Business Management

3A
COBMA3

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Week 3
Lesson 5: Types of Strategies (Chapter 5)
Introduction
By the end of this lesson, you should be able to learn about the characteristics and
benefits of clear objectives. The types of strategies will also be discussed where
guidelines are presented for determining when each strategy is most appropriate
to pursue.
 Learning Outcome:
4. Apply and discuss types of strategies

Assessment Criteria:
4.1. Discuss and understand the nature of long-term objectives.
4.2. Identify, discuss, and give an example of the eleven types of strategies (these
are divided into four categories: integration, intensive, diversification, and defensive
strategies). The guidelines for all of these strategies must not be ignored.
 What will be covered
in today’s lesson?

Week Long-Term Objectives

3 Types of Strategies
Lesson Integration Strategies
5
Intensive Strategies

Diversification Strategies
 What will be covered
in today’s lesson?

Week Defensive Strategies

3 Value Chain Analysis and

Lesson Benchmarking

5
Long-Term Objectives
• The results expected from pursuing certain strategies.
• 2-to-5 year timeframe.
• Without long-term objectives, an organization would drift aimlessly toward some
unknown end.

EXEMPLARY STRATEGIST SHOWCASED: Tim Cook, CEO of Apple, Inc. (p. 156)

Table 5-1: Five Characteristics of Objectives (p. 157)

Table 5-2: 10 Benefits of Having Clear Objectives (p. 157)

Long-Term Objectives
Financial versus Strategic Objectives
• Financial objectives include growth in revenues, growth in earnings, higher
dividends, larger profit margins, greater return on investment, higher earnings
per share, a rising stock price, improved cash flow, and so on.
• Strategic objectives include a larger market share, quicker on-time delivery
than rivals, shorter design-to-market times than rivals, lower costs than rivals,
higher product quality than rivals, wider geographic coverage than rivals,
achieving technological leadership, consistently getting new or improved
products to market ahead of rivals, and so on.
Long-Term Objectives
Avoid Managing by Crisis, Hope, Extrapolation, and Mystery (CHEM)
• Mr. Derek Bok, former President of Harvard University, once said, “If you think
education is expensive, try ignorance.” The idea behind this saying also applies
to establishing objectives, because strategists should avoid the following ways of
“not managing by objectives.”
‒ Managing by Crisis
‒ Managing by Hope
‒ Managing by Extrapolation
‒ Managing by Mystery
Types of Strategies
• Most organizations simultaneously pursue a combination of two or more
strategies, but a combination strategy can be exceptionally risky if carried too
far.
• No organization can afford to pursue all the strategies that might benefit the firm.
• Difficult decisions must be made and priorities must be established.
Types of Strategies
Strategy Definition
Forward Integration Gaining ownership or increased control over distributors or retailers
Backward Integration Seeking ownership or increased control of a firm’s suppliers
Horizontal Integration Seeking ownership or increased control over competitors

Seeking increased market share for present products or services in

Market Penetration
present markets through greater marketing efforts

Market Development Introducing present products or services into new geographic area

Seeking increased sales by improving present products or services or

Product Development
developing new ones

Table 5-3: Alternative Strategies Defined and Recent Examples Given (p. 158)
Types of Strategies
Strategy Definition
Related Diversification Adding new but related products or services
Unrelated Diversification Adding new, unrelated products or services

Regrouping through cost and asset reduction to reverse declining

Retrenchment
sales and profit

Divestiture Selling a division or part of an organization

Liquidation Selling all of a company’s assets, in parts, for their tangible worth

Table 5-3: Alternative Strategies Defined and Recent Examples given (p. 158)
Types of Strategies
Levels of Strategies
• Strategy making is not just a task for top executives. Middle- and lower-level
managers also must be involved in the strategic-planning process to the extent
possible. In large firms, there are actually four levels of strategies: corporate,
divisional, functional, and operational.

Figure 5-2: Levels of Strategies with Persons Most Responsible (p. 159)

Table 5-4: Varying Performance Measures By Organisational Level (p. 160)

Integration Strategies
Forward Integration
• Involves gaining ownership or increased control over distributors or retailers.
• Guidelines:
1. An organization’s present distributors are especially expensive.
2. The availability of quality distributors is so limited as to offer a competitive
advantage.
3. An organization competes in an industry that is growing.
4. An organization has both capital and human resources to manage distributing their
own products.
5. The advantages of stable production are particularly high.
6. Present distributors or retailers have high profit margins.
Integration Strategies
Backward Integration
• Strategy of seeking ownership or increased control of a firm's suppliers.
• Guidelines:
1. An organization’s present suppliers are especially expensive or unreliable.
2. The number of suppliers is small and the number of competitors is large.
3. The organization competes in a growing industry.
4. An organization has both capital and human resources.
5. The advantages of stable prices are particularly important.
6. Present suppliers have high profit margins.
7. An organization needs to quickly acquire a needed resource.
Integration Strategies
Horizontal Integration
• A strategy of seeking ownership of or increased control over a firm's
competitors.
• Guidelines:
1. An organization can gain monopolistic characteristics in a particular area or region
without being challenged by the federal government.
2. An organization competes in a growing industry.
3. Increased economies of scale provide major competitive advantages.
4. An organization has both the capital and human talent needed.
5. Competitors are faltering due to a lack of managerial expertise.
6. A firm desires to enter a new geographic market quickly.
Intensive Strategies
Market Penetration Strategy
• Seeks to increase market share for present products or services in present markets
through greater marketing efforts.
• Guidelines:
1. Current markets are not saturated with a particular product or service.
2. The usage rate of present customers could be increased significantly.
3. The market shares of major competitors have been declining while total industry sales have
been increasing.
4. The correlation between dollar sales and dollar marketing expenditures historically has been
high.
5. Increased economies of scale provide major competitive advantages.
Intensive Strategies
Market Development Strategy
• Involves introducing present products or services into new geographic areas.
• Guidelines:
1. New channels of distribution are available that are reliable, inexpensive, and of good quality.
2. An organization is very successful at what it does.
3. New untapped or unsaturated markets exist.
4. An organization has the needed capital and human resources to manage expanded
operations.
5. An organization has excess production capacity.
6. An organization’s basic industry is rapidly becoming global in scope.
7. Consumption habits of the firm’s products are similar in other geographic areas.
Intensive Strategies
Product Development Strategy
• Seeks increased sales by improving or modifying present products or services.
• Guidelines:
1. An organization has successful products that are in the maturity stage of the
product life cycle.
2. An organization competes in an industry characterized by rapid technological
developments.
3. Major competitors offer better-quality products at comparable prices.
4. An organization competes in a high-growth industry.
5. An organization has strong research and development capabilities.
Diversification Strategies
• Most companies favour related diversification strategies to capitalize on
synergies such as follows:
1. Transferring competitively valuable expertise, technological know-how, or
other capabilities from one business to another.
2. Combining the related activities of separate businesses into a single
operation to achieve lower costs.
3. Exploiting common use of a known brand name.
4. Using cross-business collaboration to create strengths.
Diversification Strategies
Related Diversification
• Value chains possess competitively valuable cross-business strategic fits.
• Guidelines:
1. An organization competes in a no-growth or a slow-growth industry.
2. Adding new, but related, products would significantly enhance the sales of current
products.
3. New, but related, products could be offered at highly competitive prices.
4. New, but related, products have seasonal sales levels that counterbalance an
organization’s existing peaks and valleys.
5. When an organization has a strong management team.
Diversification Strategies
Unrelated Diversification
• Value chains are so dissimilar that no competitively valuable cross-business
relationships exist.
• Guidelines:
1. Existing markets for an organization’s present products are saturated.
2. An organization competes in a highly competitive or a no-growth industry, as indicated by
low industry profit margins and returns.
3. An organization’s present channels of distribution can be used to market the new
products to current customers.
4. New products have countercyclical sales patterns compared to present products.
5. An organization has the capital and managerial talent needed to compete successfully in
a new industry.
Defensive Strategies
Retrenchment
• Regroups through cost and asset reduction to reverse declining sales and profits.
• Guidelines:
1. An organization is plagued by inefficiency, low profitability, and poor employee
morale, and pressure from stockholders to improve performance.
2. An organization fails to capitalize on external opportunities and minimize external
threats, take advantage of internal strengths, and overcome internal weaknesses
over time; that is, when the organization’s strategic managers have failed.
3. An organization has grown so large so quickly that major internal reorganization is
needed.
Defensive Strategies
Divestiture
• Selling a division or part of an organization.
• Often used to raise capital for further strategic acquisitions or investments.
• Guidelines:
1. An organization has pursued a retrenchment strategy and failed to accomplish
improvements.
2. A division is responsible for an organization's overall poor performance.
3. A division is a misfit with the rest of an organization.
4. A large amount of cash is needed quickly and cannot be obtained reasonably.
5. Government antitrust action threatens an organization.
Defensive Strategies
Liquidation
• Selling all of a company’s assets, in parts, for their tangible worth.
• Guidelines:
1. An organization has pursued both a retrenchment strategy and a divestiture strategy,
and neither has been successful.
2. The stockholders of a firm can minimize their losses by selling the organization’s
assets.
Value Chain Analysis (VCA) and
Benchmarking
• VCA is the process whereby a firm determines the value (price minus cost) of
each and all activities that went into producing and marketing a product, from
purchasing raw materials to manufacturing, distributing, and marketing those
products.

Figure 5-3: A Value Chain Illustrated (p. 169)

Figure 5-4: An Example Value Chain for a Typical Manufacturing Company (p. 170)
Value Chain Analysis (VCA) and
Benchmarking

Figure 5-5: Transforming Value Chain Activities into Sustained Competitive

Advantages (p. 171)
Value Chain Analysis (VCA) and
Benchmarking
Benchmarking
• Entails examination of value chain activities across an industry to determine
“best practices” among competing firms; firms engage in benchmarking for the
purpose of duplicating or improving on those best practices.
 Issues for Review and
Discussion
• Students must work through questions 5-1 to 5-55 for revision.
End of Chapter Case
Study
The Cohesion Case: Coca-Cola Company
2018 (p. 56-65)
Also do an additional internet search for more
information by searching the term: Company Profile:
Coca-Cola

Application of Theory Activity:

Set 1: Strategic planning for Coca-Cola
• Exercise 5A, Steps 1-2 (p. 183-184)
• Exercise 5B, Steps 1-3 (p. 184)

Source: David, F. R., David, F. R. & David, M. E.

2023. Strategic Management: A Competitive Advantage
Approach: Concepts and Cases. 17th ed. Pearson
Practice Quiz
•Please complete the Practice Quiz on
myLMS: Week 3 – Lesson 5

Practice Activity
•Please complete the Practice Activity on
myLMS: Week 3 – Lesson 5
What Happens Next?
• Lesson 6: Porter’s Five Generic Strategies and Means for
Achieving Strategies (Chapter 5)
‒ Learning outcome 4: Apply and discuss types of strategies