CHAPTER 5

STRATEGIES IN ACTION
5.1. Long term Objectives
5.2. Types of Strategies:
❖ Integration Strategies
❖ Intensive Strategies
❖ Diversification Strategies
❖ Defensive Strategies
5.3. Michael Porter’s Five Generic Strategies
5.4. Means for Achieving Strategies

By: Tamru Y. (PhD) 1

Long Term Objectives

❖ Represent the results expected from pursuing

certain strategies
❖ Then strategies represent the actions to be taken
to accomplish long – term objectives
❖ The time frame for objectives and strategies
should be consistent (usually from two to five
years )

By: Tamru Y. (PhD) 2

The Nature of long-term objectives:
• Quantifiable
• Measurable
• Realistic
• Understandable
• Challenging
• Hierarchical
• Obtainable
• Timeline
• Congruent among organizational units

By: Tamru Y. (PhD) 3

Objectives are communally stated in terms
such as the following
❑ Growth in sales
❑ Profitability
❑ Market share
❑ Degree and nature of diversification
❑ Degree and nature of vertical integration
❑ Social responsibility

By: Tamru Y. (PhD) 4

Why stated and communicated objectives are
vital to success?
1. Objectives help stakeholders understand their role in an
organization’s future
2. Provide a basis for consistent decision making by managers whose
values and attitudes differs
3. By reaching a consensus on objectives during strategy – formulation
activates- the organization can minimize potential conflicts later
during implementation
4. Objectives serve as standards by which individuals ,groups,
departments, divisions and entire organizations can be evaluated
 objectives also provide directions and allow for organizations
synergy
By: Tamru Y. (PhD) 5
 Financial vs. Strategic Objectives
Financial Objectives
• Growth in revenues
• Growth in earnings
• Higher dividends
• Higher profit margins
• Greater return on investment
• Higher earnings per share
• Rising stock price
• Improved cash flow
By: Tamru Y. (PhD)
Strategic objectives
• Development in brands
• Larger market share
• Quicker on time delivery than rivals
• Shorter design- to market time than
rivals
• Lower costs than rivals
• Higher product quality
• Wider geographic coverage
• Achieving ISO 14001
• Technological leadership
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Is there any conflict between the financial
objectives and strategic objectives?
o Some times it could be some conflict between them
organizations sometimes to achieve the financial
objectives can harm the long run strategic objectives
o (Higher dividends –technology leadership )
o trade- off between them is important
o Priorities decisions have to be made.

By: Tamru Y. (PhD) 7

Not Managing by Objectives
Strategists should avoid the ways to not managing by objectives

• Managing by Extrapolation – If it isn't broke, don’t fix it.

• Managing by Crisis – The true measure of a good
strategist is the ability to fix problems.
• Managing by Subjective – Do your own thing, the best
way you know how.
• Managing by Hope – The future is full of uncertainty and
if first you don’t succeed, then you may on the second or
third try.

By: Tamru Y. (PhD) 8

5.2. Types of Strategies: Integration Strategies, Intensive
Strategies, Diversification Strategies, Defensive Strategies
 Three important strategies have been displayed
 Growth strategy (offensive )
 Involve increasing investment , this implies that the company is aggressively trying to change its
industry and competition condition
 Retrenchment strategy (Defensive )
 Is a defensive strategy where the company seek to protect its position and hopefully minimize
exposure to risk .this means that the company applies a course of action that limits the size or
the kind of its market involvement
 The stability strategy (maintain the status quo ) it means that company avoid
undertaking any changes and keep satisfy with the current market position .
 In today’s global market this strategy is not fit . It is mostly found in small
enterprises
 For this reason we will focus in detail on the other types of strategies only

By: Tamru Y. (PhD) 9

Definitions of the alternative types of
strategies
❑ Vertical integration (forward ) gaining
ownership or increased control over distributions or
retailers
❑ Vertical integration (backward) seeking
ownership or increased control of a firm’s
ownership
❑ Horizontal integration seeking ownership or
increased control over competitors
By: Tamru Y. (PhD) Ch 5 -10
❑ Market penetration seeking increased market share for
existing products or services in existing markets through greater
market effort
❑ Market development introducing existing product into new
geographic area
❑ Product development seeking increased sales by improving &
modifying the existing product
❑ Innovation introducing completely new product or service
❑ Related diversification adding new but related products or
services

By: Tamru Y. (PhD) Ch 5 -11

 ❑ Unrelated diversification adding new unrelated products
or services
❑ Retrenchment regrouping through cost and asset reduction
to reverse declining 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
Notes
 Most organizations simultaneously pursue a combination of these
strategies .
 Organizations have limited resources and incomplete information , thus
priorities must be undertaken (choose among alternative)
By: Tamru Y. (PhD) Ch 5 -12
 Types of Strategies

Forward
Integration

Integration Backward
Strategies Integration

Horizontal
Integration

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Ch 6 -13 Copyright © 2011 Pearson Education

 Integration Strategies

Forward Gaining ownership or increased

Integration control over distributors or retailers

Backward Seeking ownership or increased

Integration control of a firm’s suppliers

Horizontal Seeking ownership or increased

Integration control over competitors

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 Market
Penetration

Market
Development
Intensive
Strategies
Product
Development

Innovation

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Ch 6 -15 Copyright © 2011 Pearson Education

 Intensive Strategies

Seeking increased market share for

Market present products or services in
Penetration present markets through greater
marketing efforts

Market Introducing present products or

Development services into new geographic areas

Seeking increased sales by improving

Product
present products or services or
Development developing new ones
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 Related
Diversification

Diversification
Strategies

Unrelated
Diversification

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Ch 6 -17 Copyright © 2011 Pearson Education

 Diversification Strategies

Related Adding new but related products or

Diversification services

Unrelated
Adding new, unrelated products or
Diversification services

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 Retrenchment

Defensive Divestiture
Strategies

Liquidation

By: Tamru Y. (PhD) 19

Ch 6 -19 Copyright © 2011 Pearson Education

 Defensive Strategies

Regrouping through cost and asset

Retrenchment reduction to reverse declining sales
and profit

Divestiture Selling a division or part of an

organization

Selling all of a company’s assets, in

Liquidation parts, for their tangible worth

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 Michael Porter’s Generic Strategies

Cost Leadership Strategies

(Low-Cost & Best-Value)
Producing standardized products at a very
low per unit cost for consumers who are price- sensitive

Differentiation Strategies
Means producing products & services considered
unique across the industry

Focus Strategies
means producing products & service
That fulfill the needs of small groups of consumers

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Ch 6 -21 Copyright © 2011 Pearson Education

 Porter’s Five Generic Strategies

Type 1 Cost Leadership – Low cost

Type 2 Cost Leadership – Best value
Type 3 Differentiation
Type 4 Focus – Low cost
Type 5 Focus – Best value

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By: Tamru Y. (PhD) 23
Type 1 or 2 Cost Leadership
Strategy Conditions
 Vigorous price competition
 Plentiful supply of identical products
 Little product differentiation
 Products used in same ways
 Low cost to switch
 Large buyers with power
 Industry newcomers use low prices to attract buyers

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Type 3 Differentiation Strategy
Conditions
 Many ways to differentiate and buyers
perceive the differences as having value
 Diverse buyer needs and uses
 Few rival firms following similar
differentiation approach
 Fast paced technological change and
evolving product features
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Type 4 or 5 Focus Strategy
Conditions
 Large, profitable, and growing target market
niche
 Industry leaders do not consider the niche crucial
to their success
 Industry leaders consider it costly or difficult to
meet the needs of this niche
 Industry has many niches and segments
 Few rivals are specializing on this target segment
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Means for Achieving Strategies

Cooperation among competitors

Joint venture / partnering
Merger / acquisition
First mover advantages
Outsourcing

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