CHAPTER 5

STRATEGIES IN ACTION
Long-Term Objectives

Objectives --

Quantifiable
Measurable
Realistic
Understandable
Challenging
Long-Term Objectives

Objectives --

Hierarchical
Obtainable
Congruent- match, fit, harmonious
Time-line
SMART
 BENEFITS OF OBJECTIVES
• Direction
• Allow synergy
• Aid in evaluation
• Establish priorities
• Reduce uncertainty
• Minimizing conflicts
• Allocation of resources
• Design of job
Types of Strategies

Forward
Integration

Vertical Backward
Integration Integration
Strategies

Horizontal
Integration
 FORWARD INTEGRATION
• Gaining ownership or increased control over
distributors or retailers
• Online distribution
• Guidelines:
• Expensive/incapable/unreliable distributors
• Distributor is not available
• Rapid growth of organization
• Own capability to manage the distribution
• Advantages of stable production is high
• High margins to distributors
 BACKWARD INTEGRATION
• Seeking ownership or increased control on firm’s
suppliers
• Outsourcing
• Guidelines
• Expensive/incapable/unreliable suppliers
• Small number of supplier with large number of
competitors
• Rapid growth of organization
• Own capability to manage the supplies
• Advantages of stable prices are important
• High margins to suppliers
• Need to acquire a resource quickly
 HORIZONTAL INTEGRATION
• Seeking ownership or increased control over firms
competitors
• Mergers, acquisitions and takeovers
• Guidelines
• Can gain monopolistic condition
• Competition in a growing industry
• Increased economies of scale
• Capability to expand
• Competitors are faltering/pause/weaken
 EXAMPLES
Forward
PARCO opened PEARL
Integration

Backward Savours has its own supply

Integration chain

Horizontal Standard Chartered acquired

Integration Union Bank
Types of Strategies

Market
Penetration

Intensive Market
Strategies Development

Product
Development
 MARKET PENETRATION
• Seek to increase the market share of present products
or services in present market through marketing efforts
• Guidelines
• Market is not saturated
• Usage rate could be increased
• Market share of the competitor is declining but
industry is increasing
• High revenue with less expenditure
• Economies of the scale and competitive edge
 MARKET DEVELOPMENT
• Introduces existing products in new market or
geographic area
• Guidelines
• Reliable, capable and inexpensive distribution
channel
• Successful actions of an organization
• Untapped market exist
• Capability to expand
• Exceeded production capacity
• Industry is growing
 PRODUCT DEVELOPMENT
• Increase sales by modifying and/or improving present
products.
• Guidelines
• Successful products at maturity stage
• Rapid technological development in industry
• Better quality competitive products at comparable
price
• Competition in high growth industry
• Strong research and development capabilities
 EXAMPLES
Market
Mobile Operating Firms
Penetration

Market
PIA is opening new routes
Development

Product
Electronic Cars
Development
Types of Strategies

Concentric
Diversification

Diversification Conglomerate
Strategies Diversification

Horizontal
Diversification
 CONCENTRIC DIVERSIFICATION

• Adding new, but related, products or services

• Guidelines
• When organization compete in no growth or slow
growth industry
• Opting strategy will enhance the sales of the current
products
• New products have high margins
• Seasonal sales level to counterbalance the existing
peak and valley
• Declining stage of product life cycle
• Strong management team
 HORIZONTAL DIVERSIFICATION

• Adding new, unrelated products for present customers

• Hospital business
• Guidelines
• Additional revenues
• Highly competitive or no growth industry
• Present channels for the new product distribution
 CONGLOMERATE DIVERSIFICATION
• Adding new unrelated products to new market
• Guidelines
• Declines in sales and profits
• Capability
• Opportunity of purchase a new business
• Financial synergies between acquired and acquiring
firms
• Existing market saturation
 EXAMPLES
Concentric Google launches it mobile
Diversification phone

Conglomerate
Diversification Fauji Foundation

Horizontal
Fuel Stations
Diversification
Types of Strategies

Retrenchment

Defensive Divestiture
Strategies

Liquidation
 RETRENCHMENT

• Regrouping through cost and asset reduction to reverse

declining sales and profits
• Guidelines
• Failed to meet objective with clear distinctive
competencies
• Weaker competitor
• Inefficiency, low profitability, poor employee morale
and pressure from stockholders
• Failed to capitalize on SWOT
 DIVESTITURE

• Selling a division or part of the organization

• May be the part of the retrenchment strategy
• Guidelines
• Pursued a retrenchment strategy but failed
• More resources required to be competitive
• Division is responsible for organization overall poor
performance
• Division is misfit
• Large amount of cash is needed
 LIQUIDATION
• Selling all of a company assets, in parts, for their
tangible worth
• Guidelines
• Failure of retrenchment and divestiture strategy
• Only alternative is bankruptcy
• Stockholder want to minimize losses by selling
organization
 EXAMPLES
America West Airlines closed
Retrenchment its hub at Columbus, Ohio and
layed off 390 employees

Divestiture
Telenor & Warid in Pakistan

Liquidation Steel Mill of Pakistan

Michael Porter’s Generic Strategies

Cost Leadership Strategies

Differentiation Strategies

Focus Strategies
 COST LEADERSHIP STRATEGY
• Emphasize on producing products at a very low
per unit cost for a consumer who are price
sensitive
•Economies of scale
•learning and experience curve
•linkages with suppliers and distributors
•Guidelines
•Few ways to achieve differentiation
•Many price sensitive buyers
•No brand consciousness
•Significant bargaining power
 DIFFERENTIATION STRATEGY

• Emphasize on producing products

considered unique industry wise for price
insensitive customer
•Guidelines
•Imitation is difficult
•Customer must value it as a high value product
 FOCUS STRATEGIES
• Emphasize on producing products to fulfill the
need of small amount of customers
•Guidelines
•Sufficient size of segment
•High potential growth
•Not crucial to the success of any competitor
•Customer value a product as high as company
requires
•E.g. Local Flying Company
 JOINT VENTURE
• Occurs when two or more companies form a
temporary partnership or consortium for the
propose of capitalizing on some opportunity.
• less risky but with the chances of failure.

•Guidelines
•Privately and publicly owned organization
•Domestic organization and foreign country organization
•Project require overwhelming resources and share of
risk
•Small firm to compete with the large one
•Launching of new technology quickly
 MERGER/ACQUISITION
• Merger occurs when two organization of equal size
unite to form one enterprise.
•Acquisition occurs when an organization purchase
another organization
• less risky but with the chances of failure.

•Guidelines
•To provide improved quality products
•To make better use of existing sales force
•To reduce managerial staff
•To gain economies of scale
•To smooth seasonal trends in sales
•To gain the access to new suppliers, distributors, customers products
•To gain new technology
 EXAMPLES-MERGERS
Acquiring Firm Acquired Firm
IBM Rational Software Corp
Yahoo Inktomi Corp
U.S. Steel National Steel Corp
Pfizer Pharmacia
Krispy Kreme Montana Mills
Doughnuts
Oracle People Soft
Palm Handspring
Nike Converse
 First Mover Advantages

 Benefits a firm may achieve by entering a

new market or developing a new product
or service prior to rival firms.
 Outsourcing
Business-process outsourcing
(BPO)

 Companies taking over the functional

operations of other firms