Running head: “TYPES OF ALTERNATIVE STRATEGIES” Types of Alternative Strategies In APA Style Chikita Martin Herzing University Strategic Management Alternative Strategies
There are 11 alternative strategies; forward integration which means gaining ownership or increased control over distributors and retailers, backward integration which is seeking ownership or increased control of a firm’s suppliers, horizontal integration which is seeking ownership or increased control over competitors, market penetration which is seeking increased market share for present products or services in present markets through greater marketing efforts, product development which is seeking increased sales by improving present products or services or developing new ones, related diversification which is adding new but related products or services, unrelated diversification which is adding new, unrelated products or services, retrenchment which is regrouping through cost and asset reduction to reverse declining sales and profit, divestiture which is selling a division or part of an organization, and liquidation which is selling all of a company’s assets, in parts, for their tangible worth. Integration Strategies: Forward, Backward, & Horizontal Integration “There are 6 scenarios in which forward integration can be used effectively for an organization:” (David, 2011) 1. When your current distributor is too expensive, unreliable and not meeting the needs of your company. 2. When quality distributors are limited. 3.
When an organization competes’ in an industry that is constantly growing and expected to stay updated which is a factor that reduces the organization’s chance to diversify if put in the position. 4. When an organization has the capital and human resources to manage the process of distributing their own products and services. 5. When the advantages of stable production is high considering the fact that the organization can predict the demand of output with forward integration. 6. When your current distributors or retailers have high profit margins which suggest that a company profitably distribute their own products and price them competitively by integrating forward. “There are 7 scenarios in which Backward Integration may be an effective strategy:” (David, 2011) 1.
When an organization’s current suppliers are too expensive, unreliable, or incapable of meeting the firm’s needs for parts, components, assemblies, or raw materials. 2. When the number of suppliers is small and the number of competitors is large. 3. When an organization competes in an industry that is growing rapidly; this is a factor because integrative-type strategies reduce an organization’s ability to diversify in a declining industry. 4. When an organization has the capital and human resources to manage the process of supplying its own raw materials. 5. When the advantages of stable prices are particularly important; this is a factor because an organization can stabilize the cost of its raw materials and the association price of its product(s) through backward integration. 6.
When your current suppliers have high profit margins, which suggests that the business of supplying products or services in the give industry is a worthwhile venture. 7. When an organization needs to quickly acquire a needed resource. “These 5 Guidelines indicate when Horizontal Integration may be an effective strategy:” (David, 2011) 1. When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for “tending substantially” to reduce competition. 2. When an organization competes in a growing industry. 3. When increased economies of scale provide major competitive advantages. 4. When an organization has the capital and human talent needed to successfully manage an expanded organization. 5.
When competitors are faltering due to a lack of managerial expertise or a need for particular resources that an organization possesses; note that horizontal integration would not be appropriate if competitors are doing poorly, because in that case overall industry sales are declining. Intensive Strategies: Market Penetration, Market & Product Development “These 5 guidelines indicate when market penetration may be an especially effective strategy:” (David, 2011) 1. When current markets are not saturated with a particular product or service. 2. When the usage rate of present customers could be increased significantly. 3. When the market shares of major competitors have been declining while total industry sales have been increasing. 4. When the correlation between dollar sales and dollar marketing expenditures historically has been high. 5. When increased economies of scale provide major competitive advantages. These 6 guidelines indicate when market development may be an especially effective strategy:” (David, 2011) 1. When new channels of distribution are available that are reliable; inexpensive, and of good quality. 2. When an organization is very successful at what it does. 3. When new untapped or unsaturated markets exist. 4. When an organization has the needed capital and human resources to manage expanded operations. 5. When an organization has excess production capacity. 6. When an organization’s basic industry is rapidly becoming global in scope. “These 5 guidelines indicate when product development may be an especially effective strategy to pursue. ” (David, 2011) 1.
When an organization has successful products that are in the maturity stage of the product life cycle; the idea here is to attract satisfied customers to try new (improved) products as a result of their positive experience with the organization’s present products or services. 2. When an organization competes in an industry that is characterized by rapid technological developments. 3. When major competitors offer better-quality products at comparable prices. 4. When an organization competes in a high-growth industry. 5. When an organization has especially strong research and development capabilities. Diversification Strategies: Related & Unrelated Diversification “There are 6 guidelines for when related diversification may be an effective strategy are as follows:” (David, 2011) 1. When an organization competes in a no-growth or a slow-growth industry. 2.
When adding new, but related, products would significantly enhance the sales of current products. 3. When new, but related products could be offered at highly competitive prices. 4. When new, but related products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys. 5. When an organization’s products are currently in the declining stage of the product’s life cycle. 6. When an organization has a strong management team. “There are 10 guidelines for when unrelated diversification may be an especially effective strategy are as follows:” (David, 2011) 1. When revenues derived from an organization’s current products or services would increase significantly by adding the new, unrelated products. 2.
When an organization competes in a highly competitive and/or no-growth industry, as indicated by low industry profit margins and returns. 3. When an organization’s present channels of distribution can be used to market the new products to current customers. 4. When the new products have countercyclical sales patterns compared to an organization’s present products. 5. When an organization’s basic industry is experiencing declining annual sales and profits. 6. When an organization has the capital and managerial talent needed to compete successfully in a new industry. 7. When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity. 8.
When there exists financial synergy between the acquired and acquiring firm. (Note that the key difference between related and unrelated diversification is that the former should be based on some commonality in markets, products, or technology, whereas the latter should be based more on profit considerations. 9. When existing markets for an organization’s present products are saturated. 10. When antitrust action could be charged against an organization that historically has concentrated on a single industry. Defensive Strategies: Retrenchment, Divestiture & Liquidation “There are 5 guidelines for when Retrenchment may be an especially effective strategy to pursue are as follows:” (David, 2011) 1.
When an organization has clearly distinctive competence but has failed consistently to meet its objectives and goals over time. 2. When an organization is one of the weaker competitors in a given industry. 3. When an organization is plagued by inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. 4. When an organization has failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses over time; that is, when the organization’s strategic managers have failed (and possibly will be replaced by more competent individuals). 5. When an organization has grown so large so quickly that major internal reorganization is needed. There are 6 guidelines for when Divestiture may be an especially effective strategy to pursue as follows:” (David, 2011) 1. When an organization has pursued a retrenchment strategy and failed to accomplish needed improvements. 2. When a division needs more resources to be competitive than the company can provide. 3. When a division is responsible for an organization’s overall poor performance. 4. When a division is a misfit with the rest of an organization; this can result from radically different markets, customers, managers, employees, values, or needs. 5. When a large amount of cash is needed quickly and cannot be obtained reasonably from other sources. 6. When government antitrust action threatens an organization. These 3 guidelines indicate when Liquidation may be an especially effective strategy to pursue as follows:” (David, 2011) 1. When an organization has pursued both retrenchment strategy and a divestiture strategy, and neither has been successful. 2. When an organization’s only alternative is bankruptcy. Liquidation represents an orderly and planned means of obtaining the greatest possible cash for an organization’s assets. A company can legally declare bankruptcy first and then liquidate various divisions to raise needed capital. 3. When the stockholders of a firm can minimize their losses by selling the organization’s assets. In conclusion, I choose the Liquidation Strategy because it is an example of defeat.
All though, it may be better to shut the business down and sell it piece by piece then it would be to continue operating you business. In doing so, you may not only be able to pay off what you owe for starting the business, but you just might be able to have something left over to start a new business venture. This has an effect on businesses in a good and bad way. Good if a similar or related company decides to buy it and add it to what they already have going on and somehow make things better. Bad for the people who really didn’t want to close their business and lay off workers but they had no other choice. References David, Fred R. (2011). Strategic Management Concepts and Cases. Upper Saddle River: Pearson Education, Inc