Types of Strategies

Level of strategies

1
 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.

2
 Types of Strategies
Corp
A Large Level

Company
Division Level

Functional Level

Operational Level
 Types of Strategies

A small Corporate
Company
Functional
Level

Operational Level
 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.

5
 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

6
 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.

7
 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

Integration Strategies

• Forward integration
• Backward integration
• Horizontal integration

9
 Strategies in Action

Forward
Integration Example

Defined • General Motors is

acquiring 10% of its
• Gaining dealers.
ownership or
increased control
over distributors
or retailers

10
 Strategies in Action

Guidelines for Forward Integration

 Present distributors are expensive, unreliable, or incapable of

meeting firm’s needs
 Availability of quality distributors is limited
 When firm competes in an industry that is expected to grow
markedly
 Advantages of stable production are high
 Present distributor have high profit margins

11
 Strategies in Action
Backward
Integration Example

• Motel 8 acquired a
Defined furniture
manufacturer.
• Seeking
ownership or
increased control
of a firm’s
suppliers

12
 Strategies in Action
Guidelines for Backward Integration

 When present suppliers are expensive, unreliable, or incapable

of meeting needs
 Number of suppliers is small and number of competitors large
 High growth in industry sector
 Firm has both capital and human resources to manage new
business
 Advantages of stable prices are important
 Present supplies have high profit margins

13
 Strategies in Action
Horizontal
Integration Example

• Palestinian Islamic
Defined Bank acquired Cairo-
Amman Bank Islamic
• Seeking transaction branch.
ownership or
increased control
over competitors

14
 Strategies in Action

Guidelines for Horizontal Integration

 Firm can gain monopolistic characteristics without being

challenged by federal government
 Competes in growing industry
 Increased economies of scale provide major competitive
advantages
 Faltering/losing due to lack of managerial expertise or need for
particular resources

15
 Strategies in Action

Intensive Strategies

• Market penetration
• Market development
• Product development

16
 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
17
 Strategies in Action

Guidelines for Market Penetration

 Current markets not saturated

 Usage rate of present customers can be increased significantly
 Market shares of competitors declining while total industry
sales increasing
 Increased economies of scale provide major competitive
advantages

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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

19
 Strategies in Action

Guidelines for Market Development

 New channels of distribution that are reliable, inexpensive, and

good quality
 Firm is very successful at what it does
 Untapped or unsaturated markets
 Capital and human resources necessary to manage expanded
operations
 Excess production capacity
 Basic industry rapidly becoming global

20
 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
21
 Strategies in Action

Guidelines for Product Development

Products in maturity stage of life cycle 

 Competes in industry characterized by rapid technological
developments
 Major competitors offer better-quality products at comparable
prices
 Compete in high-growth industry
 Strong research and development capabilities

22
 Strategies in Action

Diversification Strategies

• Concentric diversification
• Conglomerate diversification
• Horizontal diversification

23
 Strategies in Action
Concentric
Diversification
Example

Defined • National Westminister

Bank PLC in Britain
• Adding new, but bought the leading
related, products British insurance
or services company, Legal &
General Group PLC.

24
 Strategies in Action

Guidelines for Concentric Diversification

 Competes in no- or slow-growth industry

 Adding new & related products increases sales of current
products
 New & related products offered at competitive prices
 Current products are in decline stage of the product life cycle
 Strong management team

25
 Strategies in Action
Conglomerate
Diversification
Example

Defined • Consultant
Construction
• Adding new, Engineering acquired
unrelated products Bisects factory.
or services

26
 Strategies in Action

Guidelines for Conglomerate Diversification

 Declining annual sales and profits

 Capital and managerial talent to compete successfully in a new
industry
 Financial synergy between the acquired and acquiring firms
 Exiting markets for present products are saturated

27
 Strategies in Action
Horizontal
Diversification

Example
Defined
• The El-Awda Co.
• Adding new, provide ice-cream
unrelated products product to present
or services for customer
present customers

28
 Strategies in Action
Guidelines for Horizontal Diversification

 Revenues from current products/services would increase

significantly by adding the new unrelated products
 Highly competitive and/or no-growth industry w/low margins
and returns
 Present distribution channels can be used to market new
products to current customers
 New products have counter cyclical sales patterns compared to
existing products

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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

 Combination of privately held and publicly held can be

synergistically combined
 Domestic forms joint venture with foreign firm, can obtain local
management to reduce certain risks
 Distinctive competencies of two or more firms are
complementary
 Overwhelming resources and risks where project is potentially
very profitable (e.g., Alaska pipeline)
 Two or more smaller firms have trouble competing with larger
firm
 A need exists to introduce a new technology quickly

32
 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.
33
 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.

34
 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.

35
 Strategies in Action
Guidelines for Divestiture

 When firm has pursued retrenchment but failed to attain

needed improvements
 When a division needs more resources than the firm can
provide
 When a division is responsible for the firm’s overall poor
performance
 When a division is a misfit with the organization
 When a large amount of cash is needed and cannot be
obtained from other sources.

36
 Strategies in Action

Liquidation

Defined Example

• Selling all of a • El-Ameer Block factory

company’s assets, sold all its assets and
in parts, for their ceased business.
tangible worth

37
 Strategies in Action

Guidelines for Liquidation

 When both retrenchment and divestiture have been pursued

unsuccessfully
 If the only alternative is bankruptcy, liquidation is an orderly
alternative
 When stockholders can minimize their losses by selling the
firm’s assets

38
 Michael Porter’s Generic
Strategies

Cost Leadership Strategies

(Low-Cost & Best-Value)

Differentiation Strategies

Focus Strategies
(Low-Cost Focus &
Best-Value Focus)

39Ch 5 -
 Business Unit Strategies
• Here we answer the question:
How should we compete in the chosen industry?
Cost leadership
Differentiation (real or perceived).
Mixed
Focus

40
 Business Strategy

Focuses on improving competitive

position of company’s products or
services within the specific industry
or market segment

416-
 Porter’s Competitive Strategies

Competitive Strategy --

–Low cost
–Differentiation
–Direct competition
–Focus on niche

426-
 Porter’s Competitive Strategies

Generic Competitive Strategies --

–Lower Cost strategy

•Greater efficiencies than competitors

–Differentiation strategy
•Unique/superior value, quality, features,
service

436-
 Porter’s Competitive Strategies

Competitive Advantage --

–Determined by Competitive Scope

•Breadth of the target market

446-
 Porter’s Competitive Strategies

456-
46Ch 5 -
 Porter’s Competitive Strategies

Cost Leadership --

–Low-cost competitive strategy

–Broad mass market
–Efficient-scale facilities
–Cost reductions
–Cost minimization

476-
 Michael Porter’s Generic Strategies

• Cost leadership emphasizes producing standardized products

at a very low per-unit cost for consumers who are price-
sensitive.
• There are two types of cost leadership strategies.
• a. A low-cost strategy offers products to a wide range of
customers at the lowest price available on the market.
• b. A best-value strategy offers products to a wide range of
customers at the best price-value available on the market.

48Ch 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.

49Ch 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.
• 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.

50Ch 5 -
 Porter’s Competitive Strategies

Differentiation –

–Broad mass market

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

516-
 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

52Ch 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.
• 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.

53Ch 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.

54Ch 5 -
 Focus

• 1. Focus means producing products and services that fulfill

the needs of small groups of consumers.
• 2. 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.

55Ch 5 -
 Focus

• Focus strategies are most effective when the

niche is profitable and growing, when industry
leaders are uninterested in the niche, when industry
leaders feel pursuing the niche is too costly or
difficult, when the industry offers several niches, and
when there is little competition in the niche
segment.

56Ch 5 -
 Porter’s Competitive Strategies

Cost-Focus

–Low-cost competitive strategy

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

576-
 Porter’s Competitive Strategies

Differentiation Focus –

–Specific group or geographic market

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

586-
 Porter’s Competitive Strategies

Stuck in the middle –

–No competitive advantage

–Below-average performance

596-
 Risks of Generic Strategies

Risks of Cost Risks

Risks ofof
Differentiation
Differentiation Risks of Focus
Risks of Cost Leadership Differentiation is not Risks
The of Focus
focus strategy is
Leadership Differentiation is not The focus strategy is
Cost leadership is not sustained: sustained: imitated:
Cost leadership is not
sustained: imitated:
sustained: • • Competitors
Competitorsimitate.
imitate. The target segment
Thebecomes
target segment
• Competitors imitate. • Bases for
• Bases for differentiation structurally
•• Competitors imitate.
Technology changes. becomes structurally
•• Technology becomedifferentiation
less important unattractive:
unattractive:
Other baseschanges.
for cost tobecome less important • Structure erodes.
• Other bases forerode.
leadership cost to •• Structure erodes.
Demand disappears.
leadershipProximity
erode. in buyers. • Demand disappears.
Proximity in Cost proximity isbuyers.
lost. Broadly
Broadly
targeted
targeted
differentiation is lost. Cost proximity is lost.
Differentiation focusers competitors overwhelm
differentiation is lost.
Cost focusers achieve Differentiation focusers competitors overwhelm
the segment:
Cost focusers achieve achieve even greater the segment:
even lower cost in achieve even
differentiation in greater • The segment’s
even lower cost in
segments. differentiation in • differences
The segment’sfrom other
segments. segments. differences from other
segments. segments narrow.
• segments narrow.
The advantages of a
• The advantages
broad of a
line increase.
broad line
New focusers increase.
subsegment
New focusers thesubsegment
industry.
the industry.

606-
 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.

61
 purchasing & materials management
(as example)
Buying materials in quantity, quality and cost
which correspond with the corp. generic
strategies (Business Unit strategies).

62