STRATEGIC MANAGEMENT AND BUSINESS POLICY

THIRD EDITION

Chapter 5Corporate-level strategies: Concentration, Integration and Diversification

DR. KURTKOTI

(c) Dr. Azhar Kazmi 2008 2

Learning objectives Define and explain four types of generic

corporate-level strategies Describe the various types of expansion

strategies Discuss the conditions under which

concentration, integration, and diversification strategies are used

Discuss the risks of using concentration, integration, and diversification strategies

Discuss diversification strategies in the Indian context

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Corporate strategies

Corporate-level strategies are basically about decisions related to:

allocating resources among the different businesses of a firm

transferring resources from one set of businesses to others, and

managing and nurturing a portfolio of businesses.

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Four strategic alternatives

Expansion strategies Stability strategies Retrenchment strategies Combination strategies

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Concentration strategies

Concentration is a simple, first-level type of expansion strategy. It involves converging resources in one or more of a firm's businesses in terms of their respective customer needs, customer functions, or alternative technologies - either singly or jointly - in such a manner that expansion results.

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Ansoff’s product-market matrix

PRODUCT PRESENT NEW

MARKET

MARKET PRODUCTPRESENT PENETRATION DEVELOPMENT

MARKET DIVERSIFICATIONNEW DEVELOPMENT

Adapted from H. I. Ansoff: “Strategies for Diversification” in Harvard Business Review, 1957, 5, pp. 113-124.

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-7

Alternative Growth Strategies

IV. Vertical Integration Strategies• Forward integration

• Backward integration

Present ProductsPresent Products New ProductsNew Products

Present MarketsPresent Markets

New Markets

New Markets

VerticalIntegration

VerticalIntegration

II. Product DevelopmentI. Growth in existing product markets

III. Market Development

V. Diversification

Figure 13.1

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-8

Growth in Existing Product Markets

Increasing Market Share Increasing Product Usage

Provide Reminder Communications Position for Regular or Frequent Use Make the Use Easier Provide Incentives Reduce Undesirable Consequences of Frequent Use

Revitalize the Brand New Applications for Existing Product Users

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-9

Product Development for the Existing Market

Line Extensions

Developing New-Generation Products

Expand the Product Scope

New Products for the Existing Markets

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-10

Vertical Integration Strategies

Access to Supply or Demand Access to Supply Access to Demand

Control of the Product System Entry into a Profitable Business Area

Comprehensive services Distributor/Retailer Embedded services Integrated solution

Risks of Managing a Different Business

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-11

Market Development Using Existing Products Expanding Geographically Expanding into New Market Segments

Usage Distribution Channel Age Attribute preference Application-defined market

Evaluating Market Expansion Alternatives Is the market attractive? Do the resources and will exist to make the necessary

commitment in the face of uncertainties? Can the business be adapted to the new market? Can the assets and competencies that are at the heart of the

business success be transferred into the new business environment?

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Ansoff’s matrix for diversification strategies

------------------------------------------------------------------------- ----- New products

------------------------------------------------------------------------------ Related technology Unrelated

technology------------------------------------------------------------------------------

New functions------------------------------------------------------------------------------

Firm its own Vertical integrationcustomer

------------------------------------------------------------------------------Same type Horizontal diversification

of product------------------------------------------------------------------------------

Similar type Marketing and Marketing relatedof product technology-related concentric

diversification diversification------------------------------------------------------------------------------

New type Technology-related Conglomerateof product concentric diversification diversification

------------------------------------------------------------------------------Adapted from H.I. Ansoff: Corporate Strategy (New York: McGraw-Hill, 1965), p.132.

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Integration strategies Horizontal integration: When an organisation takes up

the same type of products at the same level of production or marketing process

Vertical integration: When an organisation starts making new products that serve its own needs

Taper integration strategies require firms to make a part of their own requirements and to buy the rest from outsiders.

Quasi integration strategies firms purchase most of their requirements from other firms in which they have an ownership stake.

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Diversification strategies

Diversification involves a substantial change in business definition - singly or jointly - in terms of customer functions, customer groups, or alternative technologies of one or more of a firm's businesses.

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Concentric or related diversification

Marketing-related concentric diversification

Technology-related concentric diversification

Marketing- and technology-related concentric diversification

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Conglomerate or unrelated diversification

When an organisation adopts a strategy which requires taking up those activities which are unrelated to the existing business definition of one or more of its businesses either in terms of their respective customer groups, customer functions or alternative technologies