CHAPTERFI

VE

St
rat
egyFor
mul
ati
on

5.
1Dev
elopi
ngmi
ssi
onandv
isi
onst
atement
s

WhatI
sOurBusi
ness?

Cur r
entt houghtonmi ssi
onstatementsisbasedl ar
gelyonguidel
i
nessetfort
hinthemi d-
1970sbyPet erDrucker,whoisoftencal l
ed“ t
hefatherofmoder nmanagement”forhis
pioneeri
ngst udiesatGeneralMotor
sCor porat
ionandforhist
wenty-
twobooksandhundreds
ofar ti
cles.Har var
d BusinessReview hascal l
ed Drucker“t
hepr eemi
nentmanagement
thinkerofourt i
me.”

Druckersay sthataski
ngthequestion“Whati sourbusiness?”i
ssynony mouswi t
haski ngthe
questi
on“ Whatisourmi ssi
on?”Anendur ingstatementofpur poset hatdist
inguishesone
organizationfrom othersimil
arenter
prises,themi ssionstat
ementi sadecl arati
onofan
organization’
s“ r
easonforbeing.
”Itanswer sthepivotalquest
ion“Whati sourbusi ness?
”A
cl
earmi ssionstatementisessenti
alforeffecti
vel
yest abl
ishi
ngobjecti
vesandf ormulat
ing
str
ategies.

Abusi nessmi ssionisthefoundationf orpri

orities,strategies,plans,andwor kassignment s.
Iti
st hest arti
ngpoi ntforthedesi gnofmanager i
aljobsand,abov eall,forthedesi gnof
manager ialstr
uct ur
es.Nothingmayseem si mpl erormor eobv ioust hant oknow whata
company ’sbusinessi s.Ast eelmillmakesst eel,ar ail
roadr unst rai
nst ocarryfreightand
passenger s,aninsurancecompanyunder wr
it
esf ireri
sks,andabankl endsmoney .Actuall
y,
“Whati sourbusi ness?”isal
mostal way sadifficultquest i
onandt herightansweri susually
anythi
ngbutobv i
ous.Theanswert ot hi
squest i
oni sthef ir
stresponsi bil
i
tyofst rategist
s.
Onlyst r
ategist
scanmakesur ethatt hi
squest ionr eceivest heattent i
onitdeservesandt hat
theanswermakessenseandenabl est hebusinesst oplotitscour seandseti t
sobjectives.

Vi
sionv
ersusMi
ssi
on

Manyor ganizati
onsdev elopbothami ssionstat
ementandav i
sionstatement.Wher easthe
mission statementanswer sthequestion “Whatisourbusi ness’’thev isi
on statement
answerst hequest i
on“ Whatdowewantt obecome? ”Manyor ganizati
onshav ebot ha
mission and v i
sion statement.Sev
eralexampl es can be si
ghted,butf ort he sake of
conveni
enceher earet hree.

Pepsi Co’
smi ssionistoi ncreasethevalueofourshar ehol
ders’investment.Wedot hi
s
through sales growth,costcont rol
s,and wise invest
mentr esources.We bel ieve our
commer ci
alsuccess depends upon of f
eri
ng qualit
yand value to ourconsumer s and
customer s;providi
ng productst hatare saf
e,whol esome,economi cal
ly ef
fi
cient,and
environmentall
ysound;andpr ovi
dingaf ai
rretur
nt oourinvestorswhi leadheri
ngt ot he
higheststandardsofint
egrit
y.
DellComputer’
smi ssi
onist obet hemostsuccessf ulcomput ercompanyinthewor l
dat
deli
ver
ingthebestcust omerexperienceinmar ketsweser ve.Indoingso,Dellwil
lmeet
customerexpectat
ionsofhighestquali
ty;l
eadi
ngt echnol
ogy;competit
ivepr
ici
ng;i
ndivi
dual

1
and company accountabi
l
ity;best-i
n-cl
ass service and suppor
t;f
lexi
ble cust
omi
zat
ion
capabi
li
ty;
super
iorcor
poratecit
izenshi
p;fi
nancialstabi
li
ty.
TheMi ssi
onofHayatHospi t
alistooperat
eahi gh-quali
tyheal
thcarefacil
it
y,provi
dingan
appropri
atemi xofservi
cest oallEt
hiopi
ans.Serviceisgivenwi t
hultimateconcernf or
pati
ents,medicalst
aff
,hospi
talst
aff
,andthecommuni t
y.HayatHospit
alassumesast r
ong
l
eadershiproleinthecoordi
nati
onanddevelopmentofheal th-
rel
atedresourceswit
hinthe
communi ty.
I
mpor
tanceofVi
sionandMi
ssi
onSt
atement
s

Scholarsr
ecommendt hator
gani
zat
ionscar
eful
l
ydev
elopawr
it
tenmi
ssi
onst
atementf
or
thefoll
owi
ngreasons:

1. Toensur
eunani
mit
yoruni
tyofpur
posewi
thi
ntheor
gani
zat
ion
2. Topr
ovi
deabasi
s,orst
andar
d,f
oral
l
ocat
ingor
gani
zat
ional
resour
ces
3. Toest
abl
i
shagener
alt
oneofor
gani
zat
ional
cli
mat
e
4. Toser veasafocalpointf
ori
ndi
vi
dual
stoident
if
ywi t
htheor
ganizat
ion’
spurposeand
di
rect
ion,andtodeterthosewhocannotfr
om part
ici
pati
ngfur
therintheorgani
zat
ion’
s
act
ivi
ti
es
5. To f aci
li
tat
et he t
ransl
ati
on ofobjecti
ves i
nto a wor
k str
uct
urei
nvol
vi
ng t
he
assi
gnmentoftaskstoresponsi
bleel
ementswit
hint
heorgani
zat
ion
6. To speci fy or
gani
zat
ionalpur
poses and t
hen totr
ansl
atet
hese pur
poses i
nto
obj
ecti
vesinsuchawayt hatcost
,ti
me,andperfor
mancepar
amet
erscanbeassessed
andcontr
oll
ed.
Char
act
eri
sti
csofaMi
ssi
onSt
atement
a)ADecl
arat
ionofAt
ti
tude

A mi ssi
onst atementi smor et hanast atementofspeci fi
cdet ail
s;itisadecl arati
onof
atti
tudeandout look.Itusuall
yisbr oadinscopef oratleasttwomaj orreasons.First,agood
mission statemental l
owsf ort he generati
on and consi derat
ion ofa r ange off easi
ble
al
ternati
veobj ecti
vesandst r
ategieswithoutundul ystif
lingmanagementcr eati
vi
ty.Excess
specifi
cit
ywoul dlimitthepotenti
al ofcr
eativegrowthfort heorganizati
on.Ont heot herhand,
an ov er
lygener alst atementthatdoes notexcl ude anyst rategyalternati
ves coul d be
dysfuncti
onal.Second,a mi ssion stat
ementneedst o bebr oad to effecti
vel
yr econcil
e
di
fferencesamong, andappealt o,anorganizati
on’sdiversestakeholders,t
hei ndiv
idualsand
groupsofi ndiv
idualswhohav easpeci alstakeorclaim ont hecompany .

b)ACust
omerOr
ient
ati
on

A goodmi ssi
onstatementdescr
ibesanorgani
zat
ion’
spurpose,cust
omer
s,productsor
serv
ices,market
s,phil
osophy
,andbasi
ctechnol
ogy.Accor
dingtooneschol
ar,ami ssi
on
stat
ementshould

1)def
inewhatt
heor
gani
zat
ioni
sandwhatt
heor
gani
zat
ionaspi
rest
obe,

2)bel
i
mit
edenought
oexcl
udesomev
ent
uresandbr
oadenought
oal
l
ow f
orcr
eat
ive
2
 gr
owt
h,

3)di
sti
ngui
shagi
venor
gani
zat
ionf
rom al
lot
her
s,

4)ser
veasaf
ramewor
kforev
aluat
ingbot
hcur
rentandpr
ospect
iveact
ivi
ti
es,
and

5)be st
ated i
nter
ms suf
fi
cient
ly cl
eart
o be wi
del
y under
stood t
hroughoutt
he
or
gani
zati
on.

c)ADecl
arat
ionofSoci
alPol
icy

Thet erm socialpoli

cyembr acesmanager ialphil
osophyandt hinki
ngatt hehighestlev elsof
anor ganizati
on.Forthisreason,socialpolicyaffect
sthedev elopmentofabusi nessmi ssion
statement .An or ganizati
on’s socialpol i
cy should be i ntegrated into allst rategic-
managementact i
vi
ti
es,includi
ngt hedev elopmentofami ssionstatement .Corporatesoci al
policyshouldbedesi gnedandar ti
culateddur i
ngstrat
egyf ormulati
on,setandadmi nistered
dur i
ngstrategyimplement ati
on,andr eaff
irmedorchangeddur i
ngst r
ategyev aluat
ion.The
emer gingv i
ew ofsocialresponsibil
ityholdst hatsociali
ssuesshoul dbeat tendedt obot h
di
r ectl
yandi ndi
rectl
yindeterminingst rat
egies.

Component
sofaMi
ssi
onSt
atement

Mission stat
ements can and do var
yi nl engt
h,cont ent
,f or
mat,and speci
fi
cit
y .Most
practi
ti
onersandacademi ci
ansofst r
ategicmanagementf eelthataneff
ecti
vestatement
exhibi
tsninecharact
eri
sti
csorcomponent s.Becauseami ssionstat
ementisoft
enthemost
vi
sibleandpubli
cpartofthestr
ategi
c-managementpr ocess,i
tisimport
antt
hatiti
ncludesal
l
oftheseessenti
alcomponents:

1) Cust
omer
s—Whoar
ethef
ir
m’scust
omer
s?
2) Pr
oduct
sorser
vices—Whatar
ethef
ir
m’smaj
orpr
oduct
sorser
vices?
3) Mar
ket
s—Geogr
aphi
cal
l
y,wher
edoest
hef
ir
m compet
e?
4) Technol
ogy
—Ist
hef
ir
mtechnol
ogi
cal
l
ycur
rent
?
5) Concer nf orsurv
ival
,gr
owt
h,andpr
ofi
tabi
li
ty—I
sthef
ir
m commi
tt
edt
ogr
owt
hand
f
inanci
alsoundness?
6) Phil
osophy
—Whatar
ethebasi
cbel
i
efs,
val
ues,
aspi
rat
ions,
andet
hical
pri
ori
ti
esoft
he
f
ir
m?
7) Self-
concept
—Whati
sthe f
ir
m’s di
sti
nct
ive compet
ence or maj
or compet
it
ive
adv
ant
age?
8) Concer nf or publi
ci mage—I
sthe f
ir
m r
esponsi
vet
o soci
al,communi
ty,and
env
ironment
alconcerns?
9) Concer
nforempl
oyees—Ar
eempl
oyeesav
aluabl
eassetoft
hef
ir
m?
3.
1 Compet
it
iveAnal
ysi
sandPor
ter
’sFi
ve-
For
cesModel

Port
er’sFiv
e-ForcesModelofcompet i
ti
veanalysi
sisawidel
yusedapproachfordevel
oping
st
rategiesi
nmanyi ndust
ri
es.Theint
ensit
yofcompeti
ti
onamongf i
rmsv ar
ieswidel
yacross
i
ndustri
es.Intensi
tyofcompet i
ti
onishighesti
nlower
-r
eturni
ndust
ri
es.Forexample,i
nt he

3
elect
ri
calandelect
ronicsindustry,col
lect
iveimpactofcompetit
ivefor
cesissobrutalt
hat
theindust
ryiscl
earl
y“unattracti
ve”from aprofi
t-maki
ngstandpoi
nt.Ri
val
ryamongexisti
ng
fi
rmsi ssever
e,new ri
valscanent ertheindustr
ywi t
hrel
ati
veease,andbothsuppl
iersand
customerscanexer
ciseconsi der
ablebargaini
nglever
age.

Accor
dingtoPort
er,thenat
ureofcompet
it
ivenessi
nagi
veni
ndust
rycanbev
iewedasa
composit
eoff
iveforces:

1.Ri
val
ryamongcompet
ingf
ir
ms
2.Pot
ent
ial
ent
ryofnewcompet
it
ors
3.Pot
ent
ial
dev
elopmentofsubst
it
utepr
oduct
s
4.Bar
gai
ningpowerofsuppl
i
ers
5.Bar
gai
ningpowerofconsumer
s
1.Ri
val
ryamongCompet
ingFi
rms

Rival
ryamongcompet i
ngf i
rmsisusual l
ythemostpower fulofthefiv
ecompet itiveforces.
Thest r
ategiespursuedbyonef ir
m canbesuccessf ulonlytotheext entt
hattheypr ovi
de
competiti
veadv ant
ageov erthestrategiespursuedbyr i
valfir
ms.Changesi nstr
at egybyone
fir
m maybemetwi thretali
ator
ycount er
mov es,suchasl oweri
ngpr i
ces,enhancingqual it
y,
addingfeatures,pr
ovidingservi
ces,ext endi
ngwar ranti
es,andincreasi
ngadv er
tising.Inthe
Inter
networld,competit
ivenessisfierce.

The i ntensi t
y ofr i
valr
y among compet ing fir
ms t ends toi ncrease as t
he numberof
compet itorsincr
eases,ascompet i
torsbecomemor eequali nsizeandcapabili
ty,
asdemand
fort hei ndust r
y’sproductsdecl
ines,andaspr icecut t
ingbecomescommon.Ri v
alryalso
i
ncr easeswhenconsumer scanswi tchbrandseasi l
y;whenbar ri
erstoleavi
ngthemar ketare
high;whenf i
xedcost sarehi
gh;whent hepr oductisper i
shable;whenr i
valf
ir
msar ediverse
i
nst rategies,origi
ns,andcultur
e;andwhenmer gersandacqui siti
onsarecommoni nt he
i
ndust r
y .Asr i
valr
yamongcompet i
ngf i
rmsi ntensifi
es,industr
ypr ofi
tsdecli
ne,insome
casest ot hepointwhereanindustr
ybecomesi nherentl
yunattract
ive.

KeyQuest
ionsaboutCompet
it
ors:
4
2.Pot
ent
ialEnt
ryofNewCompet
it
ors

Whenevernew f irmscaneasi lyenterapar ti

cularindustr
y ,t
heintensi
tyofcompet it
iveness
amongf irmsincreases.Barri
erstoent r
y,howev er,canincludetheneedt ogai
neconomi esof
scal
equi ckl
y ,
theneedt ogaintechnologyandspeci ali
zedknow-how, thel
ackofexper ience,
str
ong cust omerl oyalt
y,strong brand pr efer
ences,l arge capi
talrequir
ement s,lack of
adequatedistri
butionchannels,governmentr egulatorypolici
es,t
arif
fs,l
ackofaccesst or aw
materi
als,possessi onofpatents,undesirablelocations,counter
attackbyentrenchedf ir
ms,
andpotent i
alsat
urat i
onofthemar ket.

Despitenumer ousbarr
ier
st oent
ry,
newf i
rmssomet imesent erindustr
ieswithhigher -
qualit
y
products,l
owerprices,
andsubstanti
almarket
ingresources.Thest rat
egist’
sjob,t
her efore,i
s
toidenti
fypotenti
alnewfirmsenter
ingthemar ket
,tomoni torthenewr ivalf
irms’ st
rategies,
tocounterat
tackasneeded, andt
ocapital
i
zeonexi st
ingstrengthsandoppor tuni
ties.

3.Pot
ent
ialDev
elopmentofSubst
it
utePr
oduct
s

Inmanyi ndustr
ies,f
ir
msar einclosecompet i
ti
onwithproducersofsubsti
tuteproductsin
otheri
ndustri
es.Examplesarepl
asti
ccontai
nerproducerscompetingwi
thglass,paperboar
d,
and aluminum can producer
s,and acet
ami nophen manufact
urerscompeting wit
h other
manuf act
urer
sofpai nandheadacheremedies.Thepresenceofsubstit
uteproductsputsa
ceil
ingont hepr i
cethatcanbechar gedbef oreconsumerswi l
lswit
cht ot hesubstit
ute
product.

Compet it
ivepressur
esar i
singfrom substi
tut
epr oduct
sincreaseast her el
ati
vepriceof
substit
uteproductsdecl
inesandasconsumer s’swi
tchi
ngcostsdecrease.Thecompet i
ti
ve
strengt
hofsubst i
tut
eproductsisbestmeasuredbyt heinr
oadsintothemar ketshar
et hose
productsobtai
n,aswellasthosefir
ms’plansforincr
easedcapacit
yandmar ketpenet
ration.

5
4.Bar
gai
ningPowerofSuppl
ier
s

The bargai
ning powerofsuppl
i
ers af
fect
sthe i
ntensi
tyofcompet
it
ion i
n an i
ndust
ry,
especi
all
ywhen

 t
her
eisal
argenumberofsuppl
i
ers,

 whent
her
ear
eonl
yaf
ewgoodsubst
it
uter
awmat
eri
als,
or

 whent
hecostofswi
tchi
ngr
awmat
eri
alsi
sespeci
all
ycost
ly.

I
tisoftenint hebestinter
estofbot hsuppli
ersandproducerstoassi steachot herwit
h
r
easonablepri
ces,
improvedquali
ty,
dev el
opmentofnewservi
ces,just-
in-ti
medel i
veri
es,
and
r
educedinvent
orycost
s, t
husenhancinglong-
ter
m prof
it
abi
li
tyforallconcerned.

Fir
msmaypur sueabackwardi nt
egr
ati
onstrat
egytogaincontr
olorowner
shipofsuppli
ers.
Thisstr
ategyisespeci
all
yeffecti
vewhensuppli
ersareunrel
i
able,t
oocost
ly,ornotcapable
ofmeet i
ng a fir
m’sneedson a consi st
entbasis.Fir
msgener al
lycan negot
iat
e mor e
favor
abletermswi t
hsupplierswhenbackwar dintegr
ati
onisacommonl yusedst rategy
amongr i
valfi
rmsinanindustry
.

5.Bar
gai
ningPowerofConsumer
s

When cust omer s are concentrat

ed orl arge,orbuyi nv ol
ume,t hei
rbargai ning power
represent
samaj orforceaffecti
ngtheintensityofcompet i
ti
oni nani ndustr
y.Rivalf i
rmsmay
offerextended war ranti
es orspeci alser vi
ces t o gain cust omerl oyal
ty whenev erthe
bargaini
ngpowerofconsumer sissubstant i
al.Bargaini
ngpowerofconsumer sal soi shi
gher
whent hepr oductsbeingpur chasedarest andardorundi fferentiat
ed.Whent hisi sthecase,
consumer sof t
encannegot i
atesell
ingprice,war r
antycov erage,andaccessor ypackagest o
agr eaterextent.Evenf orahugecompany ,thedr ast
ici ncreasei nbargaini
ngpowerof
consumer scausedbyI nt
ernetusageisamaj orexternalthr
eat .

5.
2 For
mul
ati
onofSt
rat
egi
es

Having analyzed theweaknessand st r

ength oft heor ganizat
ion,theoppor t
uniti
esand
thr
eat sfrom theext ernalenv i
ronment ,t
henextst epist odesi gnstrategies,f ocusi
ngon
str
engt hsandal l
ow expl oi
tingoppor tuni
ti
es.Dependi ngont henat ur
eofobj ectiv
esstat
ed
andt heresourceav ai
lable,organizat
ioncanf or
mul atedif
ferentkindsofst rategies.Someof
thediffer
entstrat
egiest hatmostbusi nessorganizati
onsconsi derarediscussedbel ow.
5.
2.1Corporat
e( Cor
porateDi
rect
ional
)Str
ategi
es:Asever
ybusi
nessuni
tmustf
oll
owabusiness
st
rategyt
oimpr oveit
scompetit
iveposi
ti
on,ever
ycorpor
ati
onmustdeci
dei
tsor
ient
ati
ont
owar d
gr
owt hbyaski
ngt hefol
lowi
ngthreebasi
cquesti
ons?

 Shoul
dweexpand,
cutbackorcont
inueouroper
ati
onunchanged?

 Shouldweconcent
rat
eouract
ivi
ti
eswi
thi
nourcur
renti
ndust
ryorshoul
dwedi
ver
sif
yint
o
otheri
ndust
ri
es?

 Ifwewanttogr
owandexpand,
shouldwedosothr
oughi
nter
naldev
elopmentort
hrough
exter
nal
acqui
si
ti
ons,
merger
sorjoi
ntvent
ure?

6
Acor
por
atedi
rect
ional
str
ategyi
scomposedoft
hreegener
alor
ient
ati
onst
owar
dgr
owt
h:

1)Growt hstrat
egiesexpandt hecompany ’
sact i
viti
essuchasi ncreasi
ngsalesoradding
products.Byfarthemostwi del
ypur suedcor poratestrategiesofbusinessfir
msar et
hose
designedtoachievegrowthinsales, profi
ts,orsomeot hercombi nati
onsofthese.Gr
owth
strat
egiescanbeachi evedei t
herint er
nallybyi nvest
ingi nnew pr oductdevel
opmentor
external
lythr
oughmer gers,
acquisi
tionsorst r
ategicall
iance.

2)Stabil
it
ystrategiesmakenochanget othecompany ’
scurrentactivi
ties.Acor porat
ion
maychoosest abil
i
tyst
rategyovergrowt
hbycont i
nuingitscurrentactiv i
ti
eswithoutany
si
gnifi
cantchangei ndi
recti
on.I
tcanbeappropriat
ef orsuccessfulcorpor at
ionoperat
ing
i
nar easonablypredi
ctableenvi
ronment.St
abil
itystrat
egiescanbev eryusefulinthe
shortrunbutcanbedanger ousi
ffoll
owedfortoolong.

3)Retrenchmentst r
ategi
esr educethecompany ’
slevelofact iv
iti
es.Managementmay
pursuer etr
enchmentst rat
egi eswhenthecompanyhasaweakcompet i
ti
vepositi
oni n
someoral lofit
sproductsl i
nesresul
ti
nginpoorperf
ormance-whensal esaredownand
profi
tsar ebecomi ngl osses.Thesest r
ategi
esgener at
eagr eatdealofpr essuret o
i
mpr ov eper f
ormance.Inanat tempttoelimi
natetheweaknesst hataredraggingt he
companydown, managementmayf oll
ow,oneofseveralret
renchmentstrat
egiesranging
fr
om t urnaroundorbecomi ngacaptiv
ecompanyt osell
ingout,bankrupt
cyorli
quidati
on.

5.2.
2Busi nessSt r
ategy:Businessstrat
egyfocusesoni mprovi
ngt hecompet i
ti
ve
posi
tionofacompany ’
sorbusi nessunit
’spr
oductsorservi
ceswithinthespecifi
c
i
ndust r
yormar ketsegmentt hatt hecompanyort hebusinessuni tser
ves.Itis
concernedwi t
hhow t hecompanyori t
sunit
sshoul dcompeteorcooper ateina
part
iculari
ndustr
y.Businessst
rategycanbecompetit
iveorcooper
ati
veorbot h.

Compet
it
ivestr
ategycreatesadefinabl
eposit
ioninani
ndust
rysot
hataf
ir
m canout
per
fumecompeti
tor
s.I
traisethef
oll
owingquest
ions:

Shouldwecompeteonthebasi
soflow cost
,orshoul
dwedi f
fer
ent
iat
eourpr
oduct
sor
ser
vicesonsomebasi
sot
hert
hancost
,suchasqual
i
tyorser
vice?

Shouldwecompet ehead-
to-headwi
thourmaj
orcompet
it
orsf
ort
hebi
ggestbustmost
soughtaf
tershar
eoft
hemar ket?

Shoul
dwef ocusonanichei
nwhi
chwecansat
isf
yal
esssoughtaf
terbutal
sopr
ofi
tabl
e
segmentoft
hemarket
?

Compet
it
ivest
rategi
esi
ncludet
hreebasi
csubst
rat
egi
es:Di
ff
erent
iat
ed,
costl
eader
shi
pand
ver
yqui
ckresponsetocustomer
s.

Intheproductdifferenti
at ion, thecompanypr ovi
desuniqueandsuper i
orvaluetothebuy eri
n
ter
msofqual i
ty,specialfeat uresoraf tersalesserv
ice.Thisspecial
tycanbeassociatedwi t
h
designorbr andi mage,t echnol ogy,f
eatures,deal
ernetwor kofcust omers.Dif
ferent
iati
on
str
ategyistheav ail
ablest r
at egyf orearningaboveav eragereturnsinaspeci f
icbusiness
becausether esult
ingbr and, loy alt
ylowerscustomers’sensit
ivi
tytopri
ce.Incr
easedcostcan
usuall
ybepassedont ot hebuy er .

7
Costl
eader
shi
pst
rat
egyi
stheabi
l
ityofacompanyorabusi
nessuni
ttodesi
gn,pr
oduces,
andmar ketacomfort
ableproductmor eef f
icient
lythanit
scompet it
ors.Iti
sast rategythat
aimsatt hebr oadmassmar ketandr equiresaggressi
veconst r
uctionofef f
icient-
scale
faci
li
ti
es,vigor
ouspursuitofcostr educti
onsf rom experi
ence,tightcostand ov er
head
contr
ol,andcostmini
mizati
oni nareasl i
ker esear
chanddev el
opment,servi
ce,salesforce,
advert
isi
ngandsoon.Becauseofi tslowercost s,t
hecostl eaderi
sabl etochargeal ower
pri
ceforproductst
hanit
scompet i
torsandst illmakeasatisf
actoryprof
it.

Underqui ckr esponseto customerneed,or ganizati

onsgivepr i
ori
tytointer
estoftheir
customerr egardlessofthepr of
it
.Undert hi
sst r
ategy,emphasisisplacedonr et
aini
ng
customers.Itgi ves pr
ior
it
yf ormai nt
aining the i
mage oft he organi
zat
ion.The det
ail
discussi
on about t he compet i
ti
ve strategi
es and t hei
rr especti
ve advant
ages and
disadvant
agesi stocomeont hefort
hcomi ngsecti
on.

Cooper
ati
veSt
rat
egi
esar
ethosest
rat
egi
esusedt
ogai
ncompet
it
iveadv
ant
ageswi
thi
nan
i
ndust r
ybywor ki
ngwi
thratherthanagainstotherfi
rms.Otherthancol
l
usionwhi chisi
l
legal
,
thepr i
maryt y
peofcooperati
vest r
ategyisthest r
ategi
calli
ance.Astrategicall
i
anceisa
partner
shiptwoormorecooperationbusinessunit
sformstoachi ev
est
rategical
l
ysigni
fi
cant
objecti
vesthatar
emutual
lybenefici
al.

4)

5.
2.1 Functi
onalSt rat
egy:Funct i
onalstrategyi
st heappr oacht akeni naf uncti
onalar eato
achiev
e cor porate and busi ness unitobj ecti
ves and st r
ategi
es by maxi mi zi
ng
resour
cespr oduct i
vi
ty.Itisconcer nedwi thdev elopingandr eturningadi stincti
ve
compet encetopr ovi
deacompanyorbusi nessuni twi t
hacompet it
iveadv antage.For
example, j
ustasamul t
idi
visionalcorpor
ati
onhassev eralbusi
nessuni ts,eachwi thit
s
ownbusi nessst rat
egy,eachbusi nessunithasi t
sownset sofdepar tmentsagai n
eachwi thitfuncti
onalstrategy.Theor i
entationoft hef uncti
onalstrategyisdi ctat
ed
byitsparentunit’
sstrat
egy .Anotherexample,

 abusi nessuni
tf ol
l
owingacompet iti
vestrategyofdif
fer
ent
iati
onthroughhighqual
i
ty
needsamanuf acturi
ngfuncti
onalst
rategythatemphasi
zesexpensi
ve,qual
it
yassur
ance
processesovercheaper
,high-
vol
umepr oducti
on;

 ahumanf uncti
onalst
rat
egyt
hatemphasi
zest
hehi
ri
ngandt
rai
ningofahi
ghl
yski
l
led,
butcost
ly,
wor kf
orce;

 andamar ket
ingf unct
ionalst
rat
egyt
hatemphasi
zesdist
ri
but
ionchannel“
pul
l
”using
adver
tisi
ngtoi ncr
easeconsumerdemandover“push”usi
ngpromot
ionalal
l
owanceto
ret
ail
ers.

I
fabusinessunitistofol
low al
ow costcompeti
ti
vest
rategy
,however
,adi
ff
erentsetof
f
unct
ionalst
rat
egieswoul
dbeneededtosuppor
tthebusi
nessstrat
egy
.

5.
3 I
dent
if
yingAl
ter
nat
iveTy
pesofSt
rat
egi
es

5.
3.1 Al
ter
nat
iveSt
rat
egi
es

Al
ter
nat
iveSt
rat
egi
esDef
inedandExempl
i
fiedcandepi
cti
nthef
oll
owi
ngt
abl
e,al
ter
nat
ive
8
st
rat
egi
est
hatanent
erpr
isecoul
dpur
suecanbecat
egor
izedi
ntot
wel
veact
ions-f
orwar
d
i
ntegrat
ion,backwardi ntegrat
ion,hor i
zontalintegrat
ion,mar ketpenetration,mar ket
devel
opment ,
productdevelopment,concentri
cdiversi
fi
cati
on,conglomerat
edi versi
fi
cation,
hori
zontaldi
versi
fi
cati
on,retr
enchment,divesti
tur
e,andliqui
dati
on.Eachalt
ernativestr
ategy
hascountl
essvariati
ons.Forexample,marketpenet
rat
ioncanincl
udeaddingsalesper
sons,
i
ncreasi
ngadvert
isingexpendi
tures,
couponing,andusi
ngsimil
aracti
onstoincr
easemar ket
sharei
nagivengeogr aphi
carea.

Many ,i f not most , or ganizat

ions pur sue a combi nati
on of t wo or mor e
str
ategiessi
mul t
aneously
,butacombi nati
onstrategycanbeexcept ionall
yriskyifcar
ri
edt oo
far
.Noor ganizati
oncanaf for
dt opur sueallt hestrat
egiesthatmi ghtbenef i
tthef i
rm.
Dif
ficul
tdecisi
onsmustbemade.Pr iori
tymustbeest abli
shed.Organizati
ons, l
i
keindiv
iduals,
havel i
mitedresources.Bothor gani
zationsandi ndivi
dualsmust,therefore,chooseamong
alt
ernati
vestrategi
esandav oidexcessiveindebtedness.

Schol ar sonSt rategicManagementar guet hatst rat

egi cpl anningi nv olves“ choi cest hatr isk
resour ces”and“ t
rade- off
st hatsacr i
ficeoppor tunit
y.”Inot herwor ds,ify ouhav east rategyt o
gonor th,theny oumustbuysnowshoesandwar mj acket s( spendr esour ces)andf or got he
oppor tunityofpopul ati
oni ncreasesy ouwoul dhav ebygoi ngsout h.Youcannothav ea
strategyt ogonor t
handt hent akeast epeast ,south,orwest“ j
ustt obeont hesaf esi de.”
Fir
msspendr esour cesandf ocusonaf i
nit
enumberofoppor tunit
iesi npur sui ngst rategi es
toachi eveanuncer tainout comei nthef uture.St r
ategicpl anni ngismuchmor et hanar ollof
thedi ceorbet ;iti sawagerorst akebased on pr edictionsand hy pot hesest hatar e
cont i
nual l
yt estedandr efinedbyknowl edge,r esearch,exper i
ence,andl earni ng.Sur vivalof
thef i
rmi t
selfmayhi ngeony ourstrategicplan. Organizationscannotdot oomanyt hi
ngswel l
becauser esourcesandt alent sgetspr eadt hi nandcompet itorsgai nadv ant age.I nl ar ge
diversified compani es,a combi nation st r
at egy is commonl y empl oy ed when di f
fer ent
divisi
onspur suedi fferentst rategi
es.Al so,or ganizationsst ruggl i
ngt osur vi
v emayempl oya
combi nati
on of sev er
al def ensive st rat
egi es, such as di vest i
ture, l iqui dati
on, and
retrenchment ,simultaneousl y
.

Al
ter
nat
iveSt
rat
egi
esDef
inedandEx
empl
i
fied:

9
1.I
ntegr
ati
onSt
rat
egi
es

For
war
dint
egr
ati
on,backwar
dint
egr
ati
on,and hor
izont
ali
ntegr
ati
on ar
e somet
imes
col
l
ect
ivel
yrefer
redtoasv ert
icali
ntegrati
onstrat
egi
es.Ver
ti
calintegr
ati
onst
rat
egi
esal
l
ow
afi
rmtogaincontr
oloverdist
ribut
ors,suppl
ier
s,and/
orcompeti
tors.

a)For
war
dInt
egr
ati
on

Forwar di nt
egr ati
oninvolv
esgai ningowner shipori ncr
easedcont r
olov erdi st
ributorsor
retail
ers.Increasingnumber sofmanuf acturers( suppli
ers)todayar epur suingaf orward
i
ntegr ati
onst rategybyest abli
shingWebsi test osel lproductsdi r
ectl
yt oconsumer s.An
effectivemeansofi mplement i
ngf orwardintegrati
oni sfranchisi
ng.Businessescanexpand
rapidlybyf r
anchi si
ngbecausecost sandoppor tuniti
esarespr eadacrossmanyi ndividuals.
Howev er,agr owingtrendisf orfranchisees,whof orexampl emayoper atet enf ranchised
restaurants,stores,orwhat ever
,tobuyoutt hei
rpar toft hebusinessfrom t heirfranchiser
(corporateowner ).Thereisagr owing ri
ftbet weenf r
anchiseesand f ranchisersast he
segmentof tenout per
formst hepar ent.Forexampl e,oft
ent oincreasegrowt h,af ranchiser
willallow new owner st olocatenearexi sti
ngf r
anchiseeoper ati
ons,orwi l
lcutbackon

10
ser
vicesandt
rai
ningt
oreducecost
s.

Si
xgui
del
inesf
orwhenf
orwar
dint
egr
ati
onmaybeanespeci
all
yef
fect
ivest
rat
egyar
e:

 Whenanor gani
zati
on’spresentdistri
butor
sareespeci
all
yexpensi
ve,orunr
eli
abl
e,or
i
ncapabl
eofmeetingthefi
rm’sdist
ributi
onneeds.
 When t
he av
ail
abil
i
tyofqual
it
ydi st
ri
butor
sis so l
i
mit
ed as t
o of
fera compet
it
ive
adv
ant
agetothosefi
rmst
hati
ntegr
atefor
ward.
 Whenanorganizati
oncompetesinani ndustrythati
sgrowingandisexpect
edtoconti
nue
togrowmarkedly;thi
sisafactorbecausef orwardint
egrati
onreducesanorgani
zat
ion’
s
abi
li
tyt
odi
versifyifit
sbasi
cindust
ryfalter
s.
 Whenanorgani
zat
ionhasboththecapit
alandhumanr
esour
cesneededt
omanaget
he
newbusi
nessofdi
str
ibut
ingi
tsownproduct
s.
 Whent headv
antagesofstablepr
oduct
ionar
eparti
cul
arl
yhi
gh;t
hisi
saconsi
der
ation
becauseanorganizat
ioncanincr
easethepr
edi
ctabi
li
tyoft
hedemandf
oritsoutput
thr
oughfor
wardint
egrati
on,and
 Whenpr esentdi
str
ibutor
sorr et
ail
ershavehi
ghprof
itmargi
ns;t
hissit
uat
ionsuggest
s
thata companypr ofi
tablycoul
d dist
ri
butei
ts own pr
oduct
s and pr
ice t
hem more
compet
itivel
ybyi
ntegrati
ngfor
ward.
b)Backwar
dInt
egr
ati
on

Both manufactur
ersand retai
lerspurchaseneeded mater
ial
sf r
om suppli
ers.Backward
i
ntegrati
onisastrat
egyofseekingowner shi
pori
ncreasedcont
rolofafir
m’ssuppl
iers.Thi
s
str
ategycanbeespeci al
l
yappr opr
iat
ewhenaf i
rm’scurr
entsuppli
ersareunrel
iable,t
oo
costl
y,orcannotmeett
hefirm’sneeds.

Reintegr
ati
onmakessensei nindust
ri
est hathav eglobalsour
cesofsupply.Companies
todayshopar ound,playoneselleragainstanother
,andgowi ththebestdeal
. Global
compet i
ti
onisalsospurr
ingfi
rmstoreducet hei
rnumberofsuppli
ersandtodemandhigher
l
ev el
sofservi
ceandqualityf
rom t
hosetheykeep.

Sev
engui
del
i
nesf
orwhenbackwar
dint
egr
ati
onmaybeanespeci
all
yef
fect
ivest
rat
egyar
e:

 Whenanorgani
zati
on’
spresentsuppl
i
er sar
eespeci
all
yexpensi
ve,orunr
eli
abl
e,or
i
ncapabl
e ofmeet
ing t
he f
ir
m’s needs forpart
s,component
s,assembli
es,orr aw
mater
ial
s.
 Whent
henumberofsuppl
i
ersi
ssmal
landt
henumberofcompet
it
orsi
slar
ge.
 Whenanor gani
zationcompetesinanindustrythati
sgrowi
ngrapidl
y;thi
sisaf act
or
because int
egrat
ive-
type st
rat
egies (
forward,backward,and hor
izontal)reduce an
organi
zat
ion’
sabili
tytodiv
ersi
fyi
nadecl i
ningindust
ry.
 Whenanor ganizat
ionhasbot
hcapit
alandhumanr
esour
cest
omanaget
henew
busi
nessofsupply
ingitsownrawmat
eri
als.
 Whent headvantagesofst abl
epr i
cesarepart
icul
arl
yimport
ant
;thi
sisaf actor
becauseanorganizati
oncanst abi
l
izethecostofi
tsraw mater
ial
sandtheassociat
ed
pri
ceofit
sproduct(s)t
hroughbackwardint
egr
ati
on.
 Whenpr
esentsuppl
i
eshav
ehi
ghpr
ofi
tmar
gins,whi
chsuggest
sthatt
hebusi
nessof
11
 suppl
yi
ngpr
oduct
sorser
vicesi
nthegi
veni
ndust
ryi
sawor
thwhi
l
event
ure,
and
 Whenanor
gani
zat
ionneedst
oacqui
reaneededr
esour
cequi
ckl
y.
c)Hor
izont
alI
ntegr
ati
on

Horizontali
ntegrati
onreferstoastrat
egyofseekingownershipofori
ncreasedcont
rolovera
fi
rm’ scompet i
tors.Oneoft hemostsigni
fi
canttrendsi
nst r
ategi
cmanagementt odayisthe
i
ncr easeduseofhor i
zontalint
egrat
ionasagr owthstr
ategy.Mer ger
s,acqui
sit
ions,and
takeoversamongcompet i
torsal
lowfori
ncreasedeconomiesofscaleandenhancedtransf
er
ofresourcesandcompet encies.

Schol
ars on St
rategi
c Managementmake t he f
oll
owi
ng obser
vati
on abouthorizontal
i
ntegr
ati
on:Thet
rendtowar
dshorizont
ali
ntegr
ati
onseemstorefl
ectstr
ategi
sts’mi
sgivi
ngs
about their abi
li
tyt o operate many unr el
ated businesses.Mer gers between direct
competitors are morel i
kel
yt o create eff
ici
encies than merger
s bet ween unr el
ated
busi
nesses,bot hbecausethereisagr eaterpotent
ialforeli
minat
ingduplicat
efacil
i
tiesand
becauset hemanagementoft heacquiri
ngfir
mi smor elikel
ytounderstandthebusinessof
thetar
get .
Fi
vegui
del
inesf
orwhenhor
izont
ali
ntegr
ati
onmaybeanespeci
all
yef
fect
ivest
rat
egyar
e:

 Whenanor gani
zat
ioncangai
nmonopol
ist
icchar
acteri
sti
csinaparti
cul
arareaorr
egion
wit
houtbeingchal
l
engedbythef
eder
algovernmentfor“t
endingsubst
anti
all
y”t
oreduce
competi
ti
on.
 Whenanor
gani
zat
ioncompet
esi
nagr
owi
ngi
ndust
ry.
 Wheni
ncr
easedeconomi
esofscal
epr
ovi
demaj
orcompet
it
iveadv
ant
ages.
 Whenanor gani
zati
onhasboththecapi
talandhumant
alentneededt
osuccessf
ull
y
manageanexpandedor
gani
zat
ion.
 Whencompetitorsarefalt
eri
ngduet oalackofmanager i
alexper
ti
seoraneedf or
par
ti
cularr
esourcesthatanor gani
zat
ionpossesses;notethathori
zontalint
egr
ati
on
wouldnotbeappr opr
iat
eifcompeti
tor
saredoingpoorly,becausei
nt hatcaseover
all
i
ndustr
ysal
esar edecl
ini
ng.
2.I
ntensi
veSt
rat
egi
es(
Growt
h)

Mar
ketpenet
rat
ion,mar
ketdevel
opment
,andpr
oductdevel
opmentar
esomet
imesr
efer
red
toasi nt
ensiv
est rat
egiesbecausetheyr equi
rei
ntensi
veef
for
tsi
faf
ir
m’scompet
it
ive
posi
ti
onwi t
hexist
ingproduct
sistoi
mpr ov
e.

a)Mar
ketPenet
rat
ion

A mar ket-
penetrati
on st r
ategyseekst oincreasemar ketshar ef orpr esentpr oductsor
serv
icesi npresentmar ketst hroughgr eat
ermar keti
ngefforts.Thisstrategyiswi delyused
al
oneandi ncombi nat i
onwi t
hot herstrat
egies.Mar ketpenet r
ati
oni ncludesincreasingt he
numberofsal espersons,i ncreasing adverti
sing expenditures,of f
eri
ng ext ensive sales
promot i
onitems,ori ncreasingpubl i
cit
yeffort
s.Forexampl e,Toyotaisr apidl
yincreasingits
marketshar einNor t
hAmer ica,wher ethefi
rm nowmakes75per centofi tswor l
dwidepr ofi
t
andhasi ncreaseditsmar ketshar efrom 7percenti n2002to9per centin2003.

12
Fi
vegui
del
inesf
orwhenmar
ketpenet
rat
ionmaybeanespeci
all
yef
fect
ivest
rat
egyar
e:

 Whencur
rentmar
ket
sar
enotsat
urat
edwi
thapar
ti
cul
arpr
oductorser
vice.
 Whent
heusager
ateofpr
esentcust
omer
scoul
dbei
ncr
easedsi
gni
fi
cant
ly.
 Whenthemarketshar
esofmaj
orcompet
it
orshav
ebeendecl
i
ningwhi
l
etot
ali
ndust
ry
sal
eshav
ebeenincr
easi
ng.
 Whenthecorr
elat
ionbet
weendol
l
arsal
esanddol
l
armar
ket
ingexpendi
tur
eshi
stor
ical
l
y
hasbeenhi
gh,and
 Wheni
ncr
easedeconomi
esofscal
epr
ovi
demaj
orcompet
it
iveadv
ant
ages.
b) Mar
ketDev
elopment

Mar ketdevel
opmentinvol
vesintr
oducingpr esentpr oduct
sorser vi
cesint
onewgeographic
areas.Forexample,McDonald’
splanst oopen100newst oresinChinain2004andanother
100i nChinain2005.Bymi d-2003,McDonal d’shad566r est
aurant
sin94citi
esinChina,
represent
ing t
hecompany ’sseventh-
largestmar ket.McDonal d’
sservesabout2 mil
lion
customersinChinaever
ydayandpl anstoaggr essi
velyboostthatnumber.

Si
xgui
del
inesf
orwhenmar
ketdev
elopmentmaybeanespeci
all
yef
fect
ivest
rat
egyar
e:

 Whennewchannel
sofdi
str
ibut
ionar
eav
ail
abl
ethatar
erel
i
abl
e,i
nexpensi
ve,
andofgood
qual
i
ty.
 Whenanor
gani
zat
ioni
sver
ysuccessf
ulatwhati
tdoes.
 Whennewunt
appedorunsat
urat
edmar
ket
sexi
st.
 Whenanorgani
zat
ionhast
heneededcapi
talandhumanr
esour
cest
omanageexpanded
oper
ati
ons.
 Whenanor
gani
zat
ionhasexcesspr
oduct
ioncapaci
tyand
 Whenanor
gani
zat
ion’
sbasi
cindust
ryi
sbecomi
ngr
api
dlygl
obal
inscope.
c) Pr
oductDev
elopment

Productdevelopmentisast rat
egythatseeksi ncr
easedsalesbyi mpr
ovingormodi fyi
ng
presentproducts orservices.Productdevelopmentusual l
yent ai
l
slarge research and
development expendi
tures.Banks are expanding geographical
l
y by adding br anches
aggressi
vel
y.Dashen Bank,f orexample,is opening v
arious new br
anches throughout
Ethi
opiabyint
egrati
nginnov at
ivefi
nanci
alser
vices.

Fi
veguidel
inesf
orwhenpr
oductdev
elopmentmaybeanespeci
all
yef
fect
ivest
rat
egyt
o
pur
sueare:

 Whenanorgani
zati
onhassuccessfulpr
oductsthatar
eint hematur
itystageoft he
productli
fecy
cle;t
heideahereistoattr
actsati
sfi
edcustomerstotrynew (improved)
product
sasar esul
tofthei
rposi
ti
veexperi
encewiththeor
ganizati
on’
spresentproducts
orservi
ces.
 When an or
ganizat
ion compet
es i
n an i
ndust
ryt
hati
s char
act
eri
zed by r
api
d
t
echnol
ogi
caldevel
opments.

13
 Whenmaj
orcompet
it
orsof
ferbet
ter
-qual
i
typr
oduct
satcompar
abl
epr
ices.
 Whenanor
gani
zat
ioncompet
esi
nahi
gh-
growt
hindust
ryand
 Whenanor
gani
zat
ionhasespeci
all
yst
rongr
esear
chanddev
elopmentcapabi
l
iti
es.
3. Di
ver
sif
icat
ionSt
rat
egi
es(
Growt
h)

There arethree gener alty pes ofdiversifi

cati
on strat es:concent
egi ri
c,horizont
al,and
congl
omer ate.Overall
,diversifi
cati
onstrategiesarebecominglesspopularasorgani
zati
ons
arefi
ndingitmor edi f
ficul
tt omanagedi versebusinessacti
vi
ti
es.Inthe1960sand1970s,
thetr
endwast odiv er
sifysoasnott obedependentonanysi ngleindustr
y,butthe1980s
sawagener alrev
ersal ofthatt hi
nki
ng.Diversifi
cat
ionisnowont heret
reat.

a)Concent
ri
cDi
ver
sif
icat
ion

Addi ngnew,butr el
ated,pr
oductsorservi
cesiswi delycalledconcentr
icdiv er
sificati
on.An
exampl e oft his str
ategy i
s DellComput eris pur suing concent
ric diversi
ficati
on by
manuf acturi
ngandmar ket
ingconsumerelectr
onicspr oductssuchasf lat
-panelt elevi
sions
andMP3pl ayers.Also,Del
lhasrecentl
yopenedanonl inemusic-downloadingst ore.Simply
put,comput ingandconsumerel ectr
oni
csar econv er
gingi nt
oonei ndustry
.Del laswel las
Hewl ett
-Packar dandGat ewayareamongt hecomput erfirmsthatnowcompet ewi thSony,
Mat sushit
a, andSamsungi nconsumerelectr
onics.

Sixgui
del
inesf
orwhenconcent
ri
cdi
ver
sif
icat
ionmaybeanef
fect
ivest
rat
egyar
epr
ovi
ded
below:

 Whenanor
gani
zat
ioncompet
esi
nano-
growt
horasl
ow-
growt
hindust
ry.
 Whenaddi ngnew,butr
elat
ed,pr
oduct
swoul
dsi
gni
fi
cant
lyenhancet
hesal
esof
cur
rentpr
oducts.
 Whennew,
butr
elat
ed,
product
scoul
dbeof
fer
edathi
ghl
ycompet
it
ivepr
ices.
 Whennew,butrelat
ed,pr
oductshaveseasonalsal
esl
evel
sthatcount
erbal
ancean
or
gani
zat
ion’
sexi
sti
ngpeaksandvall
eys.
 Whenanorgani
zat
ion’
spr
oduct
sar
ecur
rent
lyi
nthedecl
i
ningst
ageoft
hepr
oduct
’s
l
i
fecy
cleand
 Whenanor
gani
zat
ionhasast
rongmanagementt
eam.
b) Hor
izont
alDi
ver
sif
icat
ion

Adding new,unr el
ated pr oductsorser vi
cesf orpr esentcustomer siscalled hori
zontal
di
versifi
cati
on.Thisst rategyi snotasr i
skyascongl omerat
edi versif
icat
ionbecauseaf i
rm
al
readyshouldbef ami liarwi t
hitspresentcustomer s.Forexampl e,considertheincreasi
ng
numberofhospi tal
sthatar ecreati
ngmi niat
uremal lsorshoppingcent ersbyof f
eri
ngbanks,
bookstores,coff
ee shops,r est
aurants,drugstores,and ot herr etailstor
es withi
nt heir
bui
ldings.Manyhospi talspr evi
ousl
yhadonl ycafeteri
as,gi
ftshops,andmay beaphar macy,
butthemov ementi ntomal l
sandr etailstor
esi sai medati mpr ovi
ngt heambi ancef or
pati
entsandt hei
rvi
sitors.

Fourgui
del
inesf
orwhenhor
izont
aldi
ver
sif
icat
ionmaybeanespeci
all
yef
fect
ivest
rat
egyar
e:
14
 Whenrevenuesderiv
edfrom anorgani
zati
on’
scur r
entpr
oduct
sorser
viceswoul
d
i
ncr
easesi
gnif
icant
lybyaddi
ngthenew,unr
elat
edproduct
s.
 Whenanorgani
zati
oncompetesi
nahighlycompeti
ti
veand/
orano-
growt
hindust
ry,
asi
ndi
cat
edbylowindust
rypr
ofi
tmar
ginsandret
urns.
 Whenanorgani
zati
on’spresentchannel
sofdi
str
ibut
ioncanbeusedt
omar
kett
he
newpr
oduct
stocur
rentcust
omer s.
 When the new product
s hav
e count
ercy
cli
calsal
es pat
ter
ns compar
ed t
o an
or
gani
zat
ion’
spresentpr
oduct
s.
c) Congl
omer
ateDi
ver
sif
icat
ion

Adding new,unr elated productsorser vi

cesi scal l
ed conglomer ate di
versi
fi
cati
on.For
exampl e,in 2003,t he huge batter
ycompanyEner gizerHoldings,acquired the Schi
ck-
WilkinsonSwor drazorbusinessfrom Pfizerfor$930mi l
li
on.Schickwast henati
on’ssecond-
l
argestshav i
ngproduct scompany ,with18per centglobalmar ketshareinthewet -
shaving
business.Thiscongl omeratediv
ersif
icat
ionst r
at egyputsEnergi
zerindirectcompetit
ionwith
i
ndust ryleaderGillett
e,which,inter
esti
ngly,ownst heDur acellbatterybrandandhas70
percentgl obalmar ketsharei nthewet -shav i
ngbusi ness.SoGi llet
teandEner gizerare
exampl esofhi ghlydi ver
sif
iedfirmscompet ingaggr essivel
yagai nsteachot herinbot h
batteri
esandr azors.

Sixguidel
inesforwhencongl
omer
atedi
ver
sif
icat
ionmaybeanespeci
all
yef
fect
ivest
rat
egy
topursueareli
stedbel
ow:

 Whenanor
gani
zat
ion’
sbasi
cindust
ryi
sexper
ienci
ngdecl
i
ningannualsal
esand
pr
ofi
ts.
 Whenanor gani
zati
onhast hecapi
taland manager
ialt
alentneeded t
o compet
e
successf
ull
yinanewindust
ry.
 Whenanor gani
zat
ionhastheoppor
tuni
tyt
opur
chaseanunr
elat
edbusi
nesst
hati
san
at
tr
act
ivei
nvestmentopport
unit
y.
 Whent hereexi
stsfi
nanci
alsyner
gybetweent heacquiredandacquiri
ngfi
rm( not
ethat
akeydi f
ferencebetweenconcentri
candcongl omeratediversi
fi
cati
onisthattheformer
shouldbebasedonsomecommonal i
tyi
nmar kets,product
s,ortechnol
ogy,whereasthe
l
attershouldbebasedmor eonprofi
tconsider
ations).
 Whenexi
sti
ngmar
ket
sforanor
gani
zat
ion’
spr
esentpr
oduct
sar
esat
urat
ed.
 Whenanti
tr
ustacti
oncouldbechar
gedagai
nstanor
gani
zat
iont
hathi
stor
ical
l
yhas
concent
rat
edonasingl
eindust
ry.
4. Def
ensi
veSt
rat
egi
es

I
naddit
iontointegr
ativ
e,int
ensiv
e,anddiv
ersi
fi
cat
ionst
rat
egi
es,or
gani
zat
ionsal
socoul
d
suer
pur et
renchment,di
vesti
tur
e,orl
iqui
dat
ion.
a)Ret
renchment

Retr
enchmentoccur swhenanor gani
zat
ionregr
oupsthroughcostandassetreducti
onto
rev
ersedecli
ning salesand pr
ofi
ts.Someti
mescalled at ur
nar
ound orreor
ganizat
ional

15
str
ategy ,
retr
enchmenti sdesignedt oforti
fyorstrengt
henanorganizati
on’sbasicdisti
nct
ive
compet ence.Dur i
ngr etr
enchment ,st
rategi
stswor kwithl
imi
tedresourcesandf acepressure
fr
om shar eholders,empl oy
ees,andt hemedi a.Retr
enchmentcanent ai
lsell
ingofflandand
buil
dingst oraiseneededcash,pr uningpr oductli
nes,cl
osi
ngmar ginalbusinesses,cl
osing
obsoletefactori
es,aut omati
ngpr ocesses,reducingthenumberofempl oyees,andinsti
tut
ing
expensecont rolsystems.

Fi
veguidel
inesf
orwhenr
etr
enchmentmay
beanespeci
all
yef
fect
ivest
rat
egyt
opur
suear
e
asfol
l
ows:

 Whenanor gani
zat
ionhasaclearlydist
inct
ivecompet
encebuthasf
ail
edt
omeeti
ts
obj
ect
ivesandgoal
sconsi
stent
lyoverti
me.
 Whenanor
gani
zat
ioni
soneoft
heweakercompet
it
orsi
nagi
veni
ndust
ry.
 Whenanor gani
zat
ionisplagued byi
nef
fici
ency
,low prof
it
abi
l
ity
,poorempl
oyee
mor
ale,
andpr
essurefr
om st
ockholder
stoi
mproveperf
ormance.
 Whenanor gani
zati
onhasf ai
ledt ocapitali
zeonext ernalopportuni
ti
es,minimize
externalt
hreat
s, t
akeadvant
ageofinternalst
rengths,
andov ercomeinternalweaknesses
overt i
me;thatis,whentheorgani
zation’
sstrategicmanagershav efai
led( andpossibl
y
wil
l berepl
acedbymor ecompetentindivi
dual
s).
 Whenanor
gani
zat
ionhasgr
ownsol
argesoqui
ckl
ythatmaj
ori
nter
nalr
eor
gani
zat
ion
i
sneeded.
b) Di
vest
it
ure

Sel l
i
ngadi v i
sionorpar tofanor ganizati
oni scalleddivestit
ure.Di vesti
tureoftenisusedt o
raisecapi talf orf
urtherst r
ategicacqui si
ti
onsori nvestments.Di vesti
turecanbepar tofan
ov eral
lr etrenchmentst rat
egyt or id orl i
ber at
ean or gani
zation ofbusi nessest hatar e
unpr ofi
table,t hatrequiret oomuchcapi tal,ort hatdonotf i
twel lwitht hef i
rm’sot her
act i
vit
ies.Forexampl e,Wal tDisneyCompanyr ecentlydivest
edi tsAnahei m Angel sbaseball
team,whi chendedDi sney’sfinanciall
ydisappoi nti
ngowner shi
poft het eam t hatwont he
Wor ldSer i
esi n2002.Di sneyi salsot ryi
ngt odiv estit
sonl yotherspor tsteam,t heMi ghty
DucksofAnahei m oft heNat ionalHockeyLeague,whi chisunpr ofit
able.Disneyhashad
troublemer gingprofessionalsportst eamsi ntoit
sent er
tainmentempi re.

Sixguideli
nesf
orwhendi
vest
it
uremaybeanespeci
all
yef
fect
ivest
rat
egyt
opur
suear
e
l
istedbelow:
 Whenanorgani
zati
onhaspur
suedar
etr
enchmentst
rat
egyandf
ail
edt
oaccompl
i
sh
neededi
mprov
ement s.
 Whenadi
vi
si
onneedsmor
eresour
cest
obecompet
it
ivet
hant
hecompanycan
pr
ovi
de.
 Whenadi
vi
si
oni
sresponsi
blef
oranor
gani
zat
ion’
sov
eral
lpoorper
for
mance.
 Whenadi vi
sioni
sami sfi
twit
ht her
estofanorganizati
on;t
hiscanresul
tfr
om
r
adi
cal
lydi
ff
erentmar
ket
s,cust
omers,
manager
s,empl
oyees,val
ues,
orneeds.
 Whenal argeamountofcashisneededquicklyandcannotbeobt
ainedreasonabl
y
f
rom ot
hersourcesandwhengov
ernmentant
it
rustact
iont
hreat
ensanor
ganizat
ion.

16
 c) Li
qui
dat
ion

Sell
ingal lofacompany ’
sassets,inpar t
s,f ortheirt angibl
ewor t
hi scalledl i
quidation.
Liquidati
oni srecogniti
onofdefeatandconsequent l
ycanbeanemot i
onallydiff
icul
tstrategy.
Howev er
,itmaybebet t
ertoceaseoper ati
ngt hant ocont i
nuel osinglargesumsofmoney .
Forexampl e,NationalCentur
yFinancialEnterpri
ses,Inc.,basedi nDubl i
n,Ohio,li
quidatedi n
2003af t
eroper ati
ngunderbankr uptcyforlesst hanay ear.NationalCent ur
yspecializedi n
providing financi
ng f orhealthcar
e compani es,sev eralofwhi ch declared bankr uptcy
themsel vessoonaf terNati
onalCenturyceasedoper ations.

ThousandsofsmallbusinessesinourcountryEthi
opi
aalsol
iqui
dat
eannuall
ywi
thoutev
er
makingthenews.I
tistoughtostartandsuccessf
ull
yoper
ateasmall
busi
ness.

Thr
eegui
del
i
nesf
orwhenl
i
qui
dat
ionmaybeanespeci
all
yef
fect
ivest
rat
egyt
opur
suear
e:

 Whenanor gani
zati
onhaspur suedbothar
etr
enchmentst
rat
egyandadi
vest
it
ure
st
rategy
,andneit
herhasbeensuccessf
ul.
 Whenanorganizat
ion’
sonlyal
ter
nativeisbankruptcy;l
i
qui
dat i
onrepr
esentsanor der
ly
andplannedmeansofobt ai
ningt
hegr eatestpossibl
ecashf oranorganizat
ion’
sassets.
Acompanycanl egallydecl
arebankruptcyf i
rstandt henli
quidatevar
iousdi v
isi
onsto
rai
seneededcapi
taland
 Whent
hest
ockhol
der
sofaf
ir
m canmi
nimi
zet
hei
rlossesbysel
l
ingt
heor
gani
zat
ion’
s
asset
s.
5.
3.2 Por
tfol
ioSt
rat
egyAppr
oaches

Por tfol
iost r
at egyper t
ainstot hemi xofbusi nessunitsandpr oductlinest hatf i
ttogetheri na
l
ogi calmannert oof f
ersy nergyandcompet iti
veadvant agef ortheor ganization.Theconcept
i
sanal ogoust ot hatofani ndi v
idualtryi
ngt obalancehi sinvestmentpor t
foliobypi ckingup
somehi gh-ri
skst ocks,somel ow-riskstocksandper hapsaf ewi ncomebonds.I nmucht he
sameway ,diversif
iedor gani
zat i
onsliket ohav eabal ancedmi xofbusi nessdi vi
sionscal l
ed
strategicbusi nessuni t
s( SBUs) .AnSBUi sadi visi
onoft heor ganizationt hathasauni que
busi nessmi ssion,productl i
ne,compet itorsandmar ket sr el
ativetoot herSBUsi nthesame
organi zati
on.I tcan be a si ngle business ora col l
ection ofr el
ated busi nesses.Many
compani es setup SBUs as separ ate pr ofitcenter s,somet i
mes gr anti
ng t hem v i
rtual
autonomy ,whi l
eot hershav et i
ghtcont rolov erthei
rSBUs,enf orci
ngor gani zati
onalpol i
ci es
and st andar dsdownt ov eryl ow levelsi nt heor gani zati
on.Thepor tfoli
o strategywas
originallydev elopedbygener alElectr
ici n1971t oint egrateitsmanydi f
ferentbusi nesses.
Sincet hen,t heBost onConsul ti
ngGr oup( BCG)hasr efi
nedt heappr oachf orusebyot her
organi zati
ons.

TheBost
onConsul
tancyGr
oup(
BCG)Mat
ri
x

TheBCGmat rixcompar esvari

ousbusinessesinanor gani
zation’sportf
oli
o,ont hebasi
sof
rel
ati
vemar ketshareandmar ketgrowthrate.Relat
ivemar ketshar eisdeter
mi nedbyt he
rat
ioofabusi nessmar ketshare(i
ntermsofuni tvol
ume)compar edtothemar ketshar
eof
i
tslargestri
val.Marketgr owthrat
ei sthegrowt hinthemar ketdur i
ngt heprev i
ousyears
rel
ati
vet ogrowthint heeconomyasawhol e.Thecombi nationsofhi ghandl ow market

17
shareandhi
ghandl
owbusi
nessgr
owt
hrat
epr
ovi
def
ourcat
egor
iesf
oracor
por
atepor
tfol
i
o
(Hedley
,Nay
lor
).

Stars:Or
ganizat
ionsthatarest
arshav
eahi ghshareofahi gh-gr
owt hmar ketandt ypi
cal
ly
requirelar
geamount sofcasht osupportthei
rrapi
dandsi gni
ficantgrowt h.Theyhav e
additi
onalgrowthpotenti
alandso,pr
ofi
tsshoul
dbepl oughedbacki nt
ot hisbusinessfor
futuregr
owt handprofi
ts.

Cashcows:Organi
zati
onsthatar e‘cash-cows’
,provi
dersoflotofcashf ortheorganizat
ion,
haveahighmarketshareofaslowl ygrowingmar ket
.Asar esult
,theyt
endtogener atemore
cashthanisnecessar
ytomai ntaintheirmarketposit
ion.Cashcowsar eoftenformerstars
andcanbev aluabl
einapor t
foli
obecauset heycanbe‘ milked’toprovi
decashf orot
her
ri
ski
erandstr
uggli
ngbusinesses.

Quest i
onMar ks:
Organi
zationsthatare“quest
ionmar ks”haveasmal lshareofahighgrowth
mar ket
.Thequest i
onmar korganizati
onisunderr i
sk,sincethereisal
readyamar ketl
eader
i
nt hatindust
ry.Assuch,itrequir
eslotoffundst oinvestinplant
,equipmentandpersonnel,
i
nor dertokeeppacewi t
ht hefast-
growingmar ket
.Thet er
m questi
onmar kiswell
conceived,
becauseatev erystagetheor gani
zati
onhast ot hi
nkhar daboutwhet hertokeepinvest
ing
fundsinthebusiness(t
ot urniti
ntoastar)ortogetout .

Dogs:Organizati
onsthatare‘
dogs’
havearel
ati
vel
ysmallshareofal
ow-growthmarket
.They
may bar ely suppor
tt hemselv
es,orthey may even drai
n cash r
esources t
hatother
organi
zations have generat
ed.Usual
ly
,dogs are harvest
ed,div
ested orli
quidat
ed (i
f
turnar
oundi snotpossibl
e).

Aftertheorganizati
onshavebeenplott
edont hegrowth-shar
emat r
ix,t
henextstepist o
evaluat
ewhet hertheport
fol
ioisheal
thyandwell
-bal
anced.Abalancedport
fol
io,obv
iously
,
hasanumberofst arsandcashcowsandnottoomanyquest i
onmarksordogs.Depending
ont heposi
ti
onofeachor gani
zati
on,f
ourbasi
cstr
ategiescanbeformulat
edwhilebui
ldi
nga
balancedport
foli
o:

 Heav
il
yinv
esti
n st
ars.Hi
gh mar
ketshar
e and hi
gh i
ndust
rygr
owt
h mean hi
gher

18
 pr
obabi
l
ityoff
utur
esuccess.
 Mai
ntai
ncashcowsbecauset
heypr
ovi
der
esour
cesf
orgr
owt
h-i
nvest
menti
nst
ars.
 Usesel
ect
iver
esour
ceal
l
ocat
iont
oconv
ertquest
ionmar
ksi
ntost
ars.
 Li
qui
dat
eordi
vestdogst
hatar
enotwor
thi
nvest
ingi
nor
dert
oimpr
ovet
hei
rposi
ti
ons.
5.
4 Meansofachi
evi
ngSt
rat
egi
es

3.
5.1.Joi
ntVent
ure/Par
tner
ing
Jointv entur
ei sa popul arst r
at egyt hatoccur swhen t wo ormor ecompani esf orm a
tempor arypartnershiporconsor tium f ort hepur poseofcapi talizingonsomeoppor tunity
.
Often,thetwoormor esponsor i
ngf ir
msf orm asepar ateor ganizat ionandhav esharedequi ty
owner shi
pi nthenewent i
ty.Othert ypesofcooper ativear rangement sincl
uder esearchand
developmentpar t
nershi ps,cross-distr i
butionagr eement s, cross- l
icensingagr eement s,cross-
manuf acturi
ng agr eement s,and j oint-bi
dding consor ti
a.Joi ntv entures and cooper ati
ve
arr
angement s are bei ng used i ncr easi ngly because t hey al low compani es toi mpr ove
communi cat
ionsandnet wor ki
ng,t ogl obal i
zeoper ati
ons,andt omi nimizer i
sk.Inagl obal
mar ketti
edt ogetherbyt heInternet ,jointv entures,partnershi ps, andal l
iancesarepr ov i
ngt o
bea mor eef f
ectivewayt o enhancecor porategr owt ht han mer gersand acqui sit
ions.
Str
at egi
cpar tneri
ngt akesmanyf or ms,i ncludingout -sour cing,i nf
ormat i
onshar ing,j oi
nt
mar keti
ng,andj oi
ntr esearchanddev elopment .

A maj orr eason whyf ir

ms ar e usi ng par tneri
ng as a means t o achieve strategi es is
globalizati
on.Technol ogyal soisamaj orr easonbehi ndtheneedt of orm str
at egi
cal li
ances,
witht he Internetl i
nking wi dely di sper sed par t
ners.The I nternetpav ed t he way and
l
egi t
imi zed the need f or alli
ances t o ser v
e as t he pr i
mar y means f or cor por ate
growt h.Evidencei smount ingt hatf irmsshoul dusepar tneringasameansf orachi eving
strategies.Howev er,par t
ner i
ngi snoty ett aughtatmostbusi nessschool sandi sof ten
vi
ewed wi thi
n compani es as a f i
nanci ali ssue rathert han a st r
ategici ssue.Howev er
,
partner i
nghasbecomeacor ecompet ency ,ast r
ategicissueofsuchi mpor tancet hatt op
managementi nvolvementi ni
ti
all
yandt hr oughoutt heli
feofanal l
iancei sv it
al.
Al though
ventur esandpar tnershipsar epref erredov ermer gersasameansf orachi evingst rategies,
certainlytheyar enotal lsuccessf ul.Thegoodnewsi sthatjointv enturesandpar tner ships
arelessr i
skyforcompani est hanmer ger s, butt hebadnewsi sthatmanyal li
ancesf ail.Ther e
arecount l
essexampl esoff ail
edj ointv ent ures.

ewcommonpr
Af obl
emst
hatcausej
ointvent
urest
ofai
lar
easf
oll
ows:
a.Managerswhomustcol
labor
atedai
l
yinoper
ati
ngt
hev
ent
urear
enoti
nvol
vedi
nfor
ming
orshapi
ngthev
ent
ure.
b.Thev ent
uremaybenefi
tthepartner
ingcompaniesbutmaynotbenef
itcust
omer
swho
thencomplai
naboutpoor
erser
viceorcri
ti
cizet
hecompani
esinot
herways.
c.Thev ent
uremaynotbesuppor
tedequal
l
ybybot
hpar
tner
s.I
fsuppor
tedunequal
l
y,
probl
emsarise.
d.Thev
ent
uremaybegi
ntocompet
emor
ewi
thoneoft
hepar
tner
sthant
heot
her
.
Si
xgui
del
inesf
orwhenaj
ointv
ent
uremaybeanespeci
all
yef
fect
ivest
rat
egyt
opur
suear
e:
19
 Whenapr i
vatelyownedor gani
zationi sfor
mi ngaj oi
ntv entur
ewi thapubl i
clyowned
organi
zat
ion;t her
e are some adv ant
ages to being pri
v at
ely held,such as closed
ownershi
p;therearesomeadv antagesofbei ngpubl i
clyheld,suchasaccesst ostock
i
ssuancesasasour ceofcapi t
al.Somet i
mes,t heuniqueadv antagesofbeingpr i
vatel
y
andpubli
clyheldcanbesy nergi
sti
callycombinedinajointventure.
 Whenadomest icor
ganizati
onisformingajoi
ntventur
ewi t
haf orei
gncompany;aj
oint
venture can pr
ovi
de a domest i
c company wit
ht he opport
unit
yf orobt
aini
ng l
ocal
managementi naf or
eigncountry,ther
ebyreduci
ng ri
skssuchasexpr opri
ati
onand
harassmentbyhostcountryoff
ici
als.
 Whenthedi
sti
nctcompet
enci
esoft
woormor
efi
rmscompl
ementeachot
herespeci
all
y
wel
l.
 Whensomepr
ojecti
spot
ent
ial
l
yver
ypr
ofi
tabl
ebutr
equi
resov
erwhel
mingr
esour
cesand
r
isks.
 Whent
woormor
esmal
l
erf
ir
mshav
etr
oubl
ecompet
ingwi
thal
argef
ir
m.
 Whent
her
eexi
stsaneedt
oint
roduceanewt
echnol
ogyqui
ckl
y.
Somer ecentjoi
ntventur
esincludeNestl
éandColgatePal
moliv
ej ustfor
medajoi
ntvent
ure.
Also,OrangeSAj ustent
eredintotwojoi
ntvent
ures,onewit
hAl catelSAandt
heotherwit
h
NokiaCor p.
3.
5.2.Mer
ger/Acqui
sit
ion
Mer gerandacqui siti
onar etwocommonl yusedway stopursuest rategies.Amer geroccur s
whent woor ganizationsofaboutequalsi zeuni tetof orm oneent erpri
se.Anacqui sit
ion
occur swhenal ar geor gani
zat
ionpur chases( acquir
es)asmal lerfirm,orv icever sa.Whena
mer geroracqui siti
oni snotdesiredbybot hpar ti
es,itcanbecal l
edat akeov erorhost il
e
takeov er
.Incont rast,i
ftheacquisi
t i
onisdesiredbybot hfir
ms, itistermedaf r
iendl ymerger.
Ther earenumer ousandpower fulforcesdri
vingonce- f
ier
cerivalstomer gearoundt heworld.
Someoft hesef orcesar ederegulati
on,technologicalchange,excesscapaci ty ,inabi
li
tyto
boostpr ofit
st hroughpr i
ceincreases,adepr essedst ockmar ket,andt heneedt ogain
economi esofscal e.

Notallmer gersareeffecti
veandsuccessf ul
.Soamer gerbet
weent wof i
rmscany i
eldgr
eat
benefit
s,butt he price and reasoning mustbe r ight.
Among mer ger
s,acquisit
ions,and
takeoversinrecentyears,same-industr
ycombi nati
onshav epredominated.Agener almarket
consoli
dationisoccur ri
ngi nmanyi ndustri
es,especial
lybanking,i
nsurance,defense,and
healt
hcare,butal soi npharmaceut i
cals,food,air
li
nes,account i
ng,publi
shing,computers,
retai
li
ng,fi
nancialser
v i
ces,andbiotechnology.

Ther
ear
emanyr
easonsf
ormer
ger
sandacqui
sit
ions,
incl
udi
ngt
hef
oll
owi
ng:
 Topr
ovi
dei
mpr
ovedcapaci
tyut
il
izat
ion
 Tomakebet
teruseoft
heexi
sti
ngsal
esf
orce
 Tor
educemanager
ial
staf
f
 Togai
neconomi
esofscal
e
 Tosmoot
houtseasonal
trendsi
nsal
es
20
 Togai
naccesst
onewsuppl
i
ers,
dist
ri
but
ors,
cust
omer
s,pr
oduct
s,andcr
edi
tor
s
 Togai
nnewt
echnol
ogy
 Tor
educet
axobl
i
gat
ions
Thepr ol
if
erat
ionorcr eat
ionofmergersisfuel
edbycompani es’dri
veformar ketshar
e,
eff
iciency,andprici
ngpoweraswellasbyglobali
zat
ion,theneedf orgr
eatereconomiesof
scale,reducedregul
ati
onandanti
tr
ustconcer
ns,t
heInter
net,ande-commerce.

3.
5.3.Fi
rstMov
erAdv
ant
ages
Fi
rstmoveradv
ant
agesrefer
stothebenef
itsafi
rm mayachi
evebyent
eri
nganewmar
ketor
devel
opi
nganewproductorser
vicepr
iort
or i
val
fir
ms.

Someadv
ant
agesofbei
ngaf
ir
stmov
eri
ncl
ude
 secur
ingaccesst
orar
eresour
ces,
 gai
ningnewknowl
edgeofkeyf
act
orsandi
ssues,
and
 carv
ingoutmar
ketshar
eandaposi
ti
ont
hati
seasyt
odef
endandcost
lyf
orr
ivalf
ir
mst
o
overt
ake.
Fir
stmoveradvant
agesareanalogoustotaki
ngthehi
ghgroundf
ir
stwhichputsonei
nan
excel
l
entst
rat
egicposi
ti
ontolaunchaggr
essiv
ecampai
gnsandtodefendt
err
it
ory.

Ther
ewoul
d,howev
er,
ber
isksassoci
atedwi
thbei
ngt
hef
ir
stmov
er,
suchas
 unexpect
edandunant
ici
pat
edpr
obl
emsand

 cost
sthatoccurf
rom bei
ngt
hef
ir
stf
ir
m doi
ngbusi
nessi
nthenewmar
ket
.

Str
ategic-managementr esearchindicatesthatfir
stmov eradvantagestendt obegreatest
whencompet itor
sar eroughlythesamesi zeandpossesssi milarresour
ces.Ifcompeti
tors
arenotsi mil
arinsize,t
henl argercompet i
torscanwai twhi
leot
her smakeinit
iali
nvest
ment s
andmi stakes,andthenr espondwi t
hgr eat
ereffecti
venessandr
esour ces.

Out
sour
cing

Business-pr
ocess outsour
cing (BPO)i sar apidlygrowi ng new busi ness thatinv olves
companiest akingoverthef unct
ionaloperations,suchashumanr esour
ces,informat ion
systems, pay rol
l
, accounti
ng, cust omer ser vice, and ev en mar ket
ing of ot her
fi
rms.Compani esarechoosi
ngt oout sourcetheirfunct
ionaloper ati
onsmor eandmor ef or
severalr
easons:itisl
essexpensive,i
tallowsthef i
rmt ofocusoni t
scor ebusinesses,andi t
enablesthefi
rmt oprovi
debetterserv
ices.I
notherwor ds,Business-processoutsourcing,BPO,
i
sameansf orachievi
ngstr
ategiesthataresimilart
opar tneri
ngandj ointvent
uring.

3.
5.4.Gener
ati
ngAl
ter
nat
iveSt
rat
egi
esUsi
ngaTOWSMat
ri
x
Thusfarwehav ediscussedhowaf i
rm usesSWOTanal ysi
st oassessi tssit
uati
on.SWOT
canalsobeusedt ogenerateanumberofpossi bl
ealternati
vestrat
egi es.TheTOWSMat ri
x
(TOWSi sjustanot
herwayofsay ingSWOT)i ll
ustr
ateshow t heext ernalopport
unit
iesand
thr
eatsf aci
ng a part
icul
arcorporat
ion can be mat ched witht hatcompany ’
si nt
ernal
str
engthsandweaknessestoresul
tin4set sofpossi
blestrategi
calternativ
es.Thi
sisagood
21
wayt o use br
ainstorming to cr
eat
e alt
ernat
ive st
rategiesthatmi ghtnotot her
wise be
consider
ed.Itforcesst rategi
cmanagerst o cr
eatev ariouskindsofgr owth aswel las
ret
renchmentstr
ategies.Itcanbeusedtogenerat
ecor porateaswellasbusinessstr
ategi
es.

Togener
ateaTOWSMat
ri
xtaket
hef
oll
owi
ngst
eps:

1.IntheOpportuni
ti
es( 0)bl
ock:l
istt
heexter
naloppor
tuni
ti
esav
ail
abl
eint
hecompany
’sor
businessuni
t’
scurrentandfut
ureenvi
ronment.
2.I
ntheThr
eat
s(T)bl
ock:
l
istt
heex
ter
nal
thr
eat
sfaci
ngt
hecompanyoruni
tnowandi
nthe
f
utur
e.
3.IntheStr
engths(S)bl
ock:
l
istt
hespeci
fi
car
easofcur
rentandf
utur
est
rengt
hfort
he
companyorunit
.
4.I
ntheWeaknesses(W)bl
ock:
l
istt
hespeci
fi
car
easofcur
rentandf
utur
eweaknessf
or
t
hecompanyoruni
t.
5.Gener
ate a ser
ies ofpossibl
e str
ategi
es forthe company orbusi
ness uni
tunder
consi
der
ati
onbasedonparticul
arcombinati
onsofthe4setsoff
actor
s:
 SO St
rat
egi
esaregener
atedbythinki
ngofway sinwhichacompanyorbusi
nessuni
t
coul
duseit
sst
rengt
hstotakeadv
antageofopport
uni
ti
es.

 STSt
rat
egi
esconsi
deracompany
’soruni
t’
sst
rengt
hsasawayt
oav
oidt
hreat
s.

 WOSt
rat
egi
esat
temptt
otakeadv
ant
ageofoppor
tuni
ti
esbyov
ercomi
ngweaknesses.

 WTStrategiesar
ebasi
cal
l
ydef
ensi
veandpr
imar
il
yactt
omi
nimi
zeweaknessesand
av
oidt
hreats.

TheTOWSMat rixisv eryusefulf

orgener ati
ngaser i
esofalt
ernati
vest hatthedecisi
on
makersofacompanyorbusi nessunitmi ghtnotother
wisehaveconsidered.I
tcanbeused
forthecor porationasawhol eoritcanbeusedf oraspecif
icbusi nessunitwithina
corporati
on.Nev ert
helesstheTOWSMat r
ixisonlyoneofmanyway stogener ateal
ter
nativ
e
str
ategies.Anotherappr oachistoevaluateeachbusinessuni
twithi
nacor por
ati
oninterms
ofpossiblecompet it
iveandcooperati
vest rategi
es.

TOWSMat
ri
x:

22
23