Types of Strategies

Level of strategies

Strategy hierarchy
1. Corporate strategy: 1) growth strategy, 2)
stability strategy, 3) retrenchment strategy.
2. Business unit strategy: 1) cost leadership, 2)
differentiation, 3) focus, 4) mixed.
3. Functional strategy.

Types of Strategies
A Large
Company

Corp
Level

Division Level

Functional Level

Operational Level

3Ch 5 -

Types of Strategies
company

A small
Company

Functional
Level

Operational Level

4Ch 5 -

Corporate strategies
Top level management formulate for overall
organization
The question at the corporate level we should
answer when design strategies: In what
industry should we be operating?
It depends on the outcome of SWOT analysis.

Growth strategies
Growth strategies:
They result increase in sales, market share and profit: the types:
Internal growth: Increase internal capacity of organization
without acquiring other firms.
Conglomerate Diversification: Acquiring unrelated business.
Merger: Two roughly similar size firms combine into one. To
benefit of synergy.
Strategic alliance: Temporary partnerships

Corporate Restructuring
The change in a broad set of actions and decisions, e.g.,
changing relationships and organization of work.
The aim of restructuring is to improve effectiveness.
Restructuring could be growth, stability or retrenchment.
This depends on why we use it.

Retrenchment strategies
Types:
1- Turnaround:
Eliminating unprofitable outputs,
pruning/cutting assets, reducing size of work
force, rethinking firms products lines and
customer groups.
2- Divestment: sell one of business units
3- Liquidation: last resort strategy
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Strategies in Action

Vertical Integration Strategies

Forward integration
Backward integration
Horizontal integration

Strategies in Action
Forward
Integration
Defined

Gaining
ownership or
increased control
over distributors
or retailers
10

Example

General Motors is
acquiring 10% of its
dealers.

Strategies in Action
Guidelines for Forward Integration

11

Present distributors are expensive, unreliable, or incapable of

meeting firms needs
Availability of quality distributors is limited
When firm competes in an industry that is expected to grow
markedly
Advantages of stable production are high
Present distributor have high profit margins

Strategies in Action
Backward
Integration
Defined

Seeking
ownership or
increased control
of a firms
suppliers
12

Example

Motel 8 acquired a
furniture
manufacturer.

Strategies in Action
Guidelines for Backward Integration

13

When present suppliers are expensive, unreliable, or incapable

of meeting needs
Number of suppliers is small and number of competitors large
High growth in industry sector
Firm has both capital and human resources to manage new
business
Advantages of stable prices are important
Present supplies have high profit margins

Strategies in Action
Horizontal
Integration
Defined

Seeking
ownership or
increased control
over competitors
14

Example

Palestinian Islamic
Bank acquired CairoAmman Bank Islamic
transaction branch.

Strategies in Action
Guidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being
challenged by federal government
Competes in growing industry
Increased economies of scale provide major competitive
advantages
Faltering/losing due to lack of managerial expertise or need for
particular resources

15

Strategies in Action

Intensive Strategies

16

Market penetration
Market development
Product development

Strategies in Action
Market
Penetration
Defined

Seeking increased
market share for
present products
or services in
present markets
through greater
marketing efforts
17

Example

Ameritrade, the online broker, tripled its

annual advertising
expenditures to $200
million to convince
people they can make
their own investment
decisions.

Strategies in Action
Guidelines for Market Penetration
Current markets not saturated
Usage rate of present customers can be increased significantly
Market shares of competitors declining while total industry
sales increasing
Increased economies of scale provide major competitive
advantages

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Strategies in Action
Market
Development
Defined

Example

19

Introducing
present products
or services into
new geographic
area

Khuzendar Tiles maker

introduce his product
to Gulf markets.

Strategies in Action
Guidelines for Market Development

20

New channels of distribution that are reliable, inexpensive, and

good quality
Firm is very successful at what it does
Untapped or unsaturated markets
Capital and human resources necessary to manage expanded
operations
Excess production capacity
Basic industry rapidly becoming global

Strategies in Action
Product
Development
Example
Defined

Seeking increased
sales by improving
present products
or services or
developing new
ones
21

Apple developed the

G4 chip that runs at
500 megahertz.
Khuzendar Tiles maker
introduce Ceramic as a
new product.

Strategies in Action
Guidelines for Product Development

22

Products in maturity stage of life cycle

Competes in industry characterized by rapid technological
developments
Major competitors offer better-quality products at comparable
prices
Compete in high-growth industry
Strong research and development capabilities

Strategies in Action

Diversification Strategies

23

Concentric diversification
Conglomerate diversification
Horizontal diversification

Strategies in Action
Concentric
Diversification
Example

Defined

Adding new, but

related, products
or services

24

National Westminister
Bank PLC in Britain
bought the leading
British insurance
company, Legal &
General Group PLC.

Strategies in Action
Guidelines for Concentric Diversification

25

Competes in no- or slow-growth industry

Adding new & related products increases sales of current
products
New & related products offered at competitive prices
Current products are in decline stage of the product life cycle
Strong management team

Strategies in Action
Conglomerate
Diversification
Example

Defined

Adding new,
unrelated products
or services

26

Consultant
Construction
Engineering acquired
Bisects factory.

Strategies in Action
Guidelines for Conglomerate Diversification
Declining annual sales and profits
Capital and managerial talent to compete successfully in a new
industry
Financial synergy between the acquired and acquiring firms
Exiting markets for present products are saturated

27

Strategies in Action
Horizontal
Diversification
Defined

Adding new,
unrelated products
or services for
present customers
28

Example

The El-Awda Co.

provide ice-cream
product to present
customer

Strategies in Action
Guidelines for Horizontal Diversification

Revenues from current products/services would increase

significantly by adding the new unrelated products
Highly competitive and/or no-growth industry w/low margins
and returns
Present distribution channels can be used to market new
products to current customers
New products have counter cyclical sales patterns compared to
existing products

29

Strategies in Action
Defensive Strategies

30

Joint venture
Retrenchment
Divestiture
Liquidation

Strategies in Action
Joint Venture
Defined

Example

Two or more
sponsoring firms
forming a separate
organization for
cooperative
purposes
31

Lucent Technologies
and Philips Electronic
NV formed Philips
Consumer
Communications to
make and sell
telephones.

Strategies in Action
Guidelines for Joint Venture

32

Combination of privately held and publicly held can be

synergistically combined
Domestic forms joint venture with foreign firm, can obtain local
management to reduce certain risks
Distinctive competencies of two or more firms are
complementary
Overwhelming resources and risks where project is potentially
very profitable (e.g., Alaska pipeline)
Two or more smaller firms have trouble competing with larger
firm
A need exists to introduce a new technology quickly

Strategies in Action
Retrenchment
(turnaround)
Defined

Regrouping through
cost and asset
reduction to reverse
declining sales and
profit. Sometimes it is
called turnaround or
reorganizational
strategy.
33

Example

A company sold off a

land and 4 apartments
to raise cash needed.
It introduce expense
effective control
system.

Strategies in Action
Guidelines for Retrenchment

34

Firm has failed to meet its objectives and goals consistently over
time but has distinctive competencies
Firm is one of the weaker competitors
Inefficiency, low profitability, poor employee morale, and
pressure from stockholders to improve performance.
When an organizations strategic managers have failed
Very quick growth to large organization where a major internal
reorganization is needed.

Strategies in Action
Divestiture

Defined

Example

Selling a division
or part of an
organization

35

Harcourt General, the

large US publisher, is
selling its Neiman
Marcus division.

Strategies in Action
Guidelines for Divestiture

36

When firm has pursued retrenchment but failed to attain

needed improvements
When a division needs more resources than the firm can
provide
When a division is responsible for the firms overall poor
performance
When a division is a misfit with the organization
When a large amount of cash is needed and cannot be
obtained from other sources.

Strategies in Action
Liquidation

Defined

Selling all of a
companys assets,
in parts, for their
tangible worth
37

Example

El-Ameer Block factory

sold all its assets and
ceased business.

Strategies in Action
Guidelines for Liquidation
When both retrenchment and divestiture have been pursued
unsuccessfully
If the only alternative is bankruptcy, liquidation is an orderly
alternative
When stockholders can minimize their losses by selling the
firms assets

38

Michael Porters Generic

Strategies
Cost Leadership Strategies
(Low-Cost & Best-Value)

Differentiation Strategies
Focus Strategies
(Low-Cost Focus &
Best-Value Focus)

39Ch 5 -

Business Unit Strategies

Here we answer the question:
How should we compete in the chosen industry?
Cost leadership
Differentiation (real or perceived).
Mixed
Focus

40

Business Strategy

Focuses on improving competitive

position of companys products or
services within the specific industry
or market segment

416-

Porters Competitive Strategies

Competitive Strategy -Low cost

Differentiation
Direct competition
Focus on niche

426-

Porters Competitive Strategies

Generic Competitive Strategies -Lower Cost strategy

Greater efficiencies than competitors

Differentiation strategy

Unique/superior value, quality, features,

service

436-

Porters Competitive Strategies

Competitive Advantage -Determined by Competitive Scope

Breadth of the target market

446-

Porters Competitive Strategies

456-

46Ch 5 -

Porters Competitive Strategies

Cost Leadership -Low-cost competitive strategy

Broad mass market
Efficient-scale facilities
Cost reductions
Cost minimization

476-

Michael Porters Generic Strategies

Cost leadership emphasizes producing standardized products
at a very low per-unit cost for consumers who are pricesensitive.
There are two types of cost leadership strategies.
a. A low-cost strategy offers products to a wide range of
customers at the lowest price available on the market.
b. A best-value strategy offers products to a wide range of
customers at the best price-value available on the market.

48Ch 5 -

Cost leadership
Striving to be the low-cost producer in an industry
can be especially effective when the market is
composed of many price-sensitive buyers, when
there are few ways to achieve product
differentiation, when buyers do not care much about
differences from brand to brand, or when there are a
large number of buyers with significant bargaining

power.

49Ch 5 -

Cost leadership
The basic idea behind a cost leadership strategy is to
underprice competitors or offer a better value and
thereby gain market share and sales, driving some
competitors out of the market entirely.
5. To successfully employ a cost leadership strategy,
firms must ensure that total costs across the value chain
are lower than that of the competition. This can be
accomplished by:

a. performing value chain activities more efficiently

than competition, and

b. eliminating some cost-producing activities in the

value chain.
50Ch 5 -

Porters Competitive Strategies

Differentiation
Broad mass market
Unique product/service
Premiums charged
Less price sensitivity

516-

Differentiation

Differentiation is aimed at producing

products that are considered unique. This
strategy is most powerful with the source of
differentiation is especially relevant to the
target market

52Ch 5 -

Differentiation

A successful differentiation strategy allows a firm

to charge higher prices for its products to gain
customer loyalty because consumers may become
strongly attached to the differentiation features.
3. A risk of pursuing a differentiation strategy is that
the unique product may not be valued highly enough
by customers to justify the higher price.

53Ch 5 -

Differentiation

Common organizational requirements for a

successful differentiation strategy include
strong coordination among the R&D and
marketing functions and substantial amenities
to attract scientists and creative people.

54Ch 5 -

Focus
1. Focus means producing products and services that fulfill
the needs of small groups of consumers.
2. There are two types of focus strategies.
a. A low-cost focus strategy offers products or services to a
small range (niche) of customers at the lowest price available
on the market.
b. A best-value focus strategy offers products to a small range
of customers at the best price-value available on the market.
This is sometimes called focused differentiation.

55Ch 5 -

Focus
Focus strategies are most effective when the
niche is profitable and growing, when industry
leaders are uninterested in the niche, when industry
leaders feel pursuing the niche is too costly or
difficult, when the industry offers several niches, and
when there is little competition in the niche
segment.

56Ch 5 -

Porters Competitive Strategies

Cost-Focus
Low-cost competitive strategy
Focus on market segment
Niche focused
Cost advantage in market segment

576-

Porters Competitive Strategies

Differentiation Focus
Specific group or geographic market
focus
Differentiation in target market
Special needs of narrow target market

586-

Porters Competitive Strategies

Stuck in the middle

No competitive advantage
Below-average performance

596-

Risks of Generic Strategies

Risks of Cost
Risks of Cost
Leadership
Leadership
Cost
leadership
is not
Cost
leadership
is not
sustained:
sustained:
Competitors
Competitorsimitate.
imitate.
Technology
Technologychanges.
changes.
Other
bases
Other bases for
for cost
cost
leadership
erode.
leadership
erode.
Proximity in Proximity in
differentiation
is lost.
differentiation
is lost.
Cost
focusers
achieve
Cost focusers achieve
even lower
cost incost in
even lower
segments.
segments.

606-

Risks
RisksofofDifferentiation
Differentiation
Differentiation
is not
Differentiation is not
sustained:
sustained:
Competitorsimitate.
imitate.
Competitors
Bases
forfor
differentiation
Bases
differentiation

become less important

become
less important
to
to
buyers.
Cost proximity isbuyers.
lost.
Cost
proximity
is lost.
Differentiation focusers
Differentiation
focusers
achieve
even greater
achieve even
differentiation
in greater
differentiation in
segments.
segments.

Risks of Focus
Risks
Focus
The of
focus
strategy is
The focus strategy
is
imitated:
imitated:
The target segment
Thebecomes
target segment
structurally
becomes structurally
unattractive:
unattractive:
Structure erodes.
Structure
erodes.
Demand disappears.
Demand
disappears.
Broadly
targeted
Broadly
targeted
competitors
overwhelm
competitors
overwhelm
the segment:
the segment:
The segments
differences
The segments
from other
differences
from
other
segments
narrow.
narrow.
segments
The advantages
of a
The
advantages
of a
broad
line increase.
broad line
increase.
New focusers
subsegment
New focusers
thesubsegment
industry.
the industry.

Level of Strategy
Functional/operational Strategies:
Concern with org. internal resources and
processes which effectively deliver the
corporate and business strategic direction.
Functional strategies are interrelated.
Functional strategies e.g.: purchasing &
materials management, production, finance,
R&D, HR, IT, and marketing.
61

purchasing & materials management

(as example)
Buying materials in quantity, quality and cost
which correspond with the corp. generic
strategies (Business Unit strategies).

62