TP046239 FINAL EXAM BM045-3-3-SMGT

Question 1
Companies can incorporate vertically in either backward or forward integration. Backward
integration exists when a business intends to purchase another company that produces an input
material for the purchasing company's product [ CITATION Eva19 \l 1033 ] . Backward integration is
a strategy for a business to improve its position to perform functions previously performed by
organisations in the supply chain. In other words, it means that a business owns a company that
offers goods such as raw materials for production. Backward Integration is also can be explained
as businesses take over a part of the supply chain of the business. A supply chain includes a
group of organizations, resources, operations and technology engaged in the production and
distribution of an item. The supply chain begins with the demand for raw materials to a
manufacturer by a retailer and completes with the sale of a finished goods to a customer.
Backward integration is a way of increasing productivity through vertical integration. Vertical
integration is where a business includes several segments of the supply chain in order to manage
a part or more of the manufacturing process. Vertical integration can lead the business, in the
events of backward integration, to monitor its distributors that delivering its product, its retail
stores or its suppliers of inventory and raw material. In brief, backward integration takes place as
a business started vertical integration by reversing in the supply chain of the industry [ CITATION
Wil201 \l 1033 ].For instance, a bakery which buys a wheat processor or a wheat farm may be an
example of backward integration. In this situation, a retailer buys one of the suppliers, thereby
reducing the intermediary and hindering rivalry.

Forward integration refers to a business approach involving vertically downstream integration,

which may include direct sales or supplies of the products of the business, whereby the business
owns and controls operations that are ahead within the supply chain. A business advancing along
the supply chain carries out vertical integration. Forward integration is also considered the
eliminating the middleman. Also, it is a business approach adopted by a business who wants to
strengthen ownership over its manufacturers, suppliers or distributors so that it can improve its
competitive pricing. In order to be successful in forward integration, businesses need to acquire
ownership of other companies that used to be their customers. This approach is distinct from the
backward incorporation under which a business seeks to expand control of its suppliers. The
development of internet has encouraged integration and made the company strategy more
TP046239 FINAL EXAM BM045-3-3-SMGT

common. For example, a manufacturer may set up an online retailer for the distribution of its
products or services through internet marketing. Traditionally, retail and marketing firms are
needed sell goods effectively. Intel provides Dell with intermediate products installed in Dell
hardware. If Intel acquire Dell to own a manufacturing part of the industry to make progress on
the supply chain. It is an example of forward integration approach[ CITATION Wil202 \l 1033 ].

In brief, forward integration involves purchasing a part of the process that takes place place
during the process of production. while backward integration involves buying a portion of the
supply chain that takes place during the manufacturing phase of the business. 

Backwards incorporation provides competitive advantages over rivals.  In the technology

industry, companies adopted backward integration as an approach of having access to proprietary
technology, trademarks and patents of the companies of the industry. The acquisition of certain
firms hinders competitors from using the same resources, and other businesses are forced to seek
for alternatives. There' s also barriers to entry for the acquisition of suppliers. It is challenging
for new entrants to access supplies for the raw material needed for the manufacturing process.
Backward integration effectively helps businesses to monitor the suppliers and improve the
efficiency of the supply chain. Businesses integrate with their suppliers gain competitive
advantages over competition with a lower cost of production.

A business with vertical integration will eliminate shortages in supply. It is more able to control
and manage the supply issues itself by regulating its own supply chain. It also provides the
advantage of a business is to bypass suppliers with market power which will dictate conditions,
pricing, availability of resources and pricing. When businesses avoid these factors, they obtain
competitive advantages by minimising costs and avoid slow production due to disputes or other
external aspects of the company. Furthermore, vertical integration provides greater economies of
scale for a business. Large firms make use economic of scale when they are able to cut costs
while increasing productions.  For instance, by purchasing in bulk or assigning workers from
failed undertakings, a business may minimize the cost per-unit. By consolidating operations and
streamlining procedures, vertically integrated businesses reduce continuing costs of
production. Moreover, it is possible to apply lower price techniques after a vertical
integration.  A vertically integrated business will shift the cost savings to the customer. Good
TP046239 FINAL EXAM BM045-3-3-SMGT

example such as Walmart maintain it' s prices low for their merchandises [ CITATION Kim20 \l 2052
]. 

Question 2
The unrelated diversification happens when a business diversifies into sectors not relevant to its
current market. Synergy can occur from use of financial resources or management skills, with an
increased profitability of the acquiring business as the primary goal of conglomerate or
unrelated diversification. Businesses adopt a strategy through unrelated diversification to
maximise the company's growth rate which synergy can be established.  Revenue growth not
only can increase investors' appeal but also boost the strength and credibility of the company's
management. Financial synergies can be established as unrelated diversification reduces the risk
of losses. When one division of industry performs badly, other business divisions that perform
well will remedy for the losses. This can also be seen as a chance to invest in a
business[ CITATION Joe20 \l 2052 ]. A wide variety of businesses in diverse sectors are a huge
benefit for the management team of a group. Financial synergies occur when a sector is having a
poor performance or financial issues, it can be help out by others. At the same time, counter-
cyclical or non-cyclical entities can be managed. The parent company is able to reduce expenses
by investing in many unrelated companies, using less profits shared among subsidiaries and by
diversifying market interest. This reduces the uncertainties of the operation of a single market.
Furthermore, conglomerate or unrelated businesses have access to internal capital markets,
which allows them to expand as a group. If external stock markets do not have the kind of terms
that the business will, the group may assign capital to one of its subsidiaries. Another benefit of
the conglomerate diversification is that it will provide the parent organization with an ever-larger
shield from acquisition. General Electric (GE) is a successful example of conglomerate. GE
originally started up as an electronics business and technology lab by the renowned inventor
Thomas Edison, this company grew into own electricity, property, banking, media and healthcare
businesses. The business consists of several different units, which function individually but are
all interconnected. This interconnection is the original directive of GE for costly R&D (R&D) in
technology that can be used in a wide variety of goods.[ CITATION Jam20 \l 2052 ].

Unrelated diversification can withdraw concentration and energy from core competencies, which
leads to poor results. If the diversification business has little expertise with the
TP046239 FINAL EXAM BM045-3-3-SMGT

diversified company's sector, the new company is likely to establish unsustainable business

practices, weak price systems and inefficient, poor management forces. Additionally, a new
organisational culture in which the conduct and core values match with the mission and visions
of the organisation will be challenging for companies in diverse markets or with different market
models to be developed successfully. The emergence of a new organisational culture is not based
on the disintegration of previous cultures. An effective integration of cultures instead requires a
consensus on company policies, principles and values that facilitate the sustainability of the
business and its stakeholders[ CITATION Wil203 \l 2052 ].

Unrelated diversification approaches will sometimes undermine an organization's core

competences. Careful consideration is also expected to enter industries, in particular where the
management team needs expertise or knowledge in the new sector. A organisation will not be
able to reliably predict the value of the market without any understanding of the new industry.
The new organisation will become a weak performer without sufficient experience or
competence which results in no management synergy was established in this approach. The
cumulative output of the individual units possibly would not surpass the performance of the
individually operated units without some form of strategic management. Combined efficiency
will potentially be degraded as a result of restrictions by the parent organization on individual
units. Due to longer evaluation times and complicated monitoring processes, decision-making
will become slower. As a result, weaken the core competencies of an organization. [ CITATION
Joe20 \l 2052 ]. 

Past evidence has shown that conglomerates or unrelated diversification can become too
diversified and difficult to handle effectively. Management capacities contribute to the overall
management of its corporations, and the focus of management can diminish based on the broad
variety of interests of an organization, which consequently undermines a corporation's core
competences[ CITATION Jam20 \l 2052 ].
TP046239 FINAL EXAM BM045-3-3-SMGT

Question 3
In the first step of evaluation process, benchmarks, procedures for determining benchmarks and
methods of interpreting these benchmarks should be set by the approach for the assessment
process. Specific criteria for carrying out main tasks should be established to establish the
baseline output to be defined. In order to assess, performance metrics will then be defined, which
better evaluate and convey unique requirements. In order to assess results accurately,
organisations can use quantitative and qualitative criteria. A KPI is important to determine
whether the organisation has accomplished the KPI, the reasons for its absence, and whether the
KPI is acceptable in the early stages of the strategic planning process to measure performance
efficiently[ CITATION Tom191 \l 2052 ].

The next step in the evaluation is the implementation of consistent performance measurement
processes and tools. The benchmark to which real performance is measured is Standard
Performance. Monitoring and coordination systems help to track performance. Strategic
evaluation will be made easier with correct approaches to evaluate progress and
criteria[ CITATION Tom191 \l 2052 ]. However, it is hard to evaluate the commitment of
managers and other considerations.  Correspondingly, compared with individual performance,
departmental performance is often hard to estimate. Variable goals are needed to be set and
output must be assessed accordingly. The evaluation should be performed at the proper time, or
else the measurement would not meet its goal[ CITATION Pra20 \l 2052 ].

The following step in strategy evaluation is to encourage teams to determine their own

approaches. Regardless about which empowerment takes on a strategic role. Nevertheless, as
part of the policy performance evaluation it is highly relevant. Instead of engaging in the plan
evaluation by your leadership team only, invite a team from different functional area to schedule
a self-assessment of how they know and understand their field has been performed[ CITATION
Tom191 \l 2052 ]. At the current stage, differences can be evaluated as the actual result is
evaluated and compared to standard performance. The strategists must acknowledge the extent of
acceptance between the actual and standard output variances. The positive variance reflects a
TP046239 FINAL EXAM BM045-3-3-SMGT

good outcome, but it still hard to obtain the target goal. The negative variance must
be concerned because it reflects a performance deficit. Therefore, strategists must identify and
undertake serious measures in this situation to resolve the triggers of the gap [ CITATION Pra20 \l
2052 ].

When a performance variance is analysed, a corrective measure must be undertaken. If the result
is consistently worse than the expected results, the strategists must investigate the reasons
responsible for the results in depth. If the strategists consider that the operational capacity does
not meet the criteria for efficiency, so the benchmarks must be decreased. The approach is more
unprecedented and dramatic, revisiting the strategic evaluation process, reviewing the strategies
based on recent pattern in resource distribution and consequent means at the start of the strategic
management process. The strategy has to be revised and updated [ CITATION Pra20 \l 2052 ] . There
are many reasons for non-compliance, including the lack of human and finance resources,
differences of interest, inadequate target monitoring, confusion or interpretation of objectives or
dynamic issues including intensified competitiveness, severe financing shortages, regulatory
pressure and a lack of internal creativity. Regardless of the case, the sooner these problems are
found, the earlier the strategist take corrections. This highlight yet again the value of a strong
strategic evaluation process[ CITATION Tom191 \l 2052 ].

References
Amadeo, K., 2020. Vertical Integration: Pros, Cons, and Examples. [Online]
Available at: https://www.thebalance.com/what-is-vertical-integration-3305807#:~:text=The
%20Balance%202020-,Advantages,with%20any%20supply%20problems%20itself.
[Accessed 5 November 2020].

Chen, J., 2020. Conglomerate. [Online]

Available at: https://www.investopedia.com/terms/c/conglomerate.asp
[Accessed 5 November 2020].

Juneja, P., 2020. Strategy Evaluation Process and its Significance. [Online]
Available at: https://www.managementstudyguide.com/strategy-evaluation.htm
[Accessed 5 November 2020].
TP046239 FINAL EXAM BM045-3-3-SMGT

Kenton, W., 2020. Backward Integration. [Online]

Available at: https://www.investopedia.com/terms/b/backwardintegration.asp#:~:text=An
%20example%20of%20backward%20integration,the%20middleman%2C%20and%20hindering
%20competition.
[Accessed 5 November 2020].

Kenton, W., 2020. Conglomerate Merger. [Online]

Available at: https://www.investopedia.com/terms/c/conlgomeratemerger.asp
[Accessed 5 November 2020].

Kenton, W., 2020. Forward Integration. [Online]

Available at: https://www.investopedia.com/terms/f/forwardintegration.asp#:~:text=A%20good
%20example%20of%20forward,of%20foodstuffs%20to%20various%20supermarkets.
[Accessed 5 November 2020].

Tarver, E., 2019. Horizontal vs. Vertical Integration: What's the Difference?. [Online]
Available at: https://www.investopedia.com/ask/answers/051315/what-difference-between-
horizontal-integration-and-vertical-integration.asp#:~:text=Companies%20can%20integrate
%20vertically%20in,for%20the%20acquiring%20company's%20product.&text=Forward
%20integration%20occ
[Accessed 5 November 2020].

Thomas, J. G., 2020. DIVERSIFICATION STRATEGY. [Online]

Available at: https://www.referenceforbusiness.com/management/De-Ele/Diversification-
Strategy.html#:~:text=Conglomerate%20diversification%20occurs%20when%20a,profitability
%20of%20the%20acquiring%20firm.
[Accessed 5 November 2020].

Wright, T., 2019. Strategy Evaluation - How To Do It Correctly. [Online]

Available at: https://www.executestrategy.net/blog/strategy-evaluation
[Accessed 5 November 2020].
TP046239 FINAL EXAM BM045-3-3-SMGT