Types of Strategies

Vertical Integration Strategies

Intensive Strategies
Diversification Strategies
Defensive Strategies
Types of Strategies

Vertical
Integration
Strategies

Forward
Integration
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

Intensive
Strategies

Market
Penetration
Market
Development
Product
Development
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 Penetration Strategies: Increased
Market Share of Present products/services
or Present markets
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
Strategy should be adopted when :
Market Development Strategies: New
Markets -- Present products/services to
new geographic areas
Products in maturity stage of life cycle
Industry characterized by rapid technological
development
Competitors offer better-quality products @
comparable prices
Strong R&D capabilities
Product Development Strategies:
Increased Sales -- Improving present
products/services or developing new
products/services
Types of Strategies

Diversification
Strategies

Related
Diversification
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

Defensive
Strategies

Retrenchment
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