Professional Documents
Culture Documents
Types of Strategies
Types of Strategies
Level of strategies
1
Strategy
A strategy of a corporation forms a
comprehensive master plan that states how
the corporation will achieve its mission and
objectives. It maximizes competitive
advantage and minimizes competitive
disadvantage
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Strategy
Mintzberg (1987) defines strategy in terms of 5Ps. These 5Ps are: •
1P Perspective: is the main business concept or idea and the means by •
which that concept or idea is put into practice or implemented.
2P Plan: is a direction, a guide or a course of action from the present (or •
from the past) and into the future. However that ‘future’ is defined by
whatever the time horizons associated with it.
3P Patterns: are the consistency of firm decision making. •
itself within its ’locates‘P Position or positioning: where the firm 4 •
external and competitive environments; and by which it positions
particular products or services against the demands of the market
.segments it serves
P Ploys: are the competition strategies designed to maintain, reinforce, 5 •
achieve or improve the relative competitive position of the organization
.)2007within its sector and markets (Morden,
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Strategy hierarchy
1. Corporate strategy: 1) growth strategy, 2)
stability strategy, 3) retrenchment strategy.
2. Business unit strategy: 1) cost leadership, 2)
differentiation, 3) focus, 4) mixed.
3. Functional strategy.
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Types of Strategies
Corp
A Large Level
Company
Division Level
Functional Level
Operational Level
Types of Strategies
company
A small
Company Functional
Level
Operational Level
Corporate Strategy
• The first level of strategy (corporate strategy) is related to determining the
corporate strategy. It is fundamentally and simply concerned with deciding
what type of business the organization should be in and how the overall
group of activities should be formed and managed .Corporate strategy
deals with issues of strategic management at the level of the firm as a
whole. Such issues involve the basic character, capability and competence
of the firm; the direction in which it should develop its activity; the nature
of its internal architecture; governors and structure; the nature of its
relationships with its sector, its competitors and the wider environment.
Corporate strategies usually fit within the three main categories of
stability, growth and retrenchment
Business Strategy
refers to the actions and approaches crafted by
management to create successful
performance in one particular line of business.
It is also concerned with creating competitive
advantage in each of the strategic business
.units of the organization
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Functional or departmental
strategy
Functional or departmental strategy concerns •
the managerial game plan for running a major
functional activity or process within a business
such as research and development unit,
marketing unit, financial unit, production unit,
H R development unit and so on. A business
requires as many functional strategies as it has
strategically critical activities.
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Corporate strategies
• Top level management formulate for overall
organization
• The question at the corporate level we should
answer when design strategies: In what
industry should we be operating?
• It depends on the outcome of SWOT analysis.
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Growth strategies
Growth strategies:
They result increase in sales, market share and profit: the types:
• Internal growth: Increase internal capacity of organization
without acquiring other firms.
• Conglomerate Diversification: Acquiring unrelated business.
• Merger: Two roughly similar size firms combine into one. To
benefit of synergy.
• Strategic alliance: Temporary partnerships
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Corporate Restructuring
The change in a broad set of actions and decisions, e.g.,
changing relationships and organization of work.
• The aim of restructuring is to improve effectiveness.
• Restructuring could be growth, stability or retrenchment.
This depends on why we use it.
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Retrenchment strategies
• Types:
1- Turnaround:
Eliminating unprofitable outputs,
pruning/cutting assets, reducing size of work
force, rethinking firm’s products lines and
customer groups.
2- Divestment: sell one of business units
3- Liquidation: last resort strategy
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Strategies in Action
• Forward integration
• Backward integration
• Horizontal integration
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Strategies in Action
Forward
Integration Example
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Strategies in Action
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Strategies in Action
Backward
Integration Example
• Motel 8 acquired a
Defined furniture
manufacturer.
• Seeking
ownership or
increased control
of a firm’s
suppliers
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Strategies in Action
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Strategies in Action
Horizontal
Integration
Example
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Strategies in Action
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Strategies in Action
Intensive Strategies
• Market penetration
• Market development
• Product development
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Strategies in Action
Market
Penetration
Example
Defined • Ameritrade, the on-
line broker, tripled its
• Seeking increased annual advertising
market share for expenditures to $200
present products million to convince
or services in people they can make
present markets their own investment
through greater decisions.
marketing efforts
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Strategies in Action
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Strategies in Action
Market
Development
Example
Defined
• Khuzendar Tiles maker
• Introducing introduce his product
present products to Gulf markets.
or services into
new geographic
area
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Strategies in Action
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Strategies in Action
Product
Development
Example
Defined
• Apple developed the
G4 chip that runs at
• Seeking increased 500 megahertz.
sales by improving • Khuzendar Tiles maker
present products introduce Ceramic as a
or services or new product.
developing new
ones
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Strategies in Action
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Strategies in Action
Diversification Strategies
• Concentric diversification
• Conglomerate diversification
• Horizontal diversification
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Strategies in Action
Concentric
Diversification
Example
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Strategies in Action
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Strategies in Action
Conglomerate
Diversification
Example
Defined • Consultant
Construction
• Adding new, Engineering acquired
unrelated products Bisects factory.
or services
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Strategies in Action
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Strategies in Action
Horizontal
Diversification
Defined Example
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Strategies in Action
Guidelines for Horizontal Diversification
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Strategies in Action
Defensive Strategies
• Joint venture
• Retrenchment
• Divestiture
• Liquidation
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Strategies in Action
Joint Venture
Example
Defined
• Lucent Technologies
• Two or more and Philips Electronic
sponsoring firms NV formed Philips
forming a separate Consumer
organization for Communications to
cooperative make and sell
purposes telephones.
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Strategies in Action
Guidelines for Joint Venture
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Strategies in Action
Retrenchment
(turnaround)
Example
Defined
• Regrouping through • A company sold off a
cost and asset land and 4 apartments
reduction to reverse to raise cash needed.
declining sales and It introduce expense
profit. Sometimes it is
called turnaround or
effective control
reorganizational system.
strategy.
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Strategies in Action
Guidelines for Retrenchment
Firm has failed to meet its objectives and goals consistently over
time but has distinctive competencies
Firm is one of the weaker competitors
Inefficiency, low profitability, poor employee morale, and
pressure from stockholders to improve performance.
When an organization’s strategic managers have failed
Very quick growth to large organization where a major internal
reorganization is needed.
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Strategies in Action
Divestiture
Example
Defined
• Harcourt General, the
• Selling a division large US publisher, is
or part of an selling its Neiman
organization Marcus division.
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Strategies in Action
Guidelines for Divestiture
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Strategies in Action
Liquidation
Defined Example
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Strategies in Action
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Michael Porter’s Generic
Strategies
Differentiation Strategies
Focus Strategies
(Low-Cost Focus &
Best-Value Focus)
Business Unit Strategies
• Here we answer the question:
How should we compete in the chosen industry?
Cost leadership
Differentiation (real or perceived).
Mixed
Focus
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Business Strategy
–Differentiation strategy
•Unique/superior value, quality, features,
service
Porter’s Competitive Strategies
Competitive Advantage --
Cost Leadership --
52Ch 5 -
Cost leadership
• Striving to be the low-cost producer in an industry
can be especially effective when the market is
composed of many price-sensitive buyers, when
there are few ways to achieve product
differentiation, when buyers do not care much about
differences from brand to brand, or when there are a
large number of buyers with significant bargaining
power.
53Ch 5 -
Cost leadership
• The basic idea behind a cost leadership strategy is to
underprice competitors or offer a better value and
thereby gain market share and sales, driving some
competitors out of the market entirely.
• 5. To successfully employ a cost leadership strategy,
firms must ensure that total costs across the value chain
are lower than that of the competition. This can be
accomplished by:
• a. performing value chain activities more efficiently
than competition, and
• b. eliminating some cost-producing activities in the
value chain.
54Ch 5 -
Porter’s Competitive Strategies
Differentiation –
556-
Differentiation
• Differentiation is aimed at producing
products that are considered unique. This
strategy is most powerful with the source of
differentiation is especially relevant to the
target market
56Ch 5 -
Differentiation
• A successful differentiation strategy allows a firm
to charge higher prices for its products to gain
customer loyalty because consumers may become
strongly attached to the differentiation features.
• 3. A risk of pursuing a differentiation strategy is that
the unique product may not be valued highly enough
by customers to justify the higher price.
57Ch 5 -
Differentiation
• Common organizational requirements for a
successful differentiation strategy include
strong coordination among the R&D and
marketing functions and substantial amenities
to attract scientists and creative people.
58Ch 5 -
Focus
59Ch 5 -
Focus
60Ch 5 -
Porter’s Competitive Strategies
Cost-Focus –
616-
Porter’s Competitive Strategies
Differentiation Focus –
626-
Porter’s Competitive Strategies
636-
Risks of Generic Strategies
646-
Level of Strategy
• Functional/operational Strategies:
Concern with org. internal resources and
processes which effectively deliver the
corporate and business strategic direction.
Functional strategies are interrelated.
Functional strategies e.g.: purchasing &
materials management, production, finance,
R&D, HR, IT, and marketing.
65
purchasing & materials management
(as example)
Buying materials in quantity, quality and cost
which correspond with the corp. generic
strategies (Business Unit strategies).
66
What kind of internal factors help managers determine
whether a firm should emphasize the production and sales of a
large number of low-priced products or a small number of high-
priced products?
• The most important factors can be brought out by going through each functional
area. For example, under marketing, a strong market research group may be able
to identify the kinds of niches available to the products or services under
consideration.
• In terms of finance, the production of a large number of low-priced products
suggests a large capital intensive manufacturing facility.
• To produce a few high quality goods with a small amount of capital because the
needed manufacturing facilities may be small, utilizing craft labor. R&D may be an
important consideration also.
• In order to produce high-quality products, a fairly sophisticated applied R&D effort
may be needed. An expensive engineering staff may be needed,
• In terms of human resource management, a fairly unskilled and low paid
workforce cannot normally be expected to produce a high quality product on old
assembly line machinery. Either the workforce would need to be replaced or an
extensive job training and job enrichment program would need to be established.
Either approach costs both time and money.
67
Is it possible for a company or business unit to follow
a cost leadership strategy and a differentiation
strategy simultaneously? Why or why not?
• Michael Porter argues that a business unit which is unable to
achieve one of the competitive strategies is likely to be "stuck in the
middle" of the competitive marketplace with no competitive
advantage. That unit, according to Porter, is doomed to below-
average performance.
• Research by Greg Dess and Peter Davis as well as by Rod White,
suggests however, that this may not be the case. Examples can be
found of businesses which have been able to jointly follow overall
low cost and high quality differentiation strategy. Japanese
companies such as Toyota in automobiles and Matsushita
(Panasonic and National) in consumer electronics are good
examples. Their offer of low price and high quality created serious
problems for those companies following only cost leadership in the
U.S.
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How can a company overcome the limitations
of being in a fragmented industry?
• Businesses tend to be local and oriented to market segments. This may
occur because the industry is relatively new - based upon a product in the
early stage of its product life cycle.
• Entry barriers are probably low and new entrants are constantly moving
into the industry as others leave or go bankrupt. Often, the trick to be a
successful firm in this kind of industry is to find the key to standardization
which allows economies.
• Domino's Pizza achieved success in fast food by providing standardized
pizza throughout North America and by guaranteeing delivery time faster
than competition. Before Pizza Hut and Domino's settled upon
standardized pizza appealing to a wide variety of tastes across North
American, the pizza business was a fragmented industry characterized by
many small pizza "parlors" serving small market segments in cities
throughout America .
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