Types of Strategies61

Types of Strategies
Level of strategies
Prof. Dr. Majed El-Farra 2009
Strategy
A strategy of a corporation forms a
comprehensive master plan that states how
the corporation will achieve its mission and
objectives. It maximizes competitive
advantage and minimizes competitive
disadvantage
Strategy
Mintzberg (1987) defines strategy in terms of 5Ps. These 5Ps are:
1P Perspective: is the main business concept or idea and the means by
which that concept or idea is put into practice or implemented.
2P Plan: is a direction, a guide or a course of action from the present (or
from the past) and into the future. However that future is defined by
whatever the time horizons associated with it.
3P Patterns: are the consistency of firm decision making.
P Position or positioning: where the firm locates itself within its 4
external and competitive environments; and by which it positions
particular products or services against the demands of the market
.segments it serves
P Ploys: are the competition strategies designed to maintain, reinforce, 5
achieve or improve the relative competitive position of the organization
.)2007within its sector and markets (Morden,
3
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.
Types of Strategies
A Large
Company
Corp
Level
Division Level
Functional Level
Operational Level
5Ch 5 -
Types of Strategies
company
A small
Company
Functional
Level
Operational Level
6Ch 5 -
Corporate Strategy
The first level of strategy (corporate strategy) is related to determining the
corporate strategy. It is fundamentally and simply concerned with deciding
what type of business the organization should be in and how the overall
group of activities should be formed and managed .Corporate strategy
deals with issues of strategic management at the level of the firm as a
whole. Such issues involve the basic character, capability and competence
of the firm; the direction in which it should develop its activity; the nature
of its internal architecture; governors and structure; the nature of its
relationships with its sector, its competitors and the wider environment.
Corporate strategies usually fit within the three main categories of
stability, growth and retrenchment
7Ch 5 -
Business Strategy
business strategy refers to the actions and
approaches crafted by management to create
successful performance in one particular line
of business. It is also concerned with creating
competitive advantage in each of the strategic
.business units of the organization
Functional or departmental
strategy
Functional or departmental strategy concerns
the managerial game plan for running a major
functional activity or process within a business
such as research and development unit,
marketing unit, financial unit, production unit,
H R development unit and so on. A business
requires as many functional strategies as it has
strategically critical activities.
9
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.
10
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
11
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.
12
Retrenchment strategies
Types:
1- Turnaround:
Eliminating unprofitable outputs,
pruning/cutting assets, reducing size of work
force, rethinking firms products lines and
customer groups.
2- Divestment: sell one of business units
3- Liquidation: last resort strategy
13
Strategies in Action
Vertical Integration Strategies
14
Forward integration
Backward integration
Horizontal integration
Forward
Integration
Defined
Gaining
ownership or
increased control
over distributors
or retailers
15
Example
General Motors is
acquiring 10% of its
dealers.
Guidelines for Forward Integration
16
Present distributors are expensive, unreliable, or incapable of

meeting firms 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
Backward
Integration
Defined
Example
Seeking
ownership or
increased control
of a firms
suppliers
17
Motel 8 acquired a
furniture
manufacturer.
Guidelines for Backward Integration
18
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
Horizontal
Integration
Defined
Example
Seeking
ownership or
increased control
over competitors
19
Palestinian Islamic
Bank acquired CairoAmman Bank Islamic
transaction branch.
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
20
Intensive Strategies
21
Market penetration
Market development
Product development
Market
Penetration
Defined
Seeking increased
market share for
present products
or services in
present markets
through greater
marketing efforts
22
Example
Ameritrade, the online broker, tripled its

annual advertising
expenditures to $200
million to convince
people they can make
their own investment
decisions.
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
23
Market
Development
Defined
Example
24
Introducing
present products
or services into
new geographic
area
Khuzendar Tiles maker

introduce his product
to Gulf markets.
Guidelines for Market Development
25
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
Product
Development
Example
Defined
Seeking increased
sales by improving
present products
or services or
developing new
ones
26
Apple developed the

G4 chip that runs at
500 megahertz.
Khuzendar Tiles maker
introduce Ceramic as a
new product.
Guidelines for Product Development
27
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
Diversification Strategies
28
Concentric diversification
Conglomerate diversification
Horizontal diversification
Concentric
Diversification
Example
Defined
Adding new, but

related, products
or services
29
National Westminister
Bank PLC in Britain
bought the leading
British insurance
company, Legal &
General Group PLC.
Guidelines for Concentric Diversification
30
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
Conglomerate
Diversification
Example
Defined
Adding new,
unrelated products
or services
31
Consultant
Construction
Engineering acquired
Bisects factory.
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
32
Horizontal
Diversification
Defined
Adding new,
unrelated products
or services for
present customers
33
Example
The El-Awda Co.

provide ice-cream
product to present
customer
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 /repeating sales patterns
compared to existing products
34
Defensive Strategies
35
Joint venture
Retrenchment
Divestiture
Liquidation
Joint Venture
Defined
Example
Two or more
sponsoring firms
forming a separate
organization for
cooperative
purposes
36
Lucent Technologies
and Philips Electronic
NV formed Philips
Consumer
Communications to
make and sell
telephones.
Guidelines for Joint Venture
37
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
Retrenchment
(turnaround)
Defined
Regrouping through
cost and asset
reduction to reverse
declining sales and
profit. Sometimes it is
called turnaround or
reorganizational
strategy.
38
Example
A company sold off a

land and 4 apartments
to raise cash needed.
It introduce expense
effective control
system.
Guidelines for Retrenchment
39
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 organizations strategic managers have failed
Very quick growth to large organization where a major internal
reorganization is needed.
Divestiture
Defined
Example
Selling a division
or part of an
organization
40
Harcourt General, the

large US publisher, is
selling its Neiman
Marcus division.
Guidelines for Divestiture
41
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 firms 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.
Liquidation
Defined
Selling all of a
companys assets,
in parts, for their
tangible worth
42
Example
El-Ameer Block factory

sold all its assets and
ceased business.
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
firms assets
43
Michael Porters Generic

Strategies
Cost Leadership Strategies
(Low-Cost & Best-Value)
Differentiation Strategies
Focus Strategies
(Low-Cost Focus &
Best-Value Focus)
44Ch 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
45
Business Strategy
Focuses on improving competitive

position of companys products or
services within the specific industry
or market segment
466-
Porters Competitive Strategies
Generic Competitive Strategies -Lower Cost strategy
Greater efficiencies than competitors
Differentiation strategy
Unique/superior value, quality, features,

service
476-
Competitive Advantage -Determined by Competitive Scope

Breadth of the target market
486-
496-
50Ch 5 -
Cost Leadership -Low-cost competitive strategy

Broad mass market
Efficient-scale facilities
Cost reductions
Cost minimization
516-
Michael Porters Generic Strategies

Cost leadership emphasizes producing standardized products
at a very low per-unit cost for consumers who are pricesensitive.
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.
52Ch 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.
53Ch 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.
5. 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.
54Ch 5 -
Differentiation
Broad mass market
Unique product/service
Premiums charged
Less price sensitivity
556-
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
56Ch 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.
3. 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.
57Ch 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.
58Ch 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.
59Ch 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.
60Ch 5 -
Cost-Focus
Low-cost competitive strategy
Focus on market segment
Niche focused
Cost advantage in market segment
616-
Differentiation Focus
Specific group or geographic market
focus
Differentiation in target market
Special needs of narrow target market
626-
Stuck in the middle

No competitive advantage
Below-average performance
636-
Risks of Generic Strategies
Risks of Cost
Risks of Cost
Leadership
Leadership
Cost
leadership
is not
Cost
leadership
is not
sustained:
sustained:
Competitors
Competitorsimitate.
imitate.
Technology
Technologychanges.
changes.
Other
bases
Other bases for
for cost
cost
leadership
erode.
leadership
erode.
Proximity in Proximity in
differentiation
is lost.
differentiation
is lost.
Cost
focusers
achieve
Cost focusers achieve
even lower
cost incost in
even lower
segments.
segments.
646-
Risks
RisksofofDifferentiation
Differentiation
Differentiation
is not
Differentiation is not
sustained:
sustained:
Competitorsimitate.
imitate.
Competitors
Bases
forfor
differentiation
Bases
differentiation
become less important

become
less important
to
to
buyers.
Cost proximity isbuyers.
lost.
Cost
proximity
is lost.
Differentiation focusers
Differentiation
focusers
achieve
even greater
achieve even
differentiation
in greater
differentiation in
segments.
segments.
Risks of Focus
Risks
Focus
The of
focus
strategy is
The focus strategy
is
imitated:
imitated:
The target segment
Thebecomes
target segment
structurally
becomes structurally
unattractive:
unattractive:
Structure erodes.
Structure
erodes.
Demand disappears.
Demand
disappears.
Broadly
targeted
Broadly
targeted
competitors
overwhelm
competitors
overwhelm
the segment:
the segment:
The segments
differences
The segments
from other
differences
from
other
segments
narrow.
narrow.
segments
The advantages
of a
The
advantages
of a
broad
line increase.
broad line
increase.
New focusers
subsegment
New focusers
thesubsegment
industry.
the industry.
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.
65
purchasing & materials management

(as example)
Buying materials in quantity, quality and cost
which correspond with the corp. generic
strategies (Business Unit strategies).
66
What kind of internal factors help managers determine

whether a firm should emphasize the production and sales of a
large number of low-priced products or a small number of highpriced products?
67
The most important factors can be brought out by going through each functional
area. For example, under marketing, a strong market research group may be able
to identify the kinds of niches available to the products or services under
consideration.
In terms of finance, the production of a large number of low-priced products
suggests a large capital intensive manufacturing facility.
To produce a few high quality goods with a small amount of capital because the
needed manufacturing facilities may be small, utilizing craft labor. R&D may be an
important consideration also.
In order to produce high-quality products, a fairly sophisticated applied R&D effort
may be needed. An expensive engineering staff may be needed,
In terms of human resource management, a fairly unskilled and low paid
workforce cannot normally be expected to produce a high quality product on old
assembly line machinery. Either the workforce would need to be replaced or an
extensive job training and job enrichment program would need to be established.
Either approach costs both time and money.
Is it possible for a company or business unit to follow

a cost leadership strategy and a differentiation
strategy simultaneously? Why or why not?
Michael Porter argues that a business unit which is unable to
achieve one of the competitive strategies is likely to be "stuck in the
middle" of the competitive marketplace with no competitive
advantage. That unit, according to Porter, is doomed to belowaverage performance.
Research by Greg Dess and Peter Davis as well as by Rod White,
suggests however, that this may not be the case. Examples can be
found of businesses which have been able to jointly follow overall
low cost and high quality differentiation strategy. Japanese
companies such as Toyota in automobiles and Matsushita
(Panasonic and National) in consumer electronics are good
examples. Their offer of low price and high quality created serious
problems for those companies following only cost leadership in the
U.S.
68
How can a company overcome the limitations

of being in a fragmented industry?
Businesses tend to be local and oriented to market segments. This may

occur because the industry is relatively new - based upon a product in the
early stage of its product life cycle.
Entry barriers are probably low and new entrants are constantly moving
into the industry as others leave or go bankrupt. Often, the trick to be a
successful firm in this kind of industry is to find the key to standardization
which allows economies.
Domino's Pizza achieved success in fast food by providing standardized
pizza throughout North America and by guaranteeing delivery time faster
than competition. Before Pizza Hut and Domino's settled upon
standardized pizza appealing to a wide variety of tastes across North
American, the pizza business was a fragmented industry characterized by
many small pizza "parlors" serving small market segments in cities
throughout America .
69

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Types of Strategies

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Vertical Integration Strategies

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Present distributors are expensive, unreliable, or incapable of

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

When present suppliers are expensive, unreliable, or incapable

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Ameritrade, the online broker, tripled its

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Khuzendar Tiles maker

Prof. Dr. Majed El-Farra 2009

New channels of distribution that are reliable, inexpensive, and

Prof. Dr. Majed El-Farra 2009

Apple developed the

Prof. Dr. Majed El-Farra 2009

Products in maturity stage of life cycle

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Adding new, but

Prof. Dr. Majed El-Farra 2009

Competes in no- or slow-growth industry

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

The El-Awda Co.

Revenues from current products/services would increase

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Combination of privately held and publicly held can be

A company sold off a

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Harcourt General, the

Prof. Dr. Majed El-Farra 2009

When firm has pursued retrenchment but failed to attain

Prof. Dr. Majed El-Farra 2009

El-Ameer Block factory

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Michael Porters Generic

Prof. Dr. Majed El-Farra 2009

Business Unit Strategies

Prof. Dr. Majed El-Farra 2009

Focuses on improving competitive

Prof. Dr. Majed El-Farra 2009