Types of

Strategies

Chapter Four

Copyright ©2017 Pearson Education, Limited 4-1

Copyright ©2017 Pearson Education, Limited 4-2
 Learning Objectives
1. Identify and discuss eight characteristics of objectives
and ten benefits of having clear objectives.
2. Define and give an example of eleven types of
strategies.
3. Identify and discuss the three types of “Integration
Strategies.”
4. Give specific guidelines when market penetration,
market development, and product development are
especially effective strategies.
5. Explain when diversification is an effective business
strategy.

Copyright ©2017 Pearson Education, Limited 4-3

 Learning Objectives (cont.)
6. List guidelines for when retrenchment, divestiture, and
liquidation are especially effective strategies.
7. Identify and discuss Porter’s five generic strategies.
8. Compare (a) cooperation among competitors, (b) joint venture
and partnering, and (c) merger/acquisition as key means for
achieving strategies.
9. Discuss tactics to facilitate strategies, such as (a) being a first
mover, (b) outsourcing, and (c) reshoring.
10. Explain how strategic planning differs in for-profit, not-for-profit,
and small firms.

Copyright ©2017 Pearson Education, Limited 4-4

 Long-Term Objectives

v The results expected from

pursuing certain strategies
v 2-to-5 year timeframe

Copyright ©2017 Pearson Education, Limited 4-5

Varying Performance Measures by
Organizational Level

Copyright ©2017 Pearson Education, Limited 4-6

The Desired Characteristics
of Objectives

Copyright ©2017 Pearson Education, Limited 4-7

 The Nature of Long-Term
Objectives
vObjectives
vprovide direction
vallow synergy
vassist in evaluation
vestablish priorities
vreduce uncertainty
vminimize conflicts
vstimulate exertion
vaid in both the allocation of resources and the
design of jobs

Copyright ©2017 Pearson Education, Limited 4-8

 Financial versus Strategic Objectives
v Financial objectives include growth in revenues,
growth in earnings, higher dividends, larger profit
margins, greater return on investment, higher earnings
per share, a rising stock price, improved cash flow, and
so on.
v Strategic objectives include a larger market share,
quicker on-time delivery than rivals, shorter design-to-
market times than rivals, lower costs than rivals, higher
product quality than rivals, wider geographic coverage
than rivals, achieving technological leadership,
consistently getting new or improved products to
market ahead of rivals, and so on.

Copyright ©2017 Pearson Education, Limited 4-9

 Not Managing by Objectives

Managing by Extrapolation

Managing by Crisis

Managing by Subjectives

Managing by Hope
Copyright ©2017 Pearson Education, Limited 4-10
A Comprehensive Strategic-
Management Model

Copyright ©2017 Pearson Education, Limited 4-11

 Types of Strategies
vMost organizations simultaneously pursue a
combination of two or more strategies, but a
combination strategy can be exceptionally
risky if carried too far.
vNo organization can afford to pursue all the
strategies that might benefit the firm.
vDifficult decisions must be made and
priorities must be established.

Copyright ©2017 Pearson Education, Limited 4-12

Alternative Strategies Defined and
Exemplified

Copyright ©2017 Pearson Education, Limited 4-13

Alternative Strategies Defined and
Exemplified

Copyright ©2017 Pearson Education, Limited 4-14

Levels of Strategies with Persons
Most Responsible

Copyright ©2017 Pearson Education, Limited 4-15

 Integration Strategies
vForward Integration
vinvolves gaining ownership or increased control
over distributors or retailers
vBackward Integration
vstrategy of seeking ownership or increased
control of a firm's suppliers
vHorizontal Integration
va strategy of seeking ownership of or increased
control over a firm's competitors

Copyright ©2017 Pearson Education, Limited 4-16

 Forward Integration Guidelines
v When an organization's present distributors are
especially expensive
v When the availability of quality distributors is so limited
as to offer a competitive advantage
v When an organization competes in an industry that is
growing
v When an organization has both capital and human resources
to manage distributing their own products
v When the advantages of stable production are
particularly high
v When present distributors or retailers have high profit
margins
Copyright ©2017 Pearson Education, Limited 4-17
 Backward Integration Guidelines
v When an organization's present suppliers are
especially expensive or unreliable
v When the number of suppliers is small and the number
of competitors is large
v When the organization competes in a growing industry
v When an organization has both capital and human
resources
v When the advantages of stable prices are particularly
important
v When present suppliers have high profit margins
v When an organization needs to quickly acquire a
needed resource

Copyright ©2017 Pearson Education, Limited 4-18

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

Copyright ©2017 Pearson Education, Limited 4-19

 Intensive Strategies
vMarket Penetration Strategy
vseeks to increase market share for present
products or services in present markets through
greater marketing efforts
vMarket Development
vinvolves introducing present products or services
into new geographic areas
vProduct Development Strategy
vseeks increased sales by improving or modifying
present products or services
Copyright ©2017 Pearson Education, Limited 4-20
 Market Penetration Guidelines
v When current markets are not saturated with a
particular product or service
v When the usage rate of present customers could be
increased significantly
v When the market shares of major competitors have
been declining while total industry sales have been
increasing
v When the correlation between dollar sales and dollar
marketing expenditures historically has been high
v When increased economies of scale provide major
competitive advantages

Copyright ©2017 Pearson Education, Limited 4-21

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

Copyright ©2017 Pearson Education, Limited 4-22

 Product Development Guidelines
vWhen an organization has successful products that
are in the maturity stage of the product life cycle
vWhen an organization competes in an industry
characterized by rapid technological developments
vWhen major competitors offer better-quality
products at comparable prices
vWhen an organization competes in a high-growth
industry
vWhen an organization has strong research and
development capabilities
Copyright ©2017 Pearson Education, Limited 4-23
 Diversification Strategies
vRelated Diversification
vvalue chains possess competitively valuable
cross-business strategic fits
vUnrelated Diversification
vvalue chains are so dissimilar that no
competitively valuable cross-business
relationships exist

Copyright ©2017 Pearson Education, Limited 4-24

 Synergies of Related Diversification
vTransferring competitively valuable expertise,
technological know-how, or other capabilities from
one business to another
vCombining the related activities of separate
businesses into a single operation to achieve lower
costs
vExploiting common use of a known brand name
vUsing cross-business collaboration to create
strengths

Copyright ©2017 Pearson Education, Limited 4-25

 Related Diversification Guidelines
v When an organization competes in a no-growth or a
slow-growth industry
v When adding new, but related, products would
significantly enhance the sales of current products
v When new, but related, products could be offered at
highly competitive prices
v When new, but related, products have seasonal sales levels
that counterbalance an organization’s existing peaks and
valleys
v When an organization’s products are currently in the declining
stage of the product’s life cycle
v When an organization has a strong management team
Copyright ©2017 Pearson Education, Limited 4-26
 Unrelated Diversification
Guidelines
v When revenues derived from an organization's current
products would increase significantly by adding the new,
unrelated products
v When an organization competes in a highly competitive or a
no-growth industry, as indicated by low industry profit
margins and returns
v When an organization's present channels of distribution
can be used to market the new products to current
customers
v When the new products have countercyclical sales
patterns compared to present products
v When an organization's basic industry is experiencing
declining annual sales and profits

Copyright ©2017 Pearson Education, Limited 4-27

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

Copyright ©2017 Pearson Education, Limited 4-28

 Defensive Strategies
v Retrenchment
vRegroups through cost and asset reduction to reverse
declining sales and profits

v Divestiture
vSelling a division or part of an organization
vOften used to raise capital for further strategic
acquisitions or investments

v Liquidation
vSelling all of a company’s assets, in parts, for their tangible
worth

Copyright ©2017 Pearson Education, Limited 4-29

 Defensive Strategies
vRetrenchment
voccurs when an organization regroups
through cost and asset reduction to reverse
declining sales and profits
valso called a turnaround or reorganizational
strategy
vdesigned to fortify an organization’s basic
distinctive competence

Copyright ©2017 Pearson Education, Limited 4-30

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

Copyright ©2017 Pearson Education, Limited 4-31

 Divestiture Guidelines
v When an organization has pursued a retrenchment
strategy and failed to accomplish improvements
v When a division needs more resources to be
competitive than the company can provide
v When a division is responsible for an organization's
overall poor performance
v When a division is a misfit with the rest of an
organization
v When a large amount of cash is needed quickly
v When government antitrust action threatens a firm

Copyright ©2017 Pearson Education, Limited 4-32

 Defensive Strategies
vLiquidation
vselling all of a company’s assets, in parts, for
their tangible worth
vcan be an emotionally difficult strategy

Copyright ©2017 Pearson Education, Limited 4-33

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

Copyright ©2017 Pearson Education, Limited 4-34

Porter's Five Generic Strategies

Copyright ©2017 Pearson Education, Limited 4-35

 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
vType 1
vlow-cost strategy that offers products or services
to a wide range of customers at the lowest price
available on the market
vType 2
vbest-value strategy that offers products or
services to a wide range of customers at the best
price-value available on the market

Copyright ©2017 Pearson Education, Limited 4-36

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

Copyright ©2017 Pearson Education, Limited 4-37

 Michael Porter's Five
Generic Strategies
vType 4
vlow-cost focus strategy that offers products or
services to a niche group of customers at the
lowest price available on the market
vType 5
vbest-value focus strategy that offers products or
services to a small range of customers at the best
price-value available on the market

Copyright ©2017 Pearson Education, Limited 4-38

Means for Achieving Strategies
vCooperation Among Competitors
vJoint Venture/Partnering
vMerger/Acquisition
vPrivate-Equity Acquisitions
vFirst Mover Advantages
vOutsourcing/Reshoring

Copyright ©2017 Pearson Education, Limited 4-39

Key Reasons Why Many Mergers
and Acquisitions Fail

Copyright ©2017 Pearson Education, Limited 4-40

Potential Benefits of Merging With
or Acquiring Another Firm

Copyright ©2017 Pearson Education, Limited 4-41

Benefits of a Firm Being
the First Mover

Copyright ©2017 Pearson Education, Limited 4-42