Maryam University

Bachelor of Business Administration

Department of Business Administration

Subject: Strategic Management

Lecture# Fifth
Lecturer: Attaullah Hazrat

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Outline of the lecture
Topic 1: Long-term Objectives
Topic 2: Strategies and its Types
Topic 4: Integration Strategies
Topic 5: Intensive Strategies
Topic 6: Defensive Strategies
Topic 7: Levels of Strategies

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Objectives of the lecture
After completion of this lecture students will be able to know:
 Long term objectives:
 Types of Strategies
 Levels of strategies

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Strategies

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Long Term Objectives

o Long-term objectives represent the results expected from pursuing certain

strategies.

o Strategies represent the actions to be taken to accomplish long-term objectives.

o Objectives should be quantitative, measurable, realistic, understandable,

challenging, hierarchical, obtainable, and congruent among organizational units.

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a) The Nature of Long-Term Objectives

Objectives should be:

 Quantitative,
 Measurable,
 Realistic,
 Understandable,
 Challenging,
 Hierarchical,
 Obtainable,
 Congruent among organizational units.
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The Nature of Long-Term …

Clearly established objectives offer many benefits.

 Provide direction,
 Allow synergy,
 Aid in evaluation,
 Establish priorities,
 Reduce uncertainty,
 Minimize conflicts,
 Stimulate exertion,
 Aid in both the allocation of resources and the design of jobs.

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b) Financial versus Strategic Objectives

Financial objectives include those associated with growth in

revenues, growth in earnings, higher dividends, larger profit margins,
greater return on investment, higher earnings per share, a rising stock
price, improved cash flow, and so on.

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Financial versus Strategic Objectives…

Strategic objectives include things such as a 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, and so on.

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Types of Strategies

Integration Strategies
Forward, Backward, Horizontal
Intensive Strategies
Penetration, M. Development, P. Development, Diversification
Defensive Strategies
Retrenchment, Divestiture, Liquidation

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Integration Strategies

o Forward integration and backward integration are collectively referred to as

vertical integration strategies.
o Vertical integration strategies allow a firm to gain control over distributors,
suppliers, and/or competitors.
o Vertical and horizontal actions by firms are broadly referred to as integration
strategies.

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a) Forward Integration

• Gaining ownership or increased control over distributors or retailers.

• Establishing websites to sell their products directly to consumers.
• In a forward integration move, Coca-Cola recently signed a 10-year
partnership with Green Mountain Coffee Roasters.

• Microsoft is opening its own retail stores, a forward integration strategy

similar to rival Apple, which currently has more than 200 stores around the world.

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b) Backward Integration

• Strategy of seeking ownership or increased control of a firm’s suppliers.

• Suitable - Firm’s current suppliers are unreliable, too costly, or cannot meet
the firm’s needs.
• Manufacturers as well as retailers purchase needed materials from suppliers.

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c) Horizontal Integration

• Seeking ownership of or control over a firm’s competitors, horizontal

integration is arguably the most common growth strategy.
• Nearly all these transactions aim for increased economies of scale and
enhanced transfer of resources and competencies.

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Intensive Strategies

• Intensive Strategies Market penetration, market development, and product

development are sometimes referred to as intensive strategies.

• Because they require intensive efforts if a firm’s competitive position with

existing products is to improve.

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a) Market penetration Strategy

• Seeks to increase market share for present products or services in present

markets through greater marketing efforts.
• Includes increasing the number of salespersons, increasing advertising
expenditures, offering extensive sales promotion items, or increasing publicity
efforts.

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b) Market Development Strategy

• Involves introducing present products or services into new geographic areas.

• For example, Whirlpool, an Italian company that sells appliances, in order to

double Whirlpool’s size in Europe, where the company has struggled to
compete against Electrolux AB of Sweden, LG Electronics Inc. of South
Korea.

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c) Product Development Strategy

• 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.

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d) Diversification Strategy

• Two general types of diversification strategies are related diversification and

unrelated diversification.
• Related diversification when their value chains possess competitively
valuable cross-business strategic fits;
• Unrelated diversification when their value chains are so dissimilar that no
competitively valuable cross-business relationships exist.

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Defensive Strategies

In addition to integrative, intensive, and diversification strategies, organizations also

could pursue defensive strategies such as;
o Retrenchment,
o Divestiture,
o Liquidation,

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a) Retrenchment Strategy

• Occurs when an organization regroups through cost and asset reduction to

reverse declining sales and profits.
• Sometimes called a turnaround or reorganizational strategy,
• During retrenchment, strategists work with limited resources and face
pressure from shareholders and employees.
• Retrenchment can involve selling of land and buildings to raise needed cash,
pruning product lines, closing marginal businesses, automating processes
and reducing the number of employees.

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b) Divestiture Strategy

• 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 and that require too much
capital.
• Divestiture has also become a popular strategy for firms to focus on their
core businesses and become less diversified.
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c) Liquidation Strategy

• 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.

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Michael Porter’s Five Forces

• Three most widely read books on competitive analysis in the 1980s were
Michael Porter’s Competitive Strategy (1980), Competitive Advantage
(1985), and Competitive Advantage of Nations (1989).
• According to Porter, strategies allow organizations to gain competitive
advantage from three different bases: cost leadership, differentiation, and
focus.

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Cost Leadership

• Emphasizes producing standardized products at a low per unit cost for

consumers who are price sensitive.
• Type 1 is a low-cost strategy that offers products or services to a wide range
of customers at the lowest price available on the market.
• 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.
• Both Type 1 and Type 2 strategies target a large market.

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Differentiation Strategy

• Porter’s Type 3 generic strategy is differentiation,

• A strategy aimed at producing products and services considered unique to the

industry and directed at consumers who are relatively price insensitive.

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Focus Strategy

• Focus means producing products and services that fulfill the needs of small
groups of consumers.
• Type 4 is a low- cost focus strategy that offers products or services to a small
range (niche group) of customers at the lowest price available on the market.
• Type 5 is a best-value focus strategy that offers products or services to a
small range of customers at the best price-value available on the mkt.

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Joint Venture and Partnering

• Joint venture is a popular strategy that occurs when two or more companies

form a temporary partnership or consortium for the purpose of capitalizing on

some opportunity.

• Often, the two or more sponsoring firms form a separate organization and

have shared equity ownership in the new entity

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 Merger and Acquisition

• Merger and acquisition are two commonly used ways to pursue strategies.

• Merger - When two organizations of about equal size unite to form one

enterprise.

• Acquisition - When a large organization purchases (acquires) a smaller firm or

vice versa.

• If a merger or acquisition may be hostile takeover or friendly merger.

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Tactics to Facilitate Strategies

Strategists use numerous tactics to accomplish strategies;

1. First Mover Advantage - entering a new market or developing a new

product or service prior to rival firms

2. Outsourcing - Companies hiring other companies to take over various parts

of their functional operations, such as HR, Marketing and Finance, etc.

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Levels of Strategies

In large firms, there are actually four levels of strategies:

o corporate,
o divisional,
o functional,
o Operational,
In small firms, there are actually three levels of strategies:
o company,
o functional,
o Operational,

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Conclusion

• Characteristics and Benefits of objectives

• Define and give an example of eleven types of strategies
• Identify and discuss the three types of Integration Strategies.
• Market penetration, market and/ or product development.
• Explain when diversification is an effective business strategy.
• Retrenchment, divestiture, and liquidation
• Porter’s five generic strategies.

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References
1. Strategic Management Concepts and Cases Sixteen Edition by Fred R.
David, 11th Edition.

2. Fundamental of Business Management Process by Marlon Dumas and Jan

Mandelling.

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