Types of Strategies

Strategic Management
Fred R. David and Forest R. David
16th Edition
 Types of Strategies

• Most organizations simultaneously

pursue a combination of two or more
strategies, but a combination strategy
can be exceptionally risky if carried too
far.
• No organization can afford to pursue all
the 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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Levels of Strategies with Persons Most
Responsible

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 Integration Strategies

• Forward Integration
– involves gaining ownership or increased
control over distributors or retailers
• Backward Integration
– strategy of seeking ownership or
increased control of a firm's suppliers
• Horizontal Integration
– a strategy of seeking ownership of or
increased control over a firm's competitors

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 Forward Integration Guidelines

• When an organization's present distributors are especially

expensive
• When the availability of quality distributors is so limited as to
offer a competitive advantage
• When an organization competes in an industry that is growing
• When an organization has both capital and human resources to
manage distributing their own products
• When the advantages of stable production are particularly high
• When present distributors or retailers have high profit margins

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 Backward Integration Guidelines

• When an organization's present suppliers are especially

expensive or unreliable
• When the number of suppliers is small and the number of
competitors is large
• When the organization competes in a growing industry
• When an organization has both capital and human resources
• When the advantages of stable prices are particularly
important
• When present suppliers have high profit margins
• When an organization needs to quickly acquire a needed
resource

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 Horizontal Integration Guidelines

• When an organization can gain monopolistic

characteristics in a particular area or region without
being challenged by the federal government
• When an organization competes in a growing
industry
• When increased economies of scale provide major
competitive advantages
• When an organization has both the capital and
human talent needed
• When competitors are faltering due to a lack of
managerial expertise

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 Intensive Strategies

• Market Penetration Strategy

– seeks to increase market share for present
products or services in present markets through
greater marketing efforts
• Market Development
– involves introducing present products or services
into new geographic areas
• Product Development Strategy
– seeks increased sales by improving or modifying
present products or services
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 Market Penetration Guidelines

• When current markets are not saturated with a

particular product or service
• When the usage rate of present customers could be
increased significantly
• When the market shares of major competitors have
been declining while total industry sales have been
increasing
• When the correlation between dollar sales and dollar
marketing expenditures historically has been high
• When increased economies of scale provide major
competitive advantages

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 Market Development Guidelines

• When new channels of distribution are available

that are reliable, inexpensive, and of good quality
• When an organization is very successful at what it
does
• When new untapped or unsaturated markets exist
• When an organization has the needed capital and
human resources to manage expanded operations
• When an organization has excess production
capacity
• When an organization's basic industry is rapidly
becoming global in scope

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 Product Development Guidelines

• When an organization has successful products that

are in the maturity stage of the product life cycle
• When an organization competes in an industry
characterized by rapid technological developments
• When major competitors offer better-quality
products at comparable prices
• When an organization competes in a high-growth
industry
• When an organization has strong research and
development capabilities
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 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

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 Synergies of Related Diversification

• Transferring competitively valuable expertise,

technological know-how, or other capabilities from
one business to another
• Combining the related activities of separate
businesses into a single operation to achieve lower
costs
• Exploiting common use of a known brand name
• Using cross-business collaboration to create
strengths

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 Related Diversification Guidelines

• When an organization competes in a no-growth or

a slow-growth industry
• When adding new, but related, products would
significantly enhance the sales of current products
• When new, but related, products could be offered
at highly competitive prices
• When new, but related, products have seasonal
sales levels that counterbalance an organization’s
existing peaks and valleys
• When an organization’s products are currently in
the declining stage of the product’s life cycle
• When an organization has a strong management
team
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 Unrelated Diversification Guidelines

• When revenues derived from an organization's current

products would increase significantly by adding the new,
unrelated products
• When an organization competes in a highly competitive or a
no-growth industry, as indicated by low industry profit margins
and returns
• When an organization's present channels of distribution can be
used to market the new products to current customers
• When the new products have countercyclical sales patterns
compared to present products
• When an organization's basic industry is experiencing
declining annual sales and profits

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 Unrelated Diversification Guidelines
(cont.)
• When an organization has the capital and managerial
talent needed to compete successfully in a new
industry
• When an organization has the opportunity to
purchase an unrelated business that is an attractive
investment opportunity
• When there exists financial synergy
• When existing markets for an organization's present
products are saturated
• When antitrust action could be charged against an
organization that historically has concentrated on a
single industry

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 Defensive Strategies

• Retrenchment
– Regroups through cost and asset reduction to reverse
declining sales and profits

• Divestiture
– Selling a division or part of an organization
– Often used to raise capital for further strategic
acquisitions or investments

• Liquidation
– Selling all of a company’s assets, in parts, for their
tangible worth

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 Defensive Strategies

• Retrenchment
– occurs when an 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

• When an organization has a distinctive competence

but has failed consistently to meet its goals
• When an organization is one of the weaker
competitors in a given industry
• When an organization is plagued by inefficiency, low
profitability, and poor employee morale
• When an organization fails to capitalize on external
opportunities and minimize external threats
• When an organization has grown so large so quickly
that major internal reorganization is needed
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 Divestiture Guidelines

• When an organization has pursued a retrenchment

strategy and failed to accomplish improvements
• When a division needs more resources to be
competitive than the company can provide
• When a division is responsible for an organization's
overall poor performance
• When a division is a misfit with the rest of an
organization
• When a large amount of cash is needed quickly
• When 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

• When an organization has pursued both

a retrenchment strategy and a
divestiture strategy, and neither has
been successful
• When an organization's only alternative
is bankruptcy
• When the stockholders of a firm can
minimize their losses by selling the
organization's assets

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Porter's Five Generic Strategies

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 Michael Porter's Five
Generic Strategies
Cost Leadership emphasizes producing
standardized products at a very low per-unit
cost for consumers who are price-sensitive
• Type 1
– low-cost strategy that offers products or services
to a wide range of customers at the lowest price
available on the market
• Type 2
– best-value strategy that offers products or services
to a wide range of customers at the best price-
value available on the market

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 Michael Porter's Five
Generic Strategies
• Type 3
– Differentiation is a strategy aimed at
producing products and services
considered unique industry-wide and
directed at consumers who are relatively
price-insensitive

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 Michael Porter's Five
Generic Strategies
• Type 4
– low-cost focus strategy that offers
products or services to a niche group of
customers at the lowest price available
on the market
• Type 5
– 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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 Means for Achieving Strategies

• Cooperation Among Competitors

• Joint Venture/Partnering
• Merger/Acquisition
• Private-Equity Acquisitions
• First Mover Advantages
• Outsourcing/Reshoring

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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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