organizations current distribution channels can be used to market new products to existing customers An organization has the capital and managerial talent to compete successfully in a new industry An organizations basic industry is experiencing declining annual sales and profits An organization has the opportunity to purchase an unrelated business as an attractive investment opportunity

Types of Strategies
Retrenchment

Defensive Strategies

Divestiture

Liquidation

Defensive Strategies
Retrenchment: reduce Costs & assets to reverse declining sales & profit

Divesture: Selling a division or part of an organization

Liquidation: Sell Companys assets, in parts, for only their tangible worth; not for their copyrights

Retrenchment Strategies
Guidelines -Failed to meet objectives & goals consistency; has distinctive competencies
Firm is one of weaker competitors

Inefficiency, low profitability, poor employee morale, pressure for stockholders

Strategic managers have failed

Rapid growth in size; major internal reorganization necessary

Divestiture Strategies
Guidelines -Retrenchment failed to attain improvements
Division needs more resources than are available Division responsible for firms overall poor performance Division is a mis-fit with organization Large amount of cash is needed and cannot be raised through other sources

Liquidation Strategies
Guidelines -Retrenchment & divestiture failed Only alternative is bankruptcy Minimize stockholder loss by selling firms assets