ASSIGNMENT on

Business level strategies

&

How policies aid Strategy Implementation

Department of Accounting & Information Systems

UNIVERSITY OF DHAKA

Strategies
Developing proper strategies is crucial for an organization to adopt changing market situation based on organizations capabilities. It also helps organization to increase market share and revenue by reaching new customer segments and new market. There are few strategies highly recommended such as Intensive, integration and diversification strategy which are useful and workable for organization to apply.

Integration strategies
Integration strategies allow a firm to gain control over distributors, suppliers, and/or competitor. There are three types of integration strategies: forward, backward and horizontal. It also used for organization which improve relationship and information flow with distribution and supplier. Forward integration is meaning that firm can grow by taking over functions forward in the value chain previously provided by final manufacturers, distributors, or retailers (forward integration). This strategy provides more control over such things as final products/services and distribution. For example, FAIRPRICE setup own distribution center to receive delivered goods from various suppliers and then distribute to different branches in Singapore. It helps to make opportunity to FAIRPRICE to involve in the logistic industry and increase more power control in the distribution aspect to avoid stock out and affect its current business directly. Backward integration is means firm can grow by taking over functions earlier in the value chain that were previously provided by suppliers or other organizations (backward integration). For example, TOYOTA has agreement with its suppliers those promise to meet its JIT processing. It helps to improve cost of inventory and cash-flow. TOYOTA able to increase control powers these suppliers by investing suppliers business development. This is win win deal as TOYOTA also involved itself into suppliers businesses also help to increase revenue and profit at time same. Horizontal integration refers to a strategy of seeking ownership of or increased control over a firms competitors. Mergers, acquisitions, and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies. For example, CHERY bought over VOLVO with over 4 billion US Dollars. CHERY acquired ownership, goodwill, technology and customer share from VOLVO after the deal. It could lead CHERY to own higher technical support and resource for further development. At the same time, CHERY also eliminated a bigger competitor in automobile industry.

Vertical integration describes when a company purchases or starts a company that it either buys from or sells to and integrates this new business into its own. Forward integration means it is integrating businesses toward the end customer; backward integration means it is integrating in the direction away from the customer. Backward vertical integration can be a part of a company's strategy due to the competitive benefits it provides.

What is Vertical Integration? Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that companys or entitys power in the marketplace. Simply said, every single product that you can think of has a big life cycle. While you might recognize the product with the Brand name printed on it, many companies are involved in developing that product. These companies are necessarily not part of the brand you see. There are three varieties of vertical integration: Backward, where a company controls products used in the production of its products such as a car company owning a tire company. Forward, where the company owns the distribution and retailing of its products. Complete, or balanced, meaning a firm that controls all components from raw materials to final delivery.

Example of vertical integration: while you are relaxing on the beach sipping chilled cold drink, the brand that you see on the bottle is the producer of the drink but not necessarily the maker of the bottles that carry these drinks. This task of creating bottles is outsourced to someone who can do it better and at a cheaper cost. But once the company achieves significant scale it might plan to produce the bottles itself as it might have its own advantages (discussed below). This is what we call vertical integration. The company tries to get more things under their reign to gain more control over the profits the product / service delivers. Oil companies such as Shell Oil own the entire supply chain starting with the oil wells refines the oil and retails through their gasoline service stations. A simple example of backward vertical integration strategy is an ice cream company that buys a dairy farm. The company requires milk to make ice cream and either can buy milk from a dairy farm or other milk supplier or could own the dairy farm itself. This ensures

that it will have a steady supply of milk at its disposal and that it will pay a reasonable price. This can protect the ice cream maker in the event that there are several other buyers vying for the same milk supply. Starbucks chose to buy a coffee farm in China, an area that showed tremendous growth in the number of coffee drinkers. At the same time, there was increased competition among companies selling coffee, such as McDonald's and other chains such as Costa Coffee. Adding so many new coffee drinkers to the market creates competition for high-quality beans, with every coffee shop needing to buy them. Competition for high-quality beans means that some competitors will not receive them at all and that those who do will pay a high price driven up by competition. By backward vertically integrating by buying a coffee farm, Starbucks ensures that it will have a bean supply and that it will receive it at a reasonable price. What is Horizontal Integration? Horizontal integration means a strategy to increase your market share by taking over a similar company. These take over / merger / buyout can be done in the same geography or probably in other countries to increase your reach. Examples of Horizontal Integration are many and available in plenty. Especially in case of the technology industry, where mergers and acquisitions happen in order to increase the reach of an entity. Example of Horizontal Integration: You Tube, which was taken over my Google primarily because it had a strong and loyal user base. There was no rocket science in technology used at YouTube which Google couldnt have done without taking over, but yes to increase the viewers was definitely as complex without the takeover.

Defensive Strategies
Defensive moves are part of competitive strategies. As in war, as in sport, as in the game of chess, business defensive strategies are critical. Along with offensive strategies, defensive strategies allow the organization to move in various directions (forward, backward, and sideways). Eight critically important defensive strategies include: 1. Signalingwarning the enemy not to enter the market with the objective to obtain victory without a fight. This can be simple by issuing new alerts of changing prices, which potential competitors feel that they would have difficulty to meet the challenge at a profit. 2. Entry barriers- creating obstacles to make it difficult to overcome, which discourages potential competitors from entering the market segment. McDonalds frequently introduce a range of new meals to protect its position. 3. Global servicedeveloping efficiencies that customers only buy for a separate, distinct provider. An example of is the Big 4 Accounting firms (Deloitte, KPMG, PricewaterhouseCoopers, and Ernst & Young). Global companies have limited requirements that only one of the international accounting firms offer. 4. Pre-emptive striketaking aggressive action before competitors realize what had happened. To protect its position in the diet food arena, Thompson Medical, manufacturer of Slim-Fast introduced Ultra Slim Fast that was directed at a wealthier market demographic that surprised competitors, which were selling near cost. 5. Blockingmaking moves to hinder competitors from entering. Look at the razor war between Gillette and Bic. Gillette perceived that Bic was encroaching on its market dominance in the mid 1970s. So Gillette introduced its Good News disposal razor one year prior to Bics entrance to maintain its position. 6. Counter-attackdefending from an attack by following up with attacks. An example is when, high-end automaker, Mercedes was attacked by BMW with the introduction of the higher priced BMW Series 5, 7, and 8 models. To counter-attack, Mercedes introduced the Series 190, later known as the C. 7. Holding the groundallowing competitors to enter, then actively competing with them in order to maintain market position. Xerox entered into the equipment leasing business to fend off competition in the copy machine market. Ironically Kodak also used the hold the ground strategy, but recently was forced to file for bankruptcy protection. 8. Withdrawalsacrificing market position to increase the distance from a competitor. This is not surrendering. To protect intellectual property rights in the 1970s, Coca-Cola and IBM withdrew from India.

Intensive strategy
Intensive strategy is used for organization for improve market share and revenue through market expend and product improvement. It is a strategy of aggregation or expansion under which growth is achieved by expanding the scale of operation. This strategy involves expansion of firms product range and market. Three alternative strategies in this regard are as follows: Market penetration, which means intend to increase market share for present product in present market. It means firms tries to penetrate deeper into the market to increase its market share. So, more funds spent on advertising and sale promotion to increase sale volume. For example, in order to increase market share in Singapore, NTUC FAIRPRICE has opened 24-hour store (FAIRPRICE EXTRA) to provide more conveniences to customer especially working adults as this customer category usually unable to shop during normal operation hour. It helps customer to have alternative choice and improve crowded and long queue problem during weekend. Market development means introducing present product to new market in order to achieve higher sales and profit margin. It will be achieve successfully when products accepted in new market as total cost and average cost will be reduce. Firms may enjoy economies of scale and spread over risks instead focus in the single market. For example: OLD TOWN CAF as famous caf in Malaysia with serving white coffee and local foods. It opened few branches in Singapore to increase their oversea market share. OLD TOWN CAF able to spread risk of business into two markets which are Malaysia and Singapore. Business able to continue even one of the markets does not do well. Product Development which helps to improves present product to achieve more revenue. Under this strategy, a business seeks to grow by developing improved products for the present markets. The current product may be replaced or the new products may be introduced in addition to the existing products. For example, TOYOTA Company always seeks for new technology to increase its vehicle fuel efficiency. This improvement helps TOYOTA to be more competitive than others. As the result, TOYOTA Company gain more sales by selling hybrid vehicle as it helps to reduce pollution to environment as well.

Diversification strategy
Diversification strategy is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in. At the corporate level, it is generally and it is also very interesting entering a promising business outside of the scope of the existing business unit. Concentric diversification is one type of strategic thrust. Concentric diversification focuses on creating a portfolio of related businesses. The portfolio is usually developed by acquisition rather than by internal new business creation. Product-market synergies are a major issue in creating the portfolio of related strategic business units (SBUs). For example, NOKIA launched new features mobile phone which allows consumer surfing internet and mailbox. It helps to create competitive advantages to NOKIA. Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. Synergy may result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing or production synergy with conglomerate diversification. For example, NOKIA business direction was mainly focusing on electronic product likes cable, television and other consumer products. When NOKIA started entry mobile phone market, it has created more revenue although industry totally different to previous. Horizontal diversification occurs when the company acquires or develops new products that could appeal to its current customer groups even though those new products may be technologically unrelated to the existing product lines. For example, petrol station always provides merchandise stored for conveniences its customers.

Conclusion
These four strategies provide organization to improve from different perspectives to achieve more market share and compete to its competitors. Intensive strategy helps firm to achieve deeper and new market share with relevant currents business unit. For integrative strategy, it linked to further expansion either vertical or horizontal or even both at the same. This strategy helps firms to own more control power to upstream and downstream (vertical chain) by investing involved. It also could be another solution to reduce competitor in the industry such as the case we mentioned above. However, firm may also apply diversification strategy into different businesses to gain more market share. It is a good way to spread over risks to different industry instead of only focusing into single industry. The requirement of these strategies are difference, firm might need to tailor with current business direction and resource and facilities. Wrong decision making and divest might lead to higher switching cost from the business.

How do Policies aid strategy implementation?

Changes to the strategy usually entail some form of change in internal operations. People are set in their ways of doing things. You are going to face some resistance when asking them to change. This could also generate some degree of anxiety and stress among some people. A change may also cause confusion. So you need to have policies and procedures in place. This will be a great aid in strategy implementation. Du Pont has a policy that employees shall neither seek nor accept for themselves or others any gifts, favors or entertainment without legitimate business purpose as part of their Business Ethics Policy and Procedures. McDonald has a policy to discard the burgers if they are not purchased within 10 minutes after being cooked French fries 7 minutes. Washington State University has a policy for maintaining its data non -public and confidential University data shall be used only in the performance of assigned roles within the University. User IDs shall be unique and assigned to an individual WSU computer or network system user and passwords must be of a minimum 8 characters in length. As we can see, there is a definite role for the new and revised policies to help in the strategy implementation process. Written wisely, policies and procedures help channel actions, behavior, decisions and practices that promote the strategy. When policies and procedures are not strategy-supportive they become a barrier to change. It has been my experience, when implementing change, some people will vigorously defend the cold way of doing things in an effort to stall or redirect the change process. Policies are empowerment tools. They simplify decision making. The guide the decision and action of mangers their subordinates in strategy implementation. They provide standard operating procedures. They are generally formal and written. The roles of policies in strategy implementation are: 1. Policies promote uniform handing of similar activities. This coordinates tasks. Frictions are reduced. 2. Policies ensure quicker decisions by standardizing answer to routine problems. They empower employees. 3. Policies reduce uncertainty in day-to-day decision making. They provide predetermined answer. 4. Policies establish consistent pattern of managerial actions. 5. Policies reduce resistance to organizational strategies. 6. Policies establish indirect control over independent action Misunderstanding. They improve job performance. 7. Policies help understand the business environ

Several other ways in which policies aid strategy implementation include: They establish indirect control over independent action by clearly stating how things are to be done now. They promote uniform handling of similar activities; They ensure quicker decisions by standardizing answers to recurring questions; They institutionalize basic aspects of organization behavior; They reduce uncertainty in repetitive and day-to-day decision making; They counteract resistance to or rejection of chosen strategies by organization members; They offer predetermined answers to routine problems; They afford managers a mechanism for avoiding hasty decisions.