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Lecture 4 generic alternative strategies
Here are brief descriptions of 3 generic strategies with examples of when they should be adopted: Integration strategies: Forward integration involves gaining control over distributors and retailers. It should be adopted when current distributors are expensive/unreliable or availability is limited. Backward integration controls suppliers and is effective when current suppliers are expensive/unreliable or have few options. Horizontal integration controls competitors and works when competing in a growing industry allows economies of scale. Intensive strategies: Market penetration increases market share of current products/markets through increased sales to present customers. It works when markets are not saturated. Product development increases sales through improving or developing new products, as when products reach maturity or technology rapidly changes. Diversification strategies:
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Lecture 4 generic alternative strategies
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- 2. Vision & Missionand Objectives Strategy Formulation Internal evaluation External evaluation Generic Alternative Strategies Strategy Selection Strategic formulation
- 3. Developing strategies • Oncea firm has set out its long term objectives and evaluated its external and internal environment it then has to come up with a potential number of strategies. • A number of generic strategies exist and the organisation can look at each possibility to see if it may be suitable. • This lecture will look at a broad scope of proposed and when they could be adopted.
- 4. Types of GenericStrategies • Integration Strategies: related to industrial value chain: suppliers, customers… • Intensive Strategies: markets size and market share • Diversification Strategies: a movement into other business areas • Defensive Strategies: related to those when company is in “trouble”
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- 6. Forward Integration Strategies Attemptsto gain control over: Distributors and Retailers should be adopted when: Current distributors – expensive or unreliable Availability of quality distributors – limited Firm competing in industry expected to grow markedly Firm has both capital & HR to manage new business of distribution Current distributors have high profit margins
- 7. Backward Integration Strategies Control ofFirm’s suppliers should be adopted when: Current suppliers – expensive or unreliable number of suppliers is small; High growth in industry sector Firm has both capital & HR to manage the new business Current suppliers have high profit margins
- 8. Horizontal Integration Strategies Control ofFirm’s Competitors should be adopted when: Competes in growing industry Increased economies of scale – a major competitive advantage by increase in size Competitor is faltering due to lack of managerial expertise or need for particular resource Of course must Gain “lawful” monopolistic characteristics with out government challenge (competition laws)
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- 10. Strategy should beadopted when : Current markets not saturated Rate of present customers can be increased significantly Shares of competitors declining; industry sales increasing Increased economies of scale (increase units of production cause reduction in average cost to produce a unit) provide major competitive advantage Market Penetration Strategies: Increased Market Share of Present products/services or Present markets
- 11. New channels ofdistribution – reliable, inexpensive, good quality When Firm is successful at what it does Untapped/unsaturated markets Excess production capacity for current market Basic industry rapidly becoming global Strategy should be adopted when : Market Development Strategies: New Markets -- Present products/services to new geographic areas
- 12. Products in maturitystage of life cycle Industry characterized by rapid technological development Competitors offer better-quality products @ comparable prices Strong R&D capabilities Product Development Strategies: Increased Sales -- Improving present products/services or developing new products/services Strategy should be adopted when :
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- 14. Related Diversification Maybe Effective When: • An organization competes in a no-growth or a slow growth industry • New, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys • An organization’s products are currently in the declining stage of the product’s life cycle
- 15. Unrelated Diversification Maybe Effective When: • An organization’s current distribution channels can be used to market new products to existing customers • An organization has the capital and managerial talent to compete successfully in a new industry • An organization’s basic industry is experiencing declining annual sales and profits • An organization has the opportunity to purchase an unrelated business as an attractive investment opportunity
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- 17. Defensive Strategies Retrenchment:reduce Costs & assets to reverse declining sales & profit Divesture: Selling a division or part of an organization Liquidation: Sell Company’s assets, in parts, for only their tangible worth; not for their copyrights (intangible worth)…
- 18. Retrenchment Strategies: reduceCosts Guidelines -- Failed to meet objectives & goals consistency; but has distinctive competencies Inefficiency, low profitability, poor employee morale, pressure for stockholders Strategic managers have failed Rapid growth in size; major internal reorganization necessary
- 19. Divestiture Strategies: sellpart of firm Guidelines -- Retrenchment (cost cutting) failed to attain improvements Division needs more resources than are available Division responsible for firm’s overall poor performance Division is a mis-fit with organization Large amount of cash is needed and cannot be raised through other sources
- 20. Liquidation Strategies Guidelines -- Retrenchment& divestiture failed Only alternative is bankruptcy Minimize stockholder loss by selling firm’s assets
- 21. Questions • Briefly describe3 of the following types of generic strategies integration, intensive, diversification or defensive. (12 marks) • Explain, using suitable examples, at least 2 circumstances when each of these generic strategies should be adopted or may prove effective. (18 marks)