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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
8
Strategies in Action
Integration Strategies
• Forward integration
• Backward integration
• Horizontal integration
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Strategies in Action
Forward
Integration Example
10
Strategies in Action
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Strategies in Action
Backward
Integration Example
• Motel 8 acquired a
Defined furniture
manufacturer.
• Seeking
ownership or
increased control
of a firm’s
suppliers
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Strategies in Action
Guidelines for Backward Integration
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
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
18
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
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
22
Strategies in Action
Diversification Strategies
• Concentric diversification
• Conglomerate diversification
• Horizontal diversification
23
Strategies in Action
Concentric
Diversification
Example
24
Strategies in Action
25
Strategies in Action
Conglomerate
Diversification
Example
Defined • Consultant
Construction
• Adding new, Engineering acquired
unrelated products Bisects factory.
or services
26
Strategies in Action
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
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Strategies in Action
Guidelines for Horizontal Diversification
29
Strategies in Action
Defensive Strategies
• Joint venture
• Retrenchment
• Divestiture
• Liquidation
30
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
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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.
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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.
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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.
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Strategies in Action
Guidelines for Divestiture
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Strategies in Action
Liquidation
Defined Example
37
Strategies in Action
38
Michael Porter’s Generic
Strategies
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
416-
Porter’s Competitive Strategies
Competitive Strategy --
–Low cost
–Differentiation
–Direct competition
–Focus on niche
426-
Porter’s Competitive Strategies
–Differentiation strategy
•Unique/superior value, quality, features,
service
436-
Porter’s Competitive Strategies
Competitive Advantage --
446-
Porter’s Competitive Strategies
456-
46Ch 5 -
Porter’s Competitive Strategies
Cost Leadership --
476-
Michael Porter’s Generic Strategies
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 –
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
55Ch 5 -
Focus
56Ch 5 -
Porter’s Competitive Strategies
Cost-Focus
576-
Porter’s Competitive Strategies
Differentiation Focus –
586-
Porter’s Competitive Strategies
596-
Risks of Generic Strategies
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.
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purchasing & materials management
(as example)
Buying materials in quantity, quality and cost
which correspond with the corp. generic
strategies (Business Unit strategies).
62