Level of Strategies

Strategy making is a collaborative process involving all levels of management, not just top
executives. In large firms, there are four levels of strategy: corporate, divisional, functional, and
operational. Smaller firms have three levels: company, functional, and operational.

Key individuals responsible for strategy at each level:

CEO or owner-corporate level

Divisional leaders- divisional level

Department heads- functional level

Operational managers-operational level.

INTEGRATION STRATEGIES

Forward integration involves gaining control over distributors or retailers, allowing companies to
sell products directly to consumers. Franchising is another common method for implementing forward
integration, enabling rapid business expansion.

The following six guidelines indicate when forward integration may be an especially effective strategy:

A. Distributors are too expensive, unreliable, or can't meet the company's needs.
B. There are few quality distributors, so controlling distribution gives a competitive edge.
C. The industry is growing, but forward integration can limit the ability to diversify if the industry
slows down.
D. The company has the capital and resources to handle distributing its own products.
E. Stable production is important, as forward integration can help predict product demand.
F. Distributors or retailers have high profit margins, so the company could profit by distributing its
own products.

Backward integration involves gaining control or ownership of a firm's suppliers, which is useful
when suppliers are unreliable, expensive, or unable to meet the company's needs.

Examples:

 Starbucks bought a coffee farm to develop new varieties and address industry issues like coffee
rust.
 Constellation Brands acquired glass-bottle factories to resolve supply problems.

Seven guidelines when backward integration may be an especially effective strategy are:

A. Suppliers are too expensive, unreliable, or can't meet the company's needs.
B. There are few suppliers but many competitors.
C. The industry is growing, making backward integration helpful for stability.
D. The company has the resources to manage its own supply of raw materials.
E. Stable prices for raw materials are important to control costs.
F. Suppliers have high profit margins, indicating that supplying is a profitable business.
G. The company needs to quickly obtain a resource.
 Horizontal Integration is a growth strategy where a company seeks ownership or control over its
competitors. This strategy is common and involves mergers, acquisitions, and takeovers, often aiming for
economies of scale and resource transfer.

The following five guidelines indicate when horizontal integration may be an especially effective strategy:

A. An organization can gain monopolistic power in a region without facing significant government
challenges to competition.
B. The company operates in a growing industry.
C. The organization benefits from increased economies of scale.
D. The company has the necessary capital and human resources to manage expansion.
E. Competitors are struggling due to lack of expertise or resources that the organization possesses,
though it’s not suitable if the industry itself is declining.

INTENSIVE STRATEGIES

Market penetration strategy seeks to increase market share for present products or services
in present markets through greater marketing efforts. This strategy is widely used alone and
in combination with other strategies. Market penetration includes increasing the number of
salespersons, increasing advertising expenditures, offering extensive sales promotion items, or
increasing publicity efforts.

The following five guidelines indicate when market penetration may be an especially effective strategy:

A. Markets have room for more products or services.

B. Customers can use the product or service more often.
C. Competitors are losing market share, while industry sales are growing.
D. Sales grow significantly with increased marketing spending.
E. Larger production volumes reduce costs and boost competitiveness.

Market development involves introducing present products or services into new geographic
areas. The largest online video-streaming company, Netflix, recently launched it services into France,
Germany, Belgium, and Switzerland, as well as eastern and southern Europe

These six guidelines indicate when market development may be an especially effective strategy:

A. Reliable, affordable, and quality distribution channels are available.

B. The organization is performing well.
C. New or untapped markets exist.
D. The organization has resources to handle growth.
E. There is excess production capacity.
F. The industry is rapidly globalizing.

Product development is a strategy that seeks increased sales by improving or modifying present
products or services. Product development usually entails large research and development expenditures.
Walt Disney Company recently developed a Disney Baby line of products and services that it expects to
become a powerful baby brand for customers ages 0 to 2.
These following five guidelines indicate when product development may be an especially effective
strategy to pursue:

A. Successful products in the maturity stage can attract loyal customers to try new offerings.
B. The industry is rapidly advancing technologically.
C. Competitors provide better-quality products at similar prices.
D. The organization operates in a high-growth industry.
E. Strong research and development capabilities are in place.

DIVERSIFICATION STRATEGIES

The two general types of diversification strategies are related diversification and unrelated
diversification. Businesses are said to be related when their value chains possess competitively valuable
cross-business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar
that no competitively valuable cross-business relationships exist.

Related diversification
A. The industry is experiencing little or no growth.
B. Related new products can boost current product sales.
C. The new products can be priced competitively.
D. New products have seasonal sales that balance existing fluctuations.
E. Current products are in the decline phase of their life cycle.
F. The organization has strong management.

Unrelated diversification focuses on building a portfolio of high-performing businesses across

different industries, without relying on strategic value chain synergies. Companies pursue this strategy by
acquiring undervalued assets, financially distressed firms, or high-growth companies lacking investment
capital, aiming for strong returns on investment.

Given below are 10 guidelines when unrelated diversification may be an especially effective strategy.
A. Revenues derived from an organization’s current products or services would increase
significantly by adding the new, unrelated products.
B. An organization competes in a highly competitive or a no-growth industry, as indicated by
low industry profit margins and returns.
C. An organization’s present channels of distribution can be used to market the new products
to current customers.
D. New products have countercyclical sales patterns compared to an organization’s present
products.
E. An organization’s basic industry is experiencing declining annual sales and profits.
F. An organization has the capital and managerial talent needed to compete successfully in a
new industry.
G. An organization has the opportunity to purchase an unrelated business that is an attractive
investment opportunity.
H. Financial synergy exists between the acquired and acquiring firm. (Note that a key difference
between related and unrelated diversification is that the former should be based on some
commonality in markets, products, or technology, whereas the latter is based more on profit
considerations.)
 I. Existing markets for an organization’s present products are saturated.
J. Antitrust action could be charged against an organization that historically has concentrated
on a single industry.

DEFENSIVE STRATEGIES

Retrenchment is a strategy to reverse declining sales and profits by reducing costs and assets. It
focuses on strengthening the organization's core strengths through measures like selling assets, cutting
product lines, closing underperforming operations, automating processes, reducing staff, and
implementing expense controls. In some cases, declaring bankruptcy can be an effective retrenchment
strategy. Bankruptcy can allow a firm to avoid major debt obligations and to void union contracts.

Five guidelines for when retrenchment may be an especially effective strategy to pursue are as follows:

A. The organization has a unique strength but consistently misses its goals.
B. It is a weaker competitor in its industry.
C. It faces inefficiency, low profits, poor morale, and shareholder pressure.
D. Management has failed to seize opportunities, address threats, and leverage strengths,
potentially requiring leadership changes.
E. Rapid growth has created a need for major internal reorganization.

Divestiture selling a division or part of an organization is called divestiture. It is often used to raise
capital for further strategic acquisitions or investments. Divestiture can be part of an overall retrenchment
strategy to rid an organization of businesses that are unprofitable, that require too much capital, or that
do not fit well with the firm’s other activities. Divestiture has also become a popular strategy for firms to
focus on their core businesses and become less diversified.

Here are some guidelines for when divestiture may be an especially effective strategy to pursue:

A. Retrenchment efforts have failed to bring improvement.

B. A division needs more resources than the company can supply.
C. A division is causing the company’s poor performance.
D. A division is incompatible with the rest of the organization.
E. The company urgently needs cash and lacks other options.
F. Government antitrust actions pose a threat.

Liquidation selling all of a company’s assets, in parts, for their tangible worth is called liquidation.
Liquidation is a recognition of defeat and consequently can be an emotionally difficult strategy. However,
it may be better to cease operating than to continue losing large sums of money.

These three guidelines indicate when liquidation may be an especially effective strategy to pursue:

A. Retrenchment and divestiture strategies have failed.

B. Bankruptcy is the only option, with liquidation providing the most cash for assets.
C. Stockholders can reduce losses by selling the company’s assets.
Michael Porter’s books in the 1980s outlined three main strategies for gaining a competitive advantage:
cost leadership, differentiation, and focus. These are called generic strategies.

Cost Leadership: This strategy focuses on producing standardized products at low costs for price-sensitive
consumers. It includes:

Low-cost strategy: Offering the lowest price to a wide customer base.

Best-value strategy: Offering the best price-value combination for a wide market.

Differentiation: Involves producing unique products or services targeted at consumers who are less price-
sensitive.

Focus: Targeting specific groups of consumers with tailored products, and includes:

Low-cost focus: Offering low prices to a small, niche market.

Best-value focus: Offering premium products with high value to a niche market.