MB0036 – Q1.

Explain the different circumstances under which a suitable growth strategy should be selected by any company to improve its performance (i.e., intensive, integrative or diversification growth). You may select an example of your choice to substantiate your views (10 marks).
Sol: Strategies to Improve Sales There are three alternatives to improve the sales performance of a business unit, to fill the gap between actual sales and targeted sales: a) Intensive growth b) Integrative growth c) Diversification growth a) Intensive Growth: It refers to the process of identifying opportunities to achieve further growth within the company’s current businesses. To achieve intensive growth, the management should first evaluate the available opportunities to improve the performance of its existing current businesses. It may find three options: • To penetrate into existing markets • To develop new markets • To develop new products At times, it may be possible to gain more market share with the current products in their current markets through a market penetration strategy. For instance, SONY introduced TV sets with Trinitron picture tubes into the market in 1996 priced at a premium of Rs.10,000 and above over the market through a niche market capture strategy. They gradually lowered the prices to market levels. However, it also simultaneously launched higher-end products (high-technology products) to maintain its global image as a technology leader. By lowering the prices of TVs with Trinitron picture tubes, the company could successfully penetrate into the markets to add new customers to its customer base. Market Development Strategy is to explore the possibility to find or develop new markets for its current products (from the northern region to the eastern region etc.). Most multinational companies have been entering Indian markets with this strategy, to develop markets globally. However, care should be taken to ensure that these new markets are not low density or saturated markets, which could lead to price pressures. Product Development Strategy involves consideration of new products of potential interest to its current markets (e.g. Gramaphone Records to Musical Productions to CDs)– as part of a Diversification strategy. Study the following example to understand what Product Development Strategy is. MICROSOFT’s New Strategy It is called PC-plus. It has three elements: a) Providing computer power to the most commonly used devices such as cell phone, personal computer, toaster oven, dishwasher, refrigerator, washing machines and so on. b) Developing software to allow these devices to communicate.

If the company legally takes over or acquires the business of any of its leading competitors. This makes sense when such opportunities outside the present businesses are identified with attractive returns and that industry has business strengths to be successful. the company might choose new businesses that have nothing to do with the current technology.c) Investing heavily to help build wireless and high-speed internet access throughout the world to link it all together. it would be able to gain more control over the market or generate more profit. b) Integrative Growth: It refers to the process of identifying opportunities to develop or acquire businesses that are related to the company’s current businesses. it might be counterproductive due to dilution of brand image). In most cases. Microsoft envisions a home where everyday appliances and electronics are smart. if this competitor is weak. it is forward integration. it is called horizontal integration (however. PC-based networks will help us control many of our domestic matters with devices that cost no more than $ 100 each ‘. If a company operating in music systems takes over the manufacturing business of its plastic material supplier. The classic examples for this would be engineering and textile firms setting up software development centres or Call Centres with new service clients. More often. if this company acquires some of its most profitably operating intermediaries such as wholesalers or retailers. Alternatively. forward or horizontal integration within the industry. (Backward Integration) Alternatively. ‘In the near future. laundry washers can be designed to send an instant message to the home computer when the load is done and refrigerators can be made to send an e-mail when there’s no more milk. A printing press might shift over to offset printing with computerised content generation to appeal to higher-end customers and also add new application areas ( Horizontal Diversification ) – or even sell stationery. . It is also said at Microsoft that VCRs can be programmed via e-mail. According to Bill Gates. c) Diversification Growth: It refers to the process of identifying opportunities to develop or acquire businesses that are not related to the company’s current businesses. this is planned with new products that have technological or marketing synergies with existing businesses to cater to a different group of customers (Concentric Diversification). products or markets (Conglomerate Diversification). Microsoft plans to give these appliances ‘brains‘ and provide them the means to talk to each other through their Windows CE Operating System. The corporate plan may be designed to undertake backward. the business processes have to be integrated for linear growth in the profits.