1. Alternative strategies

2. Vision & Mission and Objectives Generic Alternative Strategies
Strategic formulation
Strategy Formulation
Vision & Mission and Objectives
Internal evaluation
External evaluation
Generic Alternative Strategies
Strategy Selection

3. Developing strategies
Once a 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 Generic Strategies
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”

5. Horizontal Integration
Types of Strategies
Forward Integration
Integration Strategies
Backward Integration
Horizontal Integration

6. Forward Integration Strategies
Attempts to 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 of Firm’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 of Firm’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)

9. Types of Strategies Market Penetration Market Development
Intensive Strategies
Market Development
Product Development

10. Market Penetration Strategies: Increased Market Share of Present products/services or Present markets
Strategy should be adopted 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

11. Market Development Strategies: New Markets -- Present products/services to new geographic areas
Strategy should be adopted when :
New channels of distribution – 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

12. Product Development Strategies: Increased Sales -- Improving present products/services or developing new products/services
Strategy should be adopted when :
Products in maturity stage of life cycle
Industry characterized by rapid technological development
Competitors offer better-quality comparable prices
Strong R&D capabilities

13. Unrelated Diversification
Types of Strategies
Related
Diversification
Diversification Strategies
Unrelated Diversification

14. Related Diversification May be 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 May be 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

16. Types of Strategies Retrenchment Divestiture Liquidation
Defensive Strategies
Divestiture
Liquidation

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: reduce Costs
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: sell part 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. Cost Leadership Strategies Differentiation Strategies
Michael Porter’s Generic Strategies
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

23. Low Cost strategy: the basic idea
Generic Strategies
Low Cost strategy: the basic idea
underprice competitors or offer a better value
thereby gain market share and sales
driving some competitors out of the market entirely.

24. Low Cost Leadership
Ways of ensuring total costs across value chain are lower than competitors’ total costs
Perform value chain activities more efficiently than rivals and control factors that drive costs
Efficient customer response system (CRM): better link with customers: e.g. Amazon: keeps track of user preferences for purchases, and recommends titles purchased by others
Revamp the firm’s overall value chain to eliminate or bypass some cost-producing activities
Inventory replenishment system sends orders to suppliers when purchase recorded at cash register (SCM): better link with suppliers: e.g. Toyota: uses IS to facilitate direct access from suppliers to production schedules

25. Cost Leadership Can be especially effective when:
Price competition among rivals is vigorous
Rival’s products are identical and supplies are readily available
There are few ways to achieve differentiation
Most buyers use the product in the same way
Buyers have low switching costs
Buyers are large and have significant power
Industry newcomers use low prices to attract buyers

26. Generic Strategies: Differentiation: (Type 3)
Producing new products and services, or greatly change the customer convenience in using your existing products and services
allows a firm to charge higher prices
Or gain customer loyalty
risk of differentiation strategy:
unique product may not be valued highly enough by customers to justify the higher price.
requirements for a successful differentiation strategy:
strong coordination among the R&D and marketing functions
Use information systems to customize, personalize products to fit specifications of individual consumers
E.g., Nike’s iD program for customized sneakers

27. Differentiation Can be especially effective when:
There are many ways to differentiate and many buyers perceive the value of the differences
Few rival firms are following a similar differentiation approach
Technology change is fast paced and competition revolves around evolving product features:
Google’s continuous innovations, Apple’s iPhone

28. Focused Strategies (Type 4 & 5)
Generic Strategies
Focused Strategies (Type 4 & 5)
producing products and services that fulfill the needs of small groups of consumers (niche market).
two types:
products or services to a small range (niche) of customers at the lowest price available on the market.
products or services to a small range (niche) of customers at the best value available on the market. (focused differentiation)
Can be achieved by: Advertising to smaller and smaller target markets using data mining techniques

29. Focused Strategy Can be especially effective when for example:
The target market niche is large, profitable, and growing
Industry leaders do not consider the niche crucial
Few, if any, other rivals are attempting to specialize in the same target segment

30. Questions
Discuss the relationship between: integrative, intensive and diversification strategies; and Porter’s strategies' of low-cost, differentiation and focus.
Discuss, using simple examples the types of strategy: integration, intensive, diversification or defensive, which you would consider to be most appropriate for the D.I.T. in the current economic climate.
Discuss, using examples the type of Information systems than could be used to support two of Porter’s strategies: Low Cost, Differentiation or Focussed strategies for which you would consider to be most appropriate for the D.I.T. in the current economic climate.