Types of Strategies

OBJECTIVES

• Sixteen types of strategies

• Including Michael Porter’s generic strategies

• Guidelines for determining when each strategy is most

appropriate to pursue

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 CLASS OF STRATEGIES

• Integration

• Intensive

• Diversification

• Defensive

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 OBJECTIVES

1. Forward integration
2. Backward integration
3. Horizontal integration
4. Market penetration
5. Market development
6. Product development
7. Related diversification
8. unrelated diversification
9. Retrenchment
10. Divestiture
11. Liquidation

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Integration Strategies
► Indian café chain
► Sells nearly 1.8 billion cups of coffee annually in

six countries
► Largest producer of arabica beans in Asia
► Exporting to various countries including USA,

Europe and Japan

► Company is known for being vertically integrated
► Owning the plantations

► Growing coffee

► Making the coffee machines

► Making the furniture for the outlets

FORWARD INTEGRATION GUIDELINES
Definition: Gaining ownership or increased control over distributors or
retailers.

► Present distributors are expensive

► Availability of quality distributors is limited

► Offers a competitive advantage

► Has both capital and human resources needed to manage new

business of distributing own products

► Competing in a growth industry

► Strong advantage of stable production are high

► Distributors or retailers have high profit margins

 Name this company
►Started with textiles

►Went on to produce polyester fibres

►Got into petrochemicals

►Went further back to petroleum refining

►Now has invested into Oil and Gas

exploration as well

BACKWARD
INTEGRATION
THE STORY OF GAUTAM ADANI

• India’s power and coal ministries granted Mr.

Adani initial approval to build a power plant in
Maharashtra state, a deal that included the
right to develop a coal mine.
• This coal mine license was withdrawn due to
environmental concerns
• Adanis acquired mining rights in Indonesia
and Australia
• He bought fours cargo ships Gautam Adani
India’s 10th richest
• He acquired a Port terminal in Australia for person
transporting this coal
• Adani’s already have Mundra port – India’s
largest private port
THE STORY OF GAUTAM ADANI

• Adani built India’s first 40 Km railway to

transport the coal from port to the nearest
railway network point.
• India is now Indonesia’s largest coal
customer
• Adani is now India’s largest coal importer Gautam Adani
India’s 10th richest
person
BACKWARD INTEGRATION GUIDELINES
Definition: Seeking ownership or increased control of a firm’s suppliers

► Present suppliers are expensive or unreliable

► Number of suppliers is small and the number of competitors is large

► Organization has both capital and human resources

► Stable prices are particularly important

► Quickly acquire a needed resource

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HORIZONTAL
INTEGRATION
HORIZONTAL INTEGRATION GUIDELINES

Strategy of seeking ownership of or increased control

over a firm’s competitors
► Gain monopolistic characteristics
►without being challenged by the government
► Compete in a growing industry
► Increased economies of scale provide major competitive
advantages
► Competitors are faltering due to lack of managerial expertise
DE-INTEGRATION
► Some industries tend to reduce historical pursuit of backward
integration
► Instead of owning their suppliers, companies negotiate with
several outside suppliers
► Ford and chrysler buy more than half of their component
parts from outside suppliers
► De-integration makes sense in industries that have global sources
of supply
► Global competition is spurring firms to reduce number of
suppliers and demand higher levels of service and quality from
those they keep
► Many firms are following lead of Japanese firms, which have far
fewer suppliers and closer, long-term relationships
 Intensive Strategies
(Ansoff Matrix or Product / Market Development Grid)
ANSOFF MATRIX: MARKET DEVELOPMENT, MARKET
PENETRATION, PRODUCT DEVELOPMENT,
DIVERSIFICATION

“same to new” “new to new”

“same to same” “new to same

ANSOFF MATRIX
► Also called the Product/Market Expansion Grid
► Tool used by firms to analyze and plan their strategies for
growth
► Shows four strategies that can be used to help a firm grow and
also analyzes risk associated with each strategy

► Developed by applied mathematician and business manager H.

Igor Ansoff
► Published in the Harvard Business Review in 1957

► Has helped marketers and leaders understand the risks of

growing their business
Rural bikes,
exports

Electric
scooters
INTENSIVE STRATEGIES

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MARKET
PENETRATION
MARKET PENETRATION GUIDELINES
► Current markets are not saturated

► Potential to significantly increase usage rate among

present customers

► Shares of major competitors are declining but total

industry sales are increasing

► Increased economies of scale provide major

competitive advantages
MARKET
DEVELOPMENT
MARKET DEVELOPMENT GUIDELINES

► New channels of distribution are available that are

reliable, inexpensive, and of good quality
► Organization is successful at what it does
► New untapped or unsaturated markets exist
► Excess production capacity
► Industry is rapidly becoming global in scope
PRODUCT
DEVELOPMENT
PRODUCT DEVELOPMENT GUIDELINES
► Successful products that are in maturity stage of
product life cycle
► Competing in an industry characterized by rapid
technological developments
► Major competitors offer better-quality products at
comparable prices
► Competing in a high-growth industry
► Strong research and development capabilities
DIVERSIFICATION STRATEGIES

► Related diversification
► value chains possess competitively valuable cross-
business strategic fits

► Unrelated diversification
► value chains are so dissimilar that no competitively
valuable cross-business relationships exist
THE TIMES GROUP: RELATED DIVERSIFICATION
► Newspapers – Times of India; Economic Times;
Maharashtra Times; Navbharat Times; Mumbai Mirror;
Pune Mirror; Bangalore Mirror; Vijay Times; Vijaya
Karnataka
► Magazines – Filmfare and Femina
► Television Media – Times Now; ET Now; Romedy Now;
Movies Now; Times Music; Zoom
► Radio – Radio Mirchi
► Internet businesses -Gaana.com; TimesJobs; Magic
Bricks; ZigWheels;
► Advertising business – TimesOOH;
► Other businesses –Bennett University
SYNERGIES OF RELATED DIVERSIFICATION

► Transfer of competitively valuable expertise, technological

know-how, or other capabilities across businesses
► Combining related activities of separate businesses into
single operation to lower costs
► Exploiting a known brand name
► Using cross-business collaboration to create strengths

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RELATED DIVERSIFICATION GUIDELINES

► Competing in a no-growth or a slow-growth

industry
► Adding new, but related, products significantly
enhance sales of current products
► New, but related, products could be offered at
competitive prices
► Organization has a strong management team

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UNRELATED DIVERSIFICATION:
UNRELATED DIVERSIFICATION GUIDELINES

► Revenues derived from current products would

increase significantly by adding new, unrelated
products
► Present channels of distribution can be used to
market new products to current customers
► New products have countercyclical sales patterns
compared to present products
► Organization’s basic industry is experiencing
declining annual sales and profits

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UNRELATED DIVERSIFICATION GUIDELINES
(CONT.)
► There exists financial synergy
► Opportunity to purchase an unrelated business
that is an attractive investment opportunity
► Existing markets for an organization’s present
products are saturated
► Antitrust action could be charged against an
organization that historically has concentrated
on a single industry

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Defensive Strategies
DEFENSIVE STRATEGIES

► Retrenchment

► Organization regroups through cost and asset reduction

to reverse declining sales and profits

► Also called a turnaround or reorganizational strategy

► Designed to fortify an organization’s basic distinctive

competence

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RETRENCHMENT GUIDELINES
► Organization has distinctive competence but failed
consistently to meet goals
► Organization is weaker compared to competitors

► Plagued by inefficiency, low profitability, and poor

employee morale
► Fails to capitalize on external opportunities and
minimize external threats
► Grown so large so quickly that major internal
reorganization is needed

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DEFENSIVE STRATEGIES

► Divestiture

► Selling a division or part of an organization

► Often used to raise capital for further strategic

acquisitions or investments

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DIVESTITURE GUIDELINES

► Pursuit of retrenchment strategy failed to

accomplish improvements
► Division needs more resources to be competitive
than the company can provide
► Division is responsible for an organization’s overall
poor performance
► Division is a misfit with the rest of an organization

► Government antitrust action threatens a firm

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DEFENSIVE STRATEGIES

► Liquidation

► Selling all of a company’s assets, in parts, for their

tangible worth

► Can be an emotionally difficult strategy

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LIQUIDATION GUIDELINES

► Pursuit of both retrenchment strategy and

divestiture strategy has not been successful
► Only alternative is bankruptcy

► Stockholders of firm can minimize losses by

selling organization’s assets

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Porter’s Generic Strategies
PORTER’S GENERIC STRATEGIES
COST LEADERSHIP
STRATEGY
COST LEADERSHIP

► Emphasizes producing standardized products at a very low

per-unit cost for consumers who are price-sensitive

► low-cost
strategy that offers products or services to a
wide range of customers at the lowest price available
on the market

► best-valuestrategy that offers products or services to

a wide range of customers at the best price-value
available on the market
COST LEADERSHIP STRATEGIES
► To employ a cost leadership strategy successfully
► A firm must ensure that its total costs across its overall
value chain are lower than competitors’ total costs

► Two ways:
► Perform value chain activities more efficiently than rivals
and control the factors that drive the costs of value chain
activities
► Revamp the firm’s overall value chain to eliminate or
bypass some cost-producing activities
COST LEADERSHIP GUIDELINES

► Price competition among rival sellers is especially

vigorous
► Only few ways to achieve product differentiation
that have value to buyers
► Most buyers use the product in the same ways

► Buyers incur low costs in switching their purchases

from one seller to another
► Large buyers can bargain down prices
DIFFERENTIATION
STRATEGY
 DIFFERENTIATION

► Strategy aimed at producing products and services

considered unique industry-wide and directed at consumers
who are relatively price-insensitive

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DIFFERENTIATION STRATEGIES

► Should be pursued only after careful study of buyers’ needs

and preferences
► To determine the feasibility of incorporating one or more
differentiating features into unique product that features
desired attributes

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DIFFERENTIATION GUIDELINES

► Many ways to differentiate the product

► Buyer needs and uses are diverse

► Rival firms are following a similar differentiation approach

► Technological change is fast paced

FOCUS STRATEGY
(COST)
FOCUS STRATEGY
(DIFFERENTIATION)
 FOCUS

► Producing products and services that fulfill the needs of

small groups

► Low-cost focus strategy that offers products or

services to a niche group of customers at the lowest
price available on the market
►

► Best-value focus strategy that offers products or

services to a small range of customers at the best
price-value available on the market

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FOCUS STRATEGIES

► Success depends on an industry segment that is of

sufficient size, has good growth potential, and is not crucial
to the success of other major competitors

► Most effective when consumers have distinctive preferences

FOCUS STRATEGY GUIDELINES

► Target market niche is large, profitable, and growing

► Industry leaders do not consider the niche to be crucial to
their own success
► Industry leaders consider it too costly or difficult to meet the
specialized needs of the niche
► Industry has many different niches
► Few, if any, other rivals are attempting to specialize in the
same target segment
MEANS FOR ACHIEVING STRATEGIES

► Cooperation Among Competitors

► Joint Venture/Partnering
► Merger/Acquisition
► Private-Equity Acquisitions
► First Mover Advantages
► Outsourcing/Reshoring
TYPES OF STRATEGIES

► Most organizations simultaneously pursue a

combination of two or more strategies
► but a combination strategy can tend to be
risky
► No organization can afford to pursue all
strategies that might benefit the firm
► Difficult decisions must be made and priorities
must be established.

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ALTERNATIVE STRATEGIES DEFINED AND
EXEMPLIFIED

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ALTERNATIVE STRATEGIES DEFINED AND
EXEMPLIFIED

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KEY REASONS WHY MANY MERGERS AND
ACQUISITIONS FAIL

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POTENTIAL BENEFITS OF MERGING WITH
OR ACQUIRING ANOTHER FIRM

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BENEFITS OF A FIRM BEING
THE FIRST MOVER

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