STRATEGY FORMULATION

Chapter 5 (Part 2)

BETSY ROSE S. FIDEL, MBA

Department of Management College Economics,
Management and Development Studies
Cavite State University, Indang, Cavite
 Learning Objectives

At the end of this chapter, students will be able to:

1. Define and give an example of the different types of strategies.
2. Discuss tactics to facilitate strategies like intensive, diversification,
and integration strategies.
3. Learn how to make use of IE strategies and TOWS matrix in
strategy formulation.
 Strategy Formulation

• is the process by which an organization chooses the most.

appropriate courses of action to achieve its defined goals.

*** FOR STRAMA PAPER APPLICATION

✓ Market penetration ✓ Retrenchment

✓ Divestiture
✓ Market Development ✓ TOWS Matrix
✓ Product Development ✓ Integration Strategies
✓ Diversification - forward, backward, and horizontal
integration
STRATEGIES IN ACTION
 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
 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
 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
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
 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
 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
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
 Retrenchment Guidelines
Sometimes called a turnaround or reorganizational strategy, retrenchment is
designed to fortify an organization’s basic distinctive competence.

• 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
 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
 Liquidation
• selling all of a company’s assets, in parts, for their tangible worth
• can be an emotionally difficult strategy

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
 When is vertical integration
attractive for a business?
• The current suppliers of the company’s raw materials or components, or
the distributors of its end products, are unreliable
• The prices of raw materials are unstable or the distributors charge high
fees
• The suppliers or distributors earn big margins
• The company has the resources to manage the new business that is
currently being taken care of by the suppliers or distributors
• The industry is expected to grow significantly
 When is horizontal integration
attractive for a business?
A company can think of acquisitions and • In October 2010, 70% of Mang Inasal (Edgar
mergers for horizontal integration in the “In-jap” Sia) was acquired by Jollibee Foods
following situations: Corporation (JFC), for ₱3 billion ($68.8 million).
• When the industry is growing • Jollibee Food Corporation (JFC -Tony Tan
• When rivals lack the expertise that the Caktiong) buys out remaining 30 percent
equity shares of Mang Inasal Philippines (MIPI)
company has already achieved for P2 billion.
• When economies of scale can be • JFC operates the largest food service network
achieved in the Philippines. As of 31 March 2016, it has
a total of 3, 143 restaurants worldwide
• When the company can manage the including Jollibee, Chowking, Greenwich, Red
operations of the bigger organization Ribbon, Dunkin Donuts, Burger King, and the
efficiently, after the integration recently owned Mang Inasal.
 TOWS MATRIX

For further explanation see: STRAMA Activity 5 Lecture Video (B. Fidel)
 References
• https://www.marketing91.com/what-is-tows-matrix/
• https://www.marketing91.com/marketing-strategy-burger-king/
• David, F. R., David, F. R., & David, M. E. (2013). Strategic management: Concepts and cases: A
competitive advantage approach. Upper Saddle River: Pearson.
• Strategies in Action. Retrieved from:
https://www.slideshare.net/jillmitchell8778/lecture-chapter-5-13636096
• https://www.lugosantiagoeg.com/urgent-need-leaders-wstrategic-thinking-strategic-planning-skills-part-2/
• http://www.quickmba.com/strategy/swot/
• https://www.tamdistrict.org/cms/lib8/CA01000875/Centricity/Domain/1076/Ch_17_Group_Work_Economic_Tre
nds_of_Gilded_Age.pdf
• Vertical integration and horizontal integration: https://www.mbacrystalball.com/blog/strategy/vertical-horizontal-
integration-strategy/
• https://www.manginasal.com/newspost/mang-inasal-now-fully-owned-by-
jollibee/#:~:text=This%20move%20is%20in%20line,100%25%20of%20Mang%20Inasal%20Philippines.