Lesson No.

8
Strategy Formulation 2
CORPORATE STRATEGIES

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 CORPORATE STRATEGIES
•Integrative growth strategies
•Horizontal integration
•Vertical integration (backward and forward
integration)
•The Boston Consulting Group (BCG) Model
•The General Electric (GE) Model

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INTEGRATIVE GROWTH
STRATEGIES

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INTEGRATIVE GROWTH STRATEGIES

•As businesses focus on developing

their degree of internal
competitiveness, companies adopt
external growth strategies.
•These external growth strategies
include integrative growth strategies.

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INTEGRATIVE GROWTH STRATEGIES

•Integrative growth strategies involve

investing the resources of the
organization in another company or
business to achieve growth goals.
•Integrative growth strategies are
essentially acquisition strategies.

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INTEGRATIVE GROWTH STRATEGIES

•Types of integrative growth strategies

include horizontal and vertical
integration.
•The two types of vertical integration
are backward and forward integration.

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HORIZONTAL INTEGRATION
•Horizontal integration is a strategy
where the organization acquires
another competing business.

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HORIZONTAL INTEGRATION
•Reasons for horizontal integration
•Eliminate real or potential competitors
•Expand its reach, expand its market
demographically, and maintain its status as a
market leader, market challenger, or market
follower
•Increase its sales and revenues

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 EXAMPLE OF H.I.
•Jollibee acquired Mang Inasal for
fear of losing its market share in
the fastfood industry.

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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.

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 VERTICAL INTEGRATION
•Reasons for vertical integration
•Gain control over suppliers and distributors
•Increase the company’s market share
•Minimize transaction and inventory costs
•Ensure adequate stocks in the retail stores

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 VERTICAL INTEGRATION
•Vertical integration can either be
backward integration or forward
integration.

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 BACKWARD INTEGRATION
•In backward integration, an
organization buys or acquires one
of its suppliers.
•Example: Samsung as a mobile
phone manufacturer acquires one
of its suppliers of phone cases.

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 BACKWARD INTEGRATION
•Reasons for backward integration
•Better control its supply chain and ensure a
more reliable and cost-effective supply of input
•Eliminate inefficiencies to secure quality
output or according to conformance standards
•Increase the profitability and create
competitive advantage

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 FORWARD INTEGRATION
•In forward integration, an organization
buys distribution companies that are
part of its distribution chain.
•Example: If LG or Samsung or Sony
buys Abenson, this is forward
integration.

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 FORWARD INTEGRATION
•Reasons for forward integration
•Remove the intermediary and eliminate
distribution costs
•Reinvent its marketing outlook and redesign
its marketing strategies

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 THE BOSTON
CONSULTING GROUP
(BCG) MODEL

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 THE BCG MODEL
•The Boston Consulting Group or BCG
Model was developed by Bruce
Henderson.
•This model classifies the products or
business units in terms of two
parameters: market share and market
growth.

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 MARKET SHARE
•Market share is the sales percentage of a
company relative to the total sales
percentage of the market.
•Example: If Bench underwear has a
market share of 25%, this means that 25%
of the total market buy Bench underwear
while 75% buy other brands of underwear.

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 MARKET GROWTH
•Market growth refers to an increase in
demand over time.
•If there is a high market growth rate, we
expect that the number of buyers increases
over time, or the quantity of purchase
increases over time, or the amount of
spending increases over time.

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 THE BCG MODEL
•STAR: A high market share in a high market
growth
•CASH COW: A high market share in a low
market growth
•QUESTION MARK: A low market share in a high
market growth
•DOG: A low market share in a low market growth

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THE GENERAL ELECTRIC
(GE) MODEL

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 THE GE MODEL
•The General Electric or GE Model
was developed by McKinsey, and is
sometimes called the GE-McKinsey
nine-box matrix.
•It is an improvement of the BCG
Model.

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 THE GE MODEL
•The GE model is used to assess the
strength of a strategic business unit
(SBU) of an organization.
•It takes into consideration two
parameters: market attractiveness and
business strength.

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 THE GE MODEL
•In the GE model, there are nine (9)
cells.
•Cells 1,2,3 (green cells) are favorable
positions with relatively attractive
growth opportunities.

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 THE GE MODEL
•Cells 4,5,6 (yellow cells) possess
medium attractiveness, and caution
must be taken in making additional
investments.
•Cells 7,8,9 (red cells) are not
attractive and the company should
think of getting out or divesting.

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 End of Lesson No. 8
Strategy Formulation 2
CORPORATE STRATEGIES

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