Chapter 5

Strategic in action

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 Three levels of strategy in organizations—corporate,
business, and functional strategies.

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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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Types of Corporate strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

Horizontal
Integration

Ch 5 -4
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  Gaining ownership or increased
Vertical
Forward Integration Strategies
control over distributors or
retailers
Integration  It also refers to the transactions
between the customers and firm.
 Seeking ownership or increased
control of a firm’s suppliers
Backward  This strategy can be especially
appropriate when a firm's current
Integration suppliers are unreliable, too
costly, or cannot meet the firm's
needs.
Horizontal Seeking ownership or increased
Integration control over competitors

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Types of Strategies

Market
Penetration

Market
Intensive
Development
Strategies

Product
Development

Ch 5 -6
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  Seeking increased market share for present
Intensive Strategies
products or services in present markets
through greater marketing efforts
Market  Market penetration includes increasing the
Penetration number of salespersons, increasing
advertising expenditures, offering
extensive sales promotion items, or
increasing publicity efforts.
Market Introducing present products or services
Development into new geographic areas
 Seeking increased sales by
improving present products or
Product services or developing new ones
Development  it usually entails large research
and development expenditures.

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 CONT....

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Types of Corporate Strategies

Related
Diversification

Diversification
Strategies

Unrelated
Diversification

Ch 5 -9
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 Diversification Strategies

Related Adding new but related products or

Diversification services

Unrelated
Adding new, unrelated products or
Diversification services

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Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation

Ch 5 -11
Strategic Mgmt
  Regrouping through cost and
Defensive Strategies
asset reduction to reverse
Retrenchment declining sales and profit
 Sometimes called a turnaround
or reorganization strategy,
 Selling a division or part of an
organization
Divestiture  Divestiture often is used to raise
capital for further strategic
acquisitions or investments.

Selling all of a company’s assets,

Liquidation in parts, for their tangible worth

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Strategic Mgmt
 Business-Level Strategy
• it is an integrated and coordinated set of
commitments and actions the firm uses to gain a
competitive advantage by exploiting core
competencies in specific product markets
• to gain a competitive advantage that enables
them to outperform rivals and achieve above-
average returns.
• it also called Michael Porter’s generic strategies

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Strategic Mgmt
 Business Strategy

Business Strategy--
 Focuses on improving competitive
position of company’s products or
services within the specific industry or
market segment
 Business-level strategies are intended to
create differences between the firm’s
position relative to those of its rivals

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 Key Issues of Business-Level
Strategy
• What good or service to offer customers
• How to manufacture or create the good
or service

• How to distribute the good or service in

the marketplace

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Porter’s Competitive Strategies

1. Cost Leadership --
 is to outperform competitors by doing
everything the company can to produce goods
or services at a cost lower than those of
competitors.

 Relatively standardized products

 features acceptable to many customers
 lowest competitive price

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 Cost saving actions required
by this strategy
• An integrated set of actions designed to produce or
deliver goods or services at the lowest cost, relative to
competitors with features that are acceptable to
customers.
– Building efficient scale facilities ,
– Tightly controlling production costs and overhead,
– Minimizing costs of sales, R&D and service,
– building efficient manufacturing facilities,
– monitoring costs of activities provided by outsiders
– simplifying production processes
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Porter’s Competitive Strategies

2. Differentiation –

–Broad mass market

–Unique product/service
–Premiums charged
–Less price sensitivity

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 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

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 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.
• .

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 Differentiation
• Price for product can exceed what the firm’s target
customers are willing to pay
• Non standardized products
• customers value differentiated features more than they
value low cost
• Value provided by unique features and value
characteristics
• Command premium price
• High customer service
• Superior quality
• Prestige or exclusivity
• Rapid innovation
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 Focus
 Focus means producing products and services that fulfill
the needs of small groups of consumers.
 There are two types of focus strategies.
• a. A low-cost focus strategy offers products or services
to a small range (niche) of customers at the lowest price
available on the market.
• b. A best-value focus strategy offers products to a small
range of customers at the best price-value available on
the market. This is sometimes called focused
differentiation.

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Porter’s Competitive Strategies

Cost-Focus –

–Low-cost competitive strategy

–Focus on market segment
–Niche focused
–Cost advantage in market segment

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Porter’s Competitive Strategies

Differentiation Focus –

–Specific group or geographic market

focus
–Differentiation in target market
–Special needs of narrow target market

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Porter’s Competitive Strategies

Stuck in the middle –

–No competitive advantage

–Below-average performance

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Risks of Generic Strategies

Risks of Cost Risks

RisksofofDifferentiation
Differentiation Risks of Focus
Risks of Cost
Leadership Risks of Focus
Differentiation
Differentiationis is
notnot The focus strategy is
Leadership
Cost leadership is not sustained: The focus strategy is
imitated:
Cost leadership is not sustained: imitated:
sustained: • •Competitors imitate. The target segment
Competitors imitate.
• sustained:
Competitors imitate. • •Bases forfor
differentiation
 Thestructurally
becomes target segment
• Competitors imitate. Bases differentiation becomes structurally
• Technology changes. unattractive:
unattractive:
• •Other
Technology
bases forchanges.
cost become
become less important
less important • Structure erodes.
• Other bases for cost to to buyers. • Structure erodes.
leadership erode. • Demand disappears.
leadership erode. buyers. • Demand disappears.
Proximity in  Cost proximity is lost. Broadly targeted
 Proximityisinlost.
differentiation Cost proximity is lost. Broadly targeted
competitors overwhelm
 Differentiation focusers
differentiation
Cost is lost.
focusers achieve Differentiation focusers
achieve even greater the segment: overwhelm
competitors
 Cost achieve even greater the segment:
even lowerfocusers
cost in achieve differentiation in • The segment’s
differentiation • The segment’s
even lower cost in
segments. segments.in differences from other
segments. segments. differences
segments narrow. from other
segments narrow.
• The advantages of a
• The line
broad advantages
increase.of a
broad line increase.
New focusers subsegment
theNew focusers subsegment
industry.
the industry.

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 Functional 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 to
: purchasing & materials management,
production, finance, R&D, HR, IT, and
marketing.

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