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TYPES OF STRATEGIES
Edelyn T. Mondejar

Antoniette Renata Marcellita Sutiana

Strategic Management (BA 211)
August 2013

TOPIC PRESENTATION ON:

TYPES OF STRATEGY
Presented to: Prof. Enrique Maca, MBA
Presented by: Edelyn T. Mondejar
Antoniette Renata Marcellita Sutiana
Class: Strategic Management

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BA 211
Class of SY: 2013-2014

TOPIC OUTLINE:
Different types of Strategies.
Guidelines that indicate when each strategy may
be an effective strategy to pursue.

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TYPES OF STRATEGY

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TYPES OF STRATEGY
INTEGRATION STRATEGY
Management Control
Types of integration strategies

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TYPES OF STRATEGY
INTEGRATION STRATEGY

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IMAGE FROM:

http://www.opsrules.com/supply-chain-optimization-blog/bid/241648/Vertical-vs-Horizontal-Inte
gration-Which-is-a-Better-Operations-Strategy

TYPES OF STRATEGY: INTEGRATION

STRATEGIES
VERTICAL INTEGRATION

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Vertical integration is the degree to which a

firm owns its upstream suppliers and its
downstream buyers.

TYPES OF STRATEGY: INTEGRATION

STRATEGIES
VERTICAL INTEGRATION : BACKWARD
INTEGRATION

company exhibitsbackward vertical

integrationwhen it controls
subsidiaries(suppliers) that produce some of
the inputs used in the production of its
products.

Control of these three subsidiaries is

intended to create a stable supply of inputs
and ensure a consistent quality in their final
product.

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VERTICAL INTEGRATION : BACKWARD

INTEGRATION

Seven guidelines for when backward integration may be an

especially effective strategy are:

When the number of suppliers is small and the number of

competitors is large.
When an organization competes in an industry that is growing
rapidly.
When an organization has both capital and human resources
to manage the new business of supplying its own raw
materials.

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When an organizations present suppliers are especially

expensive, or unreliable.

VERTICAL INTEGRATION : BACKWARD

INTEGRATION

Seven guidelines for when backward integration may be an

especially effective strategy are: Cont.......

When present supplies have high profit margins,

which suggests that the business of supplying
products or services in the given industry is a
worthwhile venture.
When an organization needs to quickly acquire a
needed resource.

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When the advantages of stable prices are

particularly important.

TYPES OF STRATEGY: INTEGRATION

STRATEGIES
VERTICAL INTEGRATION : FORWARD
INTEGRATION

company tends towardforward vertical

integrationwhen it controls distribution
centers and retailers where its products are
sold

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VERTICAL INTEGRATION :FORWARD

INTEGRATION
Six guidelines for when forward integration may be an
especially effective strategy are:

When the availability of quality distributors is so

limited as to offer a competitive advantage to
those firms that integrate forward.
When an organization competes in an industry
that is growing and is expected to continue to
grow markedly.

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When an organizations present distributors are

especially expensive, or unreliable

VERTICAL INTEGRATION :FORWARD

INTEGRATION
Six guidelines for when forward integration may be an
especially effective strategy are: Cont......

When the advantages of stable production are particularly high.

When present distributors or retailers have high profit margins.

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When an organization has both the capital and human resources

needed to manage the new business of distributing its own
products.

TYPES OF STRATEGY: INTEGRATION

STRATEGIES
VERTICAL INTEGRATION :
EXAMPLES

Tire Company

Glass Company

Metal Company

Tesco
Livestock
Fruits
Vegetabl
es

Apple Inc.
Processor
Software

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Ford River Rouge

Complex

TYPES OF STRATEGY: INTEGRATION

STRATEGIES
HORIZONTAL INTEGRATION

Growth strategy.
Mergers, acquisitions and takeovers among
competitors allow for increased economies of scale and
enhanced transfer of resources and competencies.

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It is a strategy of seeking ownership of or increased

control over a firms competitors.

TYPES OF STRATEGY: INTEGRATION

STRATEGIES
HORIZONTAL INTEGRATION :
EXAMPLES

Using the gemstones as an example, a wholesale

jeweler could acquire or merge with another wholesale
jeweler in an attempt to horizontally integrate the
company.

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Horizontal integration is accomplished by expansion

into additional business activities that are within the
same level of the value chain.

HORIZONTAL INTEGRATION
These five guidelines indicate when horizontal integration
may be an especially effective strategy:

When an organization competes in a growing industry.

When increased economies of scale provide major
competitive advantages.
When an organization has both the capital and human
talent needed to successfully manage an expanded
organization.
When competitors are faltering due to a lack of managerial
expertise or a need for particular resources that an
organization possesses.

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When an organization can gain monopolistic characteristics

in a particular area or region without being challenged by
the federal government for tending substantially to
reduce competition.

TYPES OF STRATEGY
INTENSIVE STRATEGY

Types:

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The strategies require intensive efforts if a firms

competitive position with existing products is to
improve.

TYPES OF STRATEGIES: INTENSIVE

STRATEGIES
Market Penetration

Market penetration includes increasing the number of

salespersons, increasing advertising expenditures, offering
extensive sales promotion items, or increasing publicity efforts

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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.

TYPES OF STRATEGIES: INTENSIVE

STRATEGIES
Market Penetration
budget(2010)
Microsoft advertising budget
(2010)
Apple advertising budget (2010)

$2.9 billion
$1.6 billion
$691 million

From:
http://www.businessinsider.com/facts-about-coca-cola-20116?op=1

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Coca-Cola advertising

INTENSIVE STRATEGY: MARKET

PENETRATION
These five guidelines indicate when market penetration may
be an especially effective strategy:

When current markets are not saturated with a

particular product or service.
When the usage rate of present customers could
be increased significantly.
When the market shares of major competitors
have been declining while total industry sales
have been increasing.
When the correlation between dollar sales and
dollar marketing expenditures historically has
been high.
When increased economies of scale provide major
competitive advantages.

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TYPES OF STRATEGIES: INTENSIVE

STRATEGIES
Market Development

Wal-Mart Stores (60), Carefour SA (28 stores), Tesco PLC ()are

expanding further in China in 2009/2010.

J.CO Donuts & Coffee

Cafe retailer in Indonesia
by: Johnny Andrean Group., 2005
Fastest growing donut & coffee chain in
South-East Asia
As of October 2010 J.CO operates 87 outlets
throughout Asia.
Indonesia, Malaysia, Singapore, China,
Philippines

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Market development involves introducing present products or

services into new geographic areas.

INTENSIVE STRATEGY: MARKET

DEVELOPMENT
These six guidelines indicate when market development
may be an especially effective strategy:

When new channels of distribution are available

that are reliable, inexpensive, and of good quality.
When an organization is very successful at what it
does.
When new untapped or unsaturated markets exist.
When an organization has the needed capital and
human resources to manage expanded operations.
When an organization has excess production
capacity.
When an organizations basic industry is rapidly
becoming global in scope.

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TYPES OF STRATEGIES: INTENSIVE

STRATEGIES
Product Development

Product development usually entails large research and

development expenditures.

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Product development is a strategy that seeks increased sales by

improving or modifying present products or services.

Googles new Chrome OS operating system illuminates years of

monies spent on product development. Google expects Chrome OS
to overtake Microsoft Windows by 2015.
Jeff Bleustein, CEO
During the past two decades, the
company has made significant
investments in new product lines.
The evolution engine, the softail
motorcycle, Twin Cam 88 engine.
An American Success Story

INTENSIVE STRATEGY: PRODUCT

DEVELOPMENT
These five guidelines indicate when product development
may be an especially effective strategy to pursue:

When an organization has successful products that

are in the maturity stage of the product life cycle.
When an organization competes in an industry that
is characterized by rapid technological
developments.
When major competitors offer better-quality
products at comparable prices.
When an organization competes in a high-growth
industry.
When an organization has especially strong research
and development capabilities.

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TYPES OF STRATEGY
DIVERSIFICATION STRATEGIES

Types:

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Advantage:
Lessen the risk of being in a single industry
Disadvantage:
More difficult to manage

TYPES OF STRATEGY: DIVERSIFICATION

STRATEGIES
RELATED DIVERSIFICATION

A process that takes place when a business

expands its activities into product lines that are
similar to those it currently offers.
Either through acquisition of competitors or
through internal development of new
products/services.

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When value chains posses competitively valuable

cross-business strategic fits

DIVERSIFICATION STRATEGIES:
RELATED
SIX GUIDELINES FOR WHEN RELATED
DIVERSIFICATION MAY BE AN EFFECTIVE
STRATEGY ARE AS FOLLOWS.

When an organization competes in a no-growth or a

slow-growth industry.
When adding new, but related, products would
significantly enhance the sales of current products.
When new, but related, products could be offered at
highly competitive prices.

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DIVERSIFICATION STRATEGIES:
RELATED
SIX
GUIDELINES FOR WHEN RELATED
DIVERSIFICATION MAY BE AN EFFECTIVE
STRATEGY ARE AS FOLLOWS. CONT........

When an organizations products are currently in

the declining stage of the products life cycle.
When an organization has a strong management
team.

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When new, but related, products have seasonal

sales levels that counterbalance an organizations
existing peaks and valleys.

TYPES OF STRATEGY:
DIVERSIFICATION
UNRELATED
DIVERSIFICATION

A form of diversification when the business adds

new or unrelated product lines and penetrates
new markets

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An unrelated diversification strategy favors

capitalizing on a portfolio of businesses that are
capable of delivering excellent financial
performance in their respective industries, rather
than striving to capitalize on value chain
strategic fits among the businesses.

DIVERSIFICATION STRATEGIES:
UNRELATED
TEN GUIDELINES FOR WHEN UNRELATED
DIVERSIFICATION MAY BE AN ESPECIALLY
EFFECTIVE STRATEGY

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When revenues derived from an organizations

current products or services would increase
significantly by adding the new, unrelated products.
When an organization competes in a highly
competitive and/or a no-growth industry, as indicated
by low industry profit margins and returns.
When an organizations present channels of
distribution can be used to market the new products
to current customers.
When the new products have countercyclical sales
patterns compared to an organizations present
products.

DIVERSIFICATION STRATEGIES: UNRELATED

GUIDELINES:
CONT
When an organizations basic industry is experiencing

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declining annual sales and profits.

When an organization has the capital and managerial
talent needed to compete successfully in a new industry.
When an organization has the opportunity to purchase an
unrelated business that is an attractive investment
opportunity.
When there exists financial synergy between the acquired
and acquiring firm.
When existing markets for an organizations present
products are saturated.
When antitrust action could be charged against an
organization that historically has concentrated on a single
industry.

TYPES OF STRATEGY
DEFENSIVE STRATEGIES

Types:

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A management approach designed to reduce the

risk of loss

TYPES OF STRATEGY: DEFENSIVE

STRATEGIES
RETRENCHMENT
Sometimes called a turnaround or
reorganizational strategy
Occurs when an organization regroups through
cost and asset reduction to reverse declining sales
Entail selling off land and buildings to raise
needed cash, pruning product lines, closing
marginal businesses, closing obsolete factories,
automating processes, reducing the number of
employees, and instituting expense control
systems and profits

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DEFENSIVE STRATEGIES:
RETRENCHMENT
FIVE GUIDELINES FOR WHEN

RETRENCHMENT MAY BE AN ESPECIALLY

EFFECTIVE STRATEGY:
When an organization has a clearly distinctive
competence but has failed consistently to meet its
objectives and goals over time.
When an organization is one of the weaker
competitors in a given industry.
When an organization is plagued by inefficiency,
low profitability, poor employee morale, and
pressure from stockholders to improve
performance.

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DEFENSIVE STRATEGIES:
RETRENCHMENT

external opportunities, minimize external

threats, take advantage of internal strengths,
and overcome internal weaknesses over time;
that is, when the organizations strategic
managers have failed (and possibly will be
replaced by more competent individuals).
When an organization has grown so large so
quickly that major internal reorganization is
needed.

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FIVE GUIDELINES FOR WHEN

RETRENCHMENT MAY BE AN ESPECIALLY
EFFECTIVE
STRATEGY.
When an organization
has CONT
failed to capitalize on

TYPES OF STRATEGY: DEFENSIVE

STRATEGIES
DIVESTITURE
Selling a division or part of an organization
Often is used to raise capital for further strategic
acquisitions or investments.
Can be part of an overall retrenchment strategy
to rid an organization of businesses that are
unprofitable, that require too much capital, or
that do not fit well with the firms other activities

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DEFENSIVE STRATEGIES:
DIVESTITURE
SIX GUIDELINES FOR WHEN DIVESTITURE
MAY BE AN ESPECIALLY EFFECTIVE
STRATEGY

When an organization has pursued a

retrenchment strategy and failed to accomplish
needed improvements.
When a division needs more resources to be
competitive than the company can provide.
When a division is responsible for an
organizations overall poor performance.

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DEFENSIVE STRATEGIES:
RETRENCHMENT

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SIX GUIDELINES FOR WHEN DIVESTITURE

MAY BE AN ESPECIALLY EFFECTIVE
STRATEGY. CONT..
When a division is a misfit with the rest of an
organization; this can result from radically
different markets, customers, managers,
employees, values, or needs.
When a large amount of cash is needed quickly
and cannot be obtained reasonably from other
sources.
When government antitrust action threatens an
organization.

TYPES OF STRATEGY: DEFENSIVE

STRATEGIES
LIQUIDATION
Selling all of a companys assets, in parts, for
their tangible worth
A recognition of defeat and consequently can be
an emotionally difficult strategy

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DEFENSIVE STRATEGIES:
LIQUIDATION

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THESE THREE GUIDELINES INDICATE

WHEN LIQUIDATION MAY BE AN
ESPECIALLY EFFECTIVE
When an organization has pursued both a
STRATEGY
retrenchment strategy and a divestiture strategy,
and neither has been successful.
When an organizations only alternative is
bankruptcy. Liquidation represents an orderly
and planned means of obtaining the greatest
possible cash for an organizations assets. A
company can legally declare bankruptcy first and
then liquidate various divisions to raise needed
capital.
When the stockholders of a firm can minimize
their losses by selling the organizations assets.

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the end

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Ref:
David, F. R. (2011). Strategic Management. 13 th
ed. Publisher: Prentice Hall.
http://smallbusiness.chron.com/horizontally-int
egrated-company-25994.html
http://en.wikipedia.org/wiki/Vertical_integration