Lecture 4 generic alternative strategies

Generic Alternate Strategies

1. Alternative strategies

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

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. Types of Strategies
Integration
Strategies
Forward
Integration
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
Intensive
Strategies
Market
Penetration
Market
Development
Product
Development

10. 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
Market Penetration Strategies: Increased
Market Share of Present products/services
or Present markets

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

12. Products in maturity stage 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 :

13. Types of Strategies
Diversification
Strategies
Related
Diversification
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
Defensive
Strategies
Retrenchment
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. Questions
•Briefly describe 3 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)