STRATEGIC OPTION

Strategic options are the alternative directions and methods available for formulating the organization’s
strategy. 

Strategic choices are different in different levels of strategy. At the corporate level, strategies are made
to clarify business definition and mission. Strategy for this level is required for the survival and success
of the firm. At the corporate level reason to involve in the businesses is described. At the business level,
strategies are developed either to continue or change the existing business. Strategic options are
selected to improve efficiency and effectiveness and to find out the prosperous niche. At the functional
level, strategic options are formulated in order to achieve corporate and business unit objectives by
maximizing resources productivity.

In theory, there are a very large number of options available to any organization, probably more than it
can cope with. Options are alternatives. To develop the strategic options, both rational and more
imaginative processes can be used. Some final comments are therefore offered on how to reduce these
to a more manageable size. For a business to succeed, it is vital that the right strategic choices are made.
A strategy is about giving the business a clear direction and purpose. On this basis, a good strategy gives
a clear sense of direction but is flexible. It recognizes the position of the business within its external
environment. It moves people to action and reflects the intentions and viewpoints of its creators.

These are the various strategies formulated for the organization after considering the external factors

1.0 Business Level Strategy

Business-level strategy is an integrated and coordinated set of commitments and actions the firm uses
to gain a competitive advantage by exploiting core competencies in specific product markets. Business-
level strategy indicates the choices the firm has made about how it intends to compete in individual
product markets. The choices are important because long-term performance is linked to a firm’s
strategies. A diversified firm will use one of the corporate-level strategies as well as a separate business-
level strategy for each product market area in which it competes. Every firm from the local dry cleaner
to the multinational corporation chooses at least one business-level strategy. Thus business-level
strategy is the core strategy the strategy that the firm forms to describe how it intends to compete in a
product market

In terms of customers, when selecting a business-level strategy the firm determines (1) who will be
served, (2) what needs those target customers have that it will satisfy, and (3) how those needs will be
satisfied. Selecting customers and deciding which of their needs the firm will try to satisfy, as well as
how it will do so, are challenging tasks. Global competition has created many attractive options for
customers, thus making it difficult to determine the strategy to best serve them. Effective global
competitors have become adept at identifying the needs of customers in different cultures and
geographic regions as well as learning how to quickly and successfully adapt the functionality of a firm’s
good or service to meet those needs. Sometimes business strategy is called a set of "Rules for
developing the firm's relationship with its external environment: what products-technology the firm will
develop, where and to whom the products are to be sold, how will the firm gain advantage over
competitors"
 (Igor Ansoff, Edward McDonnell, 1990). Business level strategy deals with two part of the overall
question of how a firm should compete in a given business/industry. The first part related to investment
decisions among its businesses. The second involves how the firm should integrate its activities in order
to optimize these resources.

Customers are the foundation or essence of organization's business-level strategies. Who will be served,
what needs have to be met, and how those needs will be satisfied are determined by the senior

2.0 Diversification

Diversification is strictly a strategy that takes the organization away from both its existing markets and
its existing products. In this sense, it radically increases the

organization’s

scope. Diversification is a matter of degree. Diversification is just one direction for developing the
organization, and needs to be considered alongside its alternatives. Diversification is a strategy of selling
new products in new markets. A distinction can be made between:

a. Concentric (related) diversification:

It is also called related or horizontal diversification. It means the new product-market area is related in
some way to the entity’s existing products and markets. It is diversifying into an industry related to the
current one. It may be suitable when the firm has a strong competitive position but industry
attractiveness is low. The aim of concentric diversification might be to use the entity’s existing

technological know-how and experience are a related but different product-market area

. It may be achieved through two ways:

1.Vertical Integration:

When a company expands its business into areas that are at different points on the same production
path, such as when a manufacturer owns its supplier and/or distributor. Vertical integration can help
companies reduce costs and improve efficiency by decreasing transportation expenses and reducing
turnaround time, among other advantages. However, sometimes it is more effective for a company to
rely on the expertise and economies overscale other vendors rather than be vertically integrated.

2. Horizontal Integration:

Horizontal integration is the acquisition of additional business activities that are at the same level of the
value chaining similar or different industries. This can be achieved by internal or external expansion.
Because the different firms are involved in the same stage of production, horizontal integration allows
them to share resources at that level. If the products offered by the companies are the same or similar,
it is a merger of competitors. If all of the producers of a particular good or service in a given market
were to merge, it would result in the creation of a monopoly. Also called lateral integration.
 b. Conglomerate (unrelated) diversification: Conglomerate diversification means the new product-
market area is not related in any way to the entity’s existing products and markets. The aim of
conglomerate diversification is to build a portfolio of different businesses

It occurs when a company stretches out its business into an area which is dissimilar to its core business.
This often occurs due to a merger or buyout of another company, or it can occur if the company simply
wants to develop different products that aren't related to the ones they already produce. In most cases,
companies can benefit from conglomerate diversification because of increased profit potential and
expanded business reach. On the other hand, a merged company can suffer if management is not adept
with the new products or if the new company gets stretched too thin. It is very common in the business
world for a struggling company to attract the attention of another company looking to make a significant
investment to expand business. In many cases, the companies involved will be in the same industry and
could possibly even be direct competitors, which leads to what’s called "concentric diversification." By
contrast, conglomerate diversification is the product of two companies that have little in common
coming together, which presents a unique set of advantages and disadvantages.

Reasons for diversification

The reasoning behind this strategy might be as follows.

a. Reduce the effect of climatic and cyclical fluctuation on demand.

b. Availability of production capacity and fund.

C. Existing market is declining.

d. Specific opportunity is created by diversification

REFERENCES

Dilli Ram Bhandari, Business Environment and Strategic Management, Asmita Publication, 2015, First
Ed., p. 253

Johnson Garry, Kevan Scholes & Richard Whittington, Exploring Corporate Strategy (2008), 8th edition,
Pearson Education Limited, Prentice Hall, p. 297

Dilli Ram Bhandari, Business Environment and Strategic Management, Asmita Publication, 2015, First
Ed., p. 253

Johnson Garry, Kevan Scholes & Richard Whittington, Exploring Corporate Strategy (2008), 8th edition,
Pearson Education Limited, Prentice Hall, p. 298

Johnson Garry, Kevan Scholes & Richard Whittington, Exploring Corporate Strategy (2008), 8th edition,
Pearson Education Limited, Prentice Hall, p. 298

Johnson Garry, Kevan Scholes & Richard Whittington, Exploring Corporate Strategy (2008), 8th edition,
Pearson Education Limited, Prentice Hall, p. 2
Johnson Garry, Kevan Scholes & Richard Whittington, Exploring Corporate Strategy (2008), 8th edition,
Pearson Education Limited, Prentice Hall, p. 395