MGMT 3031

BUSINESS STRATEGY & POLICY

LECTURE 5
Strategies in Action

Prof. Dwayne Devonish

Learning Objectives of the Course

 To identify nature and relevance of different types of
strategic objectives
 To explore, distinguish and assess the different types
of strategies that can be leveraged by companies to
gain competitive advantages in different contexts
 To determine the diverse circumstances and
conditions for most appropriate strategy choices and
adoption

Ch 1 -2

1
Long-Term Objectives

 These represent the results expected from

pursuing certain strategies.
 Hence, strategies are the actions to be taken
to accomplish these objectives.
 Without long-term objectives, there will be no
focus or direction for the firm.

Ch 5 -4

2
Long Term Objectives: 5 Traits
 Measurable
 Clear
 Achievable
 Realistic
 Compatible (consistent with
all organs of the firm)

Ch 5 -6

3
Financial vs. Strategic Objectives
Financial Objectives
Growth in revenues
Growth in earnings
Higher dividends
Larger profit margins
Greater ROI
Higher earnings per share
Rising stock price
Improved cash flow
Ch 5 -7

Financial vs. Strategic Objectives

Strategic Objectives
 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
Ch 5 -8

4
Levels of Strategies –
Large Company (example)

Ch 5 -9

Levels of Strategies –
Small Company (example)

Ch 5 -10

5
Types of Strategies: Integration
Strategies
Forward
Integration

Backward
Integration Integration
Strategies

Horizontal
Integration

Ch 5 -11

Integration Strategies –
Gaining control over distributors, suppliers or
rivals
Forward
Gaining ownership or increased
Integration control over distributors or retailers
(Vertical)
Backward
Seeking ownership or increased
Integration
control of a firm’s suppliers
(Vertical)

Horizontal Seeking ownership or increased

Integration control over competitors

Ch 5 -12

6
Forward Integration Strategies
(Examples) (Form of Vertical Integration)
A farmer who directly sells his crops at a local
grocery store rather than to a distribution center
that controls the placement of foodstuffs to
various supermarkets.
Levi Jeans opening its retail stores (rather than 
relying exclusively on other retail or distribution 
stores)
FORWARD 
INTEGRATION  This strategy moves the business closer to the
consumer and cuts out the ‘middleman’.
EXAMPLES
‐ Useful when distributors are expensive,
unreliable or incapable of meeting the firm’s
distribution needs.
‐ It might make more ‘profit’ or ‘cost’ sense for
the company to sell its own products directly to
Copyright © 2011 Pearson Education, Inc. Ch 5 -13
consumers.
Publishing as Prentice Hall

Backward Integration Strategies

(Examples) (Form of Vertical Integration)
Apple Inc purchasing a factory in 2015 to
produce their own chips and touchscreens for
their products instead of relying on their
suppliers

A clothing manufacturing firm may purchase one 
of its suppliers of fabrics to lessen the cost of 
BACKWARD  raw materials.
INTEGRATION 
EXAMPLES
The company expands backward, taking control 
of supply side/suppliers.
‐Useful when suppliers are expensive, unreliable
or incapable of meeting the firm’s needs. Or in
markets with few suppliers: many competitors.
Ch 5 -14
‐ Controls costs/prices, speed and quality

7
Horizontal Integration Strategies (Taking Control
of Rivals) (Examples)
Facebook’s acquisition of Instagram in 2012. Both
operated in the same industry. Facebook
strengthened its positioning in the social sharing
space, grew its market share, and reduced the
competition.
Disney acquired Pixar Entertainment and Marvel 
Movie Studios. Acquiring the rights to use these 
HORIZONTAL  movie studios for their film‐making, as well as 
INTEGRATION  rights to the characters and themes. Bigger profits
EXAMPLES The company takes control over its competitors.
Most common growth strategy (mergers,
acquisitions, or takeovers)
‐Increased economies of scale/improved
competitive advantage/increased market share
‐Gains monopolistic characteristics; especially
useful competitors are faltering and Chcan
5 -15 be
acquired at discount.

Types of Strategies: Intensive

Strategies
Market
Penetration

Intensive Market
Strategies Development

Product
Development

Ch 5 -16

8
Intensive Strategies
Seeking increased market share for
Market present products or services in
Penetration present markets through greater
marketing efforts

Market Introducing present products or

Development services into new geographic areas

Seeking increased sales by

Product
improving present products or
Development services or developing new ones

Ch 5 -17

Market Penetration Strategies (Examples)

Increasing number of salespersons,
advertising expenditures, publicity
efforts, sales promotions.
Example 1: McDonald’s grows by reaching more
customers in markets where it already has
operations – increasing ads, stores etc
Example 2:
Market
Nike features famous athletes in print,
Penetration online and TV ads to take market share
from other rival product companies (e.g.,
Adidas).
Useful when current markets are not
saturated; usage rate of present
customers could be increased;
competition’s market share is weak Ch 5 -18

9
Market Development Strategies (Examples)

Introducing present products or services into

new geographic areas

Example: Tesla manufacturing and selling cars

Market in China due to relaxed restrictions on
automakers needing a local partner.
Development
Can be used in the forms of franchising or
direct geographical expansion to a new
market.
Useful when new channels of distribution are
reliable, inexpensive and of good quality.
New untapped or unsaturated markets exist.
Ch 5 -19

Product Development Strategies (Examples)

Seeking increased sales by improving
present products or services or
developing new ones

Product Example: Campbell Soup acquired Pacific

Development Foods, which specialises in organic soups.

Useful when existing products have

reached maturity stage of lifecycle; seeks
to attract satisfied customers with
improved or new experiences.

Ch 5 -20

10
 Ch 5 -21

Types of Strategies:
Diversification
Related
Diversification

Diversification
Strategies

Unrelated
Diversification

Ch 5 -22

11
Related Diversification Strategy
‐ Adding new but related products or
services
Related diversification occurs when a firm
moves into a new industry that has
important similarities with the firm's existing
industry or industries.
E.g., Disney, while in film industry, took over
ABC TV (film and television are similar)
Related Diversification
Apple expanding from computers to
smartphones in 2007 – similar
features/design principles
Some firms that engage in related
diversification aim to develop and exploit a
well‐established core competency to
become more successful. Ch 5 -23

Unrelated Diversification Strategy

‐ Adding new, unrelated products or services
Coca‐Cola purchased Columbia Pictures in 1982
for $750 million. An example of unrelated
diversification.
This firm went into a totally different industry.
Unrelated Diversification Luckily for Coca‐Cola, its investment paid off—
Columbia was sold to Sony for $3.4 billion just
seven years later.
Some firms that engage in unrelated
diversification when existing markets for
organisation’s present products are saturated.
Or the firm has the capital and talent to
compete in a new industry.

Ch 5 -24

12
Types of Strategies: Defensive
Strategies
Retrenchment

Defensive Divestiture
Strategies

Liquidation

Ch 5 -25

Defensive Strategies
Regrouping through cost and asset
reduction to reverse declining sales and
profit (e.g., selling off assets, layoffs of
Retrenchment
employees) – Starbucks years ago closed
large number of stores across globe to
pursue a new strategy in the US.
Selling a division or part of an organization ‐
The Massy Group has exited the information
Divestiture technology and communications business with
the sale of two of its companies, Massy
Technologies (Trinidad) Ltd and Massy
Technologies (Guyana) Ltd
Selling all of a company’s assets, in parts, for
their tangible worth – Toys R Us Inc (in 2018)
liquidated, selling all of its 885 U.S stores.
Liquidation
‐ Losing too much – better to close. Recognition
of defeat especially when retrenchmentCh and 5 -26
divestiture fail.

13
Porter’s Generic Strategies
 COST LEADERSHIP STRATEGY (TYPE 1 AND
2)

 DIFFERENTIATION STRATEGY

Ch 5 -27

Type 1 Cost Leadership

 Type 1 Cost Leadership – Low cost - offer low-

cost products to wide range of customers at the
lowest price in the market.

Copyright © 2011 Pearson Education, Inc. Ch 5 -28

Publishing as Prentice Hall

14
Type 2 Cost Leadership Strategy

 Type 2 is a best-value strategy that offers products or

services to a wide range of customers at the best price
value available on the market.
 The best-value strategy aims to offer customers a range
of products or services at the lowest price available
compared to a rival’s products with similar attributes.

Ch 5 -29

Differentiation Strategy (Type 3)

 Differentiation strategy is a strategy in which an

organization seeks to distinguish itself from
competitors through the quality of its products or
services.
 A strategy aimed at producing products and services
considered unique to the industry and directed at
consumers who are relatively price insensitive

Ch 5 -30

15
Type 1 or 2 Cost Leadership Strategy
Conditions
 Vigorous price competition
 Plentiful supply of identical products
 Little product differentiation
 Products used in same ways
 Low cost to switch
 Large buyers with power
 Industry newcomers use low prices to attract
buyers
Ch 5 -31

Type 3 Differentiation Strategy

Conditions
 Many ways to differentiate and buyers
perceive the differences as having value
 Diverse buyer needs and uses
 Few rival firms following similar
differentiation approach
 Fast paced technological change and
evolving product features

Ch 5 -32

16
 Means for Achieving Strategies

 Building from within (using internal resources to

grow)
 Joint venture / partnering with other firms
 Merger / acquisition
 First mover advantages (entering new market or
developing new product before rivals)
 Outsourcing (hiring third party outside of the firm
to perform services or create goods)

Ch 5 -33

Strategic Management in Nonprofit and

Governmental Organizations

Educational Institutions
Medical Organizations
Governmental Agencies and
Departments

Ch 5 -34

17