Tools in the Implementation Stage

1. Synergistic Strategy Synergistic Strategy - Horizontal Integration may

2. Intensive Strategies only be effective based on the ff. conditions:
3. Diversified Strategy 1. The organization competes in a growing
4. Defensive Strategies industry
5. Generic Competitive Strategies 2. Competitors have deficiency in some
capabilities, competencies, or resources.
Synergistic Strategy 3. Economies of scale would have a
— It is a directional strategy where two significant impact on the production and
independent firms agree to combine their operation.
resources to establish a greater than the 4. Integration would lead to a monopoly
value of the two firms prior to acquisition permitted by the gov’t.
due to economies of scale ü Vertical Integration
1+1=3 Is a synergistic strategic action where a firm
— Synergy denotes that the firm seeks a usually expands to strengthen the company’s
better market position greater than the sum position in the industry by way of acquisition,
of its parts, which can be attributed to the merger, or takeover of another company along the
multiplier effect of the firms combined industry value chain.
resources.
ü Horizontal Integration Two Kinds
Is a synergistic strategic action to strengthen the 1. Forward Integration
company’s position in the industry by way of 2. Backward Integration
acquisition, merger, or takeover of a competitor in
the same industry value chain. Forward Integration Backward Integration
Examples:
The manufacturing company The manufacturing
— Disney taking over Pixar acquires the wholesaler/retailer company acquires the
— Kraft Foods merged with Cadbury for the purpose of achieving supplier company to
— Jollibee acquiring Mang Inasal, Chowking, higher economies of scale and streamline the supply chain
larger market share. process.
Red Ribbon
— Smart and Sun Cellular Considerations for Effective The manufacturing
Forward Integration company acquires its
1. Few quality distributors/ supplier for the
Synergistic Strategy - Horizontal Integration retailers are available in improvement in efficiency
Several companies are motivated to engage in the industry and have high and cost savings.
profit margins.
horizontal Integration due to the following: 2. Distributors are very
1. Lower Costs expensive, unreliable or
High Production Low Costs which leads to unable to meet the firms
objectives
greater economies of scale and higher 3. Industry is expected to
efficiency. grow significantly where
2. Increased Level of Differentiation there are benefits of stable
productions and
As a result of combined resources, the firm distribution
can offer a distinct product/ features. 4. The acquiring company
3. Increased Bargaining Power gain more power has enough resources and
capabilities to manage the
over suppliers and distributors, promote new business
economic stability
4. Reduced Competition
Illustration: Lamoiyan Company was the major
Less market players = less intense competition
supplier of aluminum collapsible toothpaste tubes
5. Increased Diversification
to Colgate-Palmolive Co. (CPC) sometime in 1970
access new markets and distribution
Forward Integration Backward Integration
channels
The manufacturing company The manufacturing
On the other hand, companies would NOT engage acquires the company acquires the
wholesaler/retailer for the supplier company to
due to the following: purpose of achieving higher streamline the supply chain
1. Damaged Value economies of scale and larger process.
Expected benefits and value did not market share.
materialize. Oftentimes, the partnership fails
The Lamoiyan company CPC takes over Lamoiyan
and destroy the value primarily due to acquired CPC for the company for the toothpaste
difference in org culture. toothpaste products and tube, in order to cut
2. Legal Repercussion perform tasks of a distributor/ transportation costs, better
wholesaler. economies of scale,
Gov’t discourages a monopolistic market improve profit margins and
structure due to lack of competition and so the make CPC more
gov’t facilitates the approval process of such competitive
merger.
3. Reduced Flexibility Intensive Strategy
Large orgs are harder to manage and less Classified as corporate/ business strategies that
flexible in introducing innovations. offer courses of action by way of providing
intensive efforts to improve a firm’s competitive
position with existing products.
• Market Penetration
• Market Development
• Product Development
v Market Penetration
is a strategy that seeks to increase market
share for existing products/services in existing
markets through intensified marketing efforts such
promotion and advertising.
includes increasing the number of
salespeople, increasing advertising expenditures,
offering extensive sales promo items or increasing
publicity efforts.
Effective to pursue ff. the four conditions:
1. Current markets are not saturated
2. Usage rate of present customers can be
increased significantly
3. Market shares of competitors low Industry
sales high
4. Increased economies of scale provide
major competitive advantages
v Market Development
is a strategy that seeks to increase market
share by introducing existing products/ services
into new market(s) or geographical area(s).
Effective to pursue ff. the six conditions:
1. New channels of distribution that are
reliable, inexpensive, and of good quality
2. Firm is very successful at what it does
3. Untapped or unsaturated markets
4. Capital and human resources necessary to
manage expanded operations
5. Excess production capacity
6. Basic Industry rapidly becoming global
v Product Development
is a portfolio strategy that seeks to increase
market share and sales by innovating/improving
existing products/ services in existing markets.
developing new products/services which
entails large research and development
expenditures.
Effective to pursue ff. the five conditions:
1. Products are in maturity stage of life cycle
2. Competes in industry characterized by
rapid technological developments
3. Major competitors offer better-quality
products at comparable prices
4. Compete in high-growth industry
5. Strong research and development
capabilities
Important points to consider prior to diversification:
1. Is the industry to be entered more attractive
than the firm’s existing business?
2. Can the firm establish a competitive
advantage within the industry to be
entered?
Diversified Strategy can be done in two ways:
1. Horizontal/ Related Diversification
2. Unrelated Diversification
Horizontal/ Related Diversification
a strategy of offering new products to
related products/ services. These new
products/services add to the existing core
business, either through acquisition of competitors
or through internal development of new
products/services.
Example:
Jollibee Group which has been expanding
its food and restaurant brands for three decades
through acquisition of its domestic competitors
and expansion to overseas markets. (Chowking,
Greenwich, Mang Inasal and Red Ribbon)
Unrelated Diversification
a strategy of offering new products not
related to existing products/ services.
Example:
Aboitiz Group that has the ff. businesses:
1. Power generation and distribution (Davao
Light and Power)
2. Banking and Insurance (Union bank and
City Savings Bank)
3. Food Manufacturing (Pilmico Foods)
4. Real Estate (AboitizLand, Cebu Industrial
Park Developers)
5. Construction and shipbuilding (Aboitiz
Construction Group)

Diversified Strategy
It is a corporate strategic action applied for a firm
to expand business operation that offers new
products to new markets whether related or not
related in products/services. Answer the question
“What motivates firms to diversify?”
— To grow
— To fully utilize existing resources and
capabilities
— To spread the risks
— To make use of surplus cash flows
— Diversified Strategy