KICMACh 5 -*Types of Strategies Integration Strategies Forward IntegrationBackward IntegrationHorizontal Integration

KICMA

KICMACh 5 -* Integration Strategies

Forward IntegrationGaining ownership or increased control over distributors or retailersBackward IntegrationSeeking ownership or increased control of a firms suppliersHorizontal IntegrationSeeking ownership or increased control over competitors

KICMA

Forward Integration GuidelinesWhen an organizations present distributors are especially expensiveWhen the availability of quality distributors is so limited as to offer a competitive advantageWhen an organization competes in an industry that is growingWhen present distributors or retailers have high profit margins5-*KICMA

KICMA

Backward Integration GuidelinesWhen an organizations present suppliers are especially expensive or unreliableWhen the number of suppliers is small and the number of competitors is largeWhen the advantages of stable prices are particularly importantWhen an organization needs to quickly acquire a needed resource5-*KICMA

KICMA

Horizontal Integration Guidelines

When an organization competes in a growing industryWhen increased economies of scale provide major competitive advantages Due to a lack of managerial expertise

5-*KICMA

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KICMACh 5 -*Types of Strategies Intensive Strategies Market PenetrationMarket DevelopmentProduct Development

KICMA

KICMACh 5 -*Intensive Strategies

Market PenetrationSeeking increased market share for present products or services in present markets through greater marketing efforts Market DevelopmentIntroducing present products or services into new geographic areasProduct DevelopmentSeeking increased sales by improving present products or services or developing new ones

KICMA

Market Penetration GuidelinesWhen current markets are not saturated with a particular product or serviceWhen the usage rate of present customers could be increased significantlyWhen the market shares of major competitors have been declining while total industry sales have been increasingWhen increased economies of scale provide major competitive advantages5-*KICMA

KICMA

Market Development GuidelinesWhen new channels of distribution are available that are reliable, inexpensive, and of good qualityWhen an organization is very successful at what it doesWhen new untapped or unsaturated markets existWhen an organization has excess production capacity

5-*KICMA

KICMA

Product Development GuidelinesWhen an organization has successful products that are in the maturity stage of the product life cycleWhen an organization competes in an industry that is characterized by rapid technological developmentsWhen major competitors offer better-quality products at comparable pricesWhen an organization competes in a high-growth industry5-*KICMA

KICMA

KICMACh 5 -*Types of Strategies Diversification Strategies Related DiversificationUnrelated Diversification

KICMA

KICMACh 5 -*Diversification Strategies

Related DiversificationAdding new but related products or servicesUnrelated Diversification Adding new, unrelated products or services

KICMA

Synergies of Related DiversificationTransferring competitively valuable expertise, technological know-how, or other capabilities from one business to anotherCombining the related activities of separate businesses into a single operation to achieve lower costsExploiting common use of a well-known brand name5-*KICMA

KICMA

Related Diversification GuidelinesWhen an organization competes in a no-growth or a slow-growth industryWhen adding new, but related, products would significantly enhance the sales of current productsWhen new, but related, products could be offered at highly competitive pricesWhen an organization has a strong management team5-*KICMA

KICMA

Unrelated Diversification GuidelinesWhen revenues derived from an organizations current products would increase significantly by adding the new, unrelated productsWhen an organizations present channels of distribution can be used to market the new products to current customersWhen an organizations basic industry is experiencing declining annual sales and profits5-*KICMA

KICMA

Unrelated Diversification Guidelines (cont.)

When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunityWhen existing markets for an organizations present products are saturated

5-*KICMA

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KICMACh 5 -*Types of Strategies Defensive Strategies RetrenchmentDivestitureLiquidation

KICMA

KICMACh 5 -*Defensive Strategies

RetrenchmentRegrouping through cost and asset reduction to reverse declining sales and profitDivestiture Selling a division or part of an organizationLiquidationSelling all of a companys assets, in parts, for their tangible worth

KICMA

Retrenchment Guidelines

When an organization is one of the weaker competitors in a given industryWhen an organization is plagued by inefficiency, low profitability, and poor employee morale

5-*KICMA

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Defensive StrategiesDivestitureSelling a division or part of an organizationoften used to raise capital for further strategic acquisitions or investments5-*KICMA

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Divestiture GuidelinesWhen an organization has pursued a retrenchment strategy and failed to accomplish needed improvementsWhen a division needs more resources to be competitive than the company can provideWhen a division is responsible for an organizations overall poor performanceWhen a division is a misfit with the rest of an organization5-*KICMA

KICMA

Liquidation GuidelinesWhen an organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successfulWhen an organizations only alternative is bankruptcyWhen the stockholders of a firm can minimize their losses by selling the organizations assets5-*KICMA

KICMA

** When an organizations present distributors are especially expensive, or unreliable, or incapableof meeting the firms distribution needs. When the availability of quality distributors is so limited as to offer a competitive advantageto those firms that integrate forward. When an organization competes in an industry that is growing and is expected to continueto grow markedly; this is a factor because forward integration reduces an organizationsability to diversify if its basic industry falters. When an organization has both the capital and human resources needed to manage the newbusiness of distributing its own products. When the advantages of stable production are particularly high; this is a consideration becausean organization can increase the predictability of the demand for its output throughforward integration. When present distributors or retailers have high profit margins; this situation suggests thata company could profitably distribute its own products and price them more competitivelyby integrating forward.* When an organizations present suppliers are especially expensive, or unreliable, or incapableof meeting the firms needs for parts, components, assemblies, or raw materials. When the number of suppliers is small and the number of competitors is large. When an organization competes in an industry that is growing rapidly; this is a factorbecause integrative-type strategies (forward, backward, and horizontal) reduce an organizationsability to diversify in a declining industry. When an organization has both capital and human resources to manage the new business ofsupplying its own raw materials. When the advantages of stable prices are particularly important; this is a factor becausean organization can stabilize the cost of its raw materials and the associated price of itsproduct(s) through backward integration. When present supplies have high profit margins, which suggests that the business of supplyingproducts or services in the given industry is a worthwhile venture. When an organization needs to quickly acquire a needed resource.* When an organization can gain monopolistic characteristics in a particular area or regionwithout being challenged by the federal government for tending substantially to reducecompetition. When an organization competes in a growing industry. When increased economies of scale provide major competitive advantages. When an organization has both the capital and human talent needed to successfully managean expanded organization. When competitors are faltering due to a lack of managerial expertise or a need for particularresources that an organization possesses; note that horizontal integration would not beappropriate if competitors are doing poorly, because in that case overall industry sales aredeclining.*** When current markets are not saturated with a particular product or service. When the usage rate of present customers could be increased significantly. When the market shares of major competitors have been declining while total industrysales have been increasing. When the correlation between dollar sales and dollar marketing expenditures historicallyhas been high. When increased economies of scale provide major competitive advantages.* When new channels of distribution are available that are reliable, inexpensive, and of goodquality. When an organization is very successful at what it does. When new untapped or unsaturated markets exist. When an organization has the needed capital and human resources to manage expandedoperations. When an organization has excess production capacity. When an organizations basic industry is rapidly becoming global in scope.* When an organization has successful products that are in the maturity stage of theproduct life cycle; the idea here is to attract satisfied customers to try new (improved)products as a result of their positive experience with the organizations present productsor services. When an organization competes in an industry that is characterized by rapid technologicaldevelopments. When major competitors offer better-quality products at comparable prices. When an organization competes in a high-growth industry. When an organization has especially strong research and development capabilities.*** Transferring competitively valuable expertise, technological know-how, or other capabilitiesfrom one business to another. Combining the related activities of separate businesses into a single operation to achievelower costs. Exploiting common use of a well-known brand name. Cross-business collaboration to create competitively valuable resource strengths and capabilities.* When an organization competes in a no-growth or a slow-growth industry. When adding new, but related, products would significantly enhance the sales of currentproducts. When new, but related, products could be offered at highly competitive prices. When new, but related, products have seasonal sales levels that counterbalance an organizationsexisting peaks and valleys. When an organizations products are currently in the declining stage of the products lifecycle. When an organization has a strong management team.M05_* When revenues derived from an organizations current products or services would increasesignificantly by adding the new, unrelated products. When an organization competes in a highly competitive and/or a no-growth industry, asindicated by low industry profit margins and returns. When an organizations present channels of distribution can be used to market the newproducts to current customers. When the new products have countercyclical sales patterns compared to an organizationspresent products. When an organizations basic industry is experiencing declining annual sales andprofits.* When an organization has the capital and managerial talent needed to compete successfullyin a new industry. When an organization has the opportunity to purchase an unrelated business that is anattractive investment opportunity. When there exists financial synergy between the acquired and acquiring firm. (Note thata key difference between related and unrelated diversification is that the former shouldbe based on some commonality in markets, products, or technology, whereas the latter isbased more on profit considerations.) When existing markets for an organizations present products are saturated. When antitrust action could be charged against an organization that historically hasconcentrated on a single industry.*** When an organization has a clearly distinctive competence but has failed consistently tomeet its objectives and goals over time. When an organization is one of the weaker competitors in a given industry. When an organization is plagued by inefficiency, low profitability, poor employee morale,and pressure from stockholders to improve performance. When an organization has failed to capitalize on external opportunities, minimize externalthreats, take advantage of internal strengths, and overcome internal weaknesses over time;that is, when the organizations strategic managers have failed (and possibly will be replacedby more competent individuals). When an organization has grown so large so quickly that major internal reorganization isneeded.* When an organization has pursued a retrenchment strategy and failed to accomplish neededimprovements. When a division needs more resources to be competitive than the company can provide. When a division is responsible for an organizations overall poor performance. When a division is a misfit with the rest of an organization; this can result from radicallydifferent markets, customers, managers, employees, values, or needs. When a large amount of cash is needed quickly and cannot be obtained reasonably fromother sources. When government antitrust action threatens an organization.* When an organization has pursued both a retrenchment strategy and a divestitute strategy,and neither has been successful. When an organizations only alternative is bankruptcy. Liquidation represents an orderlyand planned means of obtaining the greatest possible cash for an organizations assets.A company can legally declare bankruptcy first and then liquidate various divisions to raiseneeded capital. When the stockholders of a firm can minimize their losses by selling the organizations assets.*