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Strategic Management Chapter 5 ppt

Accountancy (Maryhill College)

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CORPORATE STRATEGIES
Chapter 5

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CORPORATE STRATEGIES

•other types of integrative growth strategies referred to as

corporate strategies

•these strategies include the Boston Consulting Group

Model, the General Electric Model, global strategies, and
the Competitive Advantage of Nations espoused by
Michael Porter

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INTEGRATIVE GROWTH STRATEGIES

•essentially external growth strategies

•involve investing the resources of the organization in

another company or business to achieve growth goals

•essentially acquisition strategies

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Types of integrative growth strategies include horizontal

integration and vertical integration. The two types of vertical
integration are backward integration and forward integration.

Horizontal
Integration Organization Vertical
Integration
-
Backward
integration
-Forward
Integration

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HORIZONTAL INTEGRATION

•Horizontal integration is a strategy where the organization

acquires another competing business. There are varied reasons for
undertaking horizontal integration. First, organizations may
employ horizontal integration to eliminate real or potential
competitors because some competitors can present themselves as
deadly threats to an organization.
•Another possible reason is the desire of the organization to simply
expand it expand its market demographically and maintain its
market status as a market leader, market challenger, or a market
follower. Lastly, an organization may undergo horizontal
integration to help increase its revenues.

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VERTICAL INTEGRATION

•Vertical integration is the process of consolidating into an

organization other companies involved in all aspects of a
product’s or a service's process from raw materials to
distribution. It is an integrated growth strategy adopted
by an organization to gain control over its suppliers and
distributors, increase the company's market share,
minimum. transaction and inventory costs, and ensure
adequate stocks in the retail stores. Vertical integration
can either be backward or forward.

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BACKWARD INTEGRATION

•Backward integration is another integrative acquisition growth

strategy where the organization buys one of its suppliers. An
organization may carry out backward integration to better control
its supply chain and ensure a more reliable or cost effective
supply of input. Furthermore, the organization can eliminate
inefficiencies to secure quality output or according to set
conformance standards. The organization can apply product and
process strategies so that the right products are produced and the
right services are rendered at the right time. Effective backward
integration can help increase the profitability of an organization
and thus, create competitive advantage.

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FORWARD INTEGRATION

•Forward integration is carried out when the organization

buys distribution companies that are part of its distribution
chain. In effect, the organization is able to remove the
intermediary, thus, eliminating distribution costs. Forward
integration allows an organization to reinvent its marketing
outlook and redesign its marketing strategies. For example,
an organization engaged in garment manufacturing can buy
retail outlets that are displaying and selling their clothing
lines to help increase their sales.

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THE BOSTON CONSULTING GROUP

MODEL
•The Boston Consulting Group Growth-Share Paradigm started to
make its impact on corporate strategy in the early 1970’s. The
BCG model was developed by Bruce Henderson of the Boston
Consultant Group. This model classifies the products or business
units of an organization in terms of two parameters, namely,
market share and market growth, in relation to the marketing
leader.

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THE BOSTON CONSULTING GROUP

MODEL

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THE BOSTON CONSULTING GROUP

MODEL
•Market share is the relative sales percentage of a company in
relation to the total sales percentage of the market in
consideration. This metric value gives a general idea of how the
company stands with respect to the market and its competitors.

•On the other hand, market growth refers to an increase in demand

over time. It may be high or low. The BCG Model illustrates four
broad categories in relation to market share (low, high) and
market growth (low, high).

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THE BOSTON CONSULTING GROUP

MODEL
• A high market share in a high market growth defines stars. They are the
market leaders and if the market continues to grow, they are likely to become
cash cows.
• A high market share in a low market growth defines cash cows. Since they
are the market leaders in a mature market growth, establishing a competitive
advantage can generate a lot of cash flow and bring about high profit
margins.
• A low market share in a high market growth defines question marks. These
essentially new products need promotional strategies.
• A low market share in a low market growth defines dogs. They should
essentially be minimized, if not avoided. They can be expensive to the
company.

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THE GENERAL ELECTRIC MODEL

•McKinsey conceptualized the General Electric (GE) Model for the

company. This model is an improvement of the BCG Model. It is used
to assess the strength of a strategic business unit (SBU) of an
organization. It takes into consideration two parameters to determine
the overall strength of an SBU. These parameters are market
attractiveness and business strength.

•External factors that may affect market attractiveness include market

size and growth, market niche and segmentation, demand, and overall
risk. On the other hand, the internal factors that may affect business
strength include brand strength, staying power, profit margins, quality,
customer patronage, and others.

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THE GENERAL ELECTRIC MODEL

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THE GENERAL ELECTRIC MODEL

•Table 5.pdf

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GLOBAL STRATEGIES

•Global strategies cover three main areas: international, multinational,

and global. Companies who might want to sell their excess products
outside their home markets pursue international strategies. A company
is said to be doing international business although its focus is the home
market. On the other hand, a company can engage in multinational
strategies when it is involved in a number of markets outside the home
country. The challenge in undertaking multinational strategies is to sell
competitive and distinct products and services that are suited to the
customer demands of different countries. Thus, the strategy in one
country may vary in another, depending on customer expectations. In
global strategies, the company treats or considers the world as a
whole, one market and one source of supply with slight local
variations.

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BENEFITS OF GLOBAL STRATEGIES

Pursuing global strategies can be beneficial to companies. Given a

larger market for its products, companies can enjoy larger sales and
earnings. They can benefit from the global branding of their
products and services, not to mention, the earnings from
economies of scale. Higher production volume with efficiency
increases savings and creates greater advantage for companies.
Sourcing of labor can be studied to optimize labor costs.

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RESOURCES REQUIRED

In building a global strategy, certain resources are necessary to

establish a level of competitiveness. They are:
•substantial capitalization because funding requirements can be
demanding;
•managerial and strategic leadership to be able to come up with the
best strategies for success;
•expertise and capabilities on the part of management and
employees; and
•quality and differentiated products and services.

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