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Part 1 - Types of Strategies

Corporate level strategies

Daft (2008) states that an organisation needs to define what business they are in.  Hanson, Dowling, Hitt, Ireland and Hoskisson (2002) add that an organisation needs to ask how it is going to manage its group of businesses.  These questions form the basis of the corporate level strategy.  According to Boone and Kurtz (1992) these strategies, which focus on the entire organisation, assist in defining the types of businesses an organisation should participate in.  These strategies also define the extent of businesses the organisation will engage in (scope) and how the resources of the organisation will be utilised.
Growth and diversification strategies

Forcadell (2007) states that once an organisation has decided to grow; the next step in the process is to decide the direction of the growth.  The author highlights the following options an organisation can take;
• Low level diversification
• Related diversification
• Unrelated diversification
• Vertical integration 

Low Level Diversification

According to Hansen et al (2002), this type of strategy is where an organisation focuses its business on a single or a dominant market.  Barney and Hesterly (2008) add that for a single strategy which only pursues one market and 95% of the revenues of the organisation come from this single product market. 
 The dominant business strategy (concentric) is where the organisation pursues two businesses and generates between 70 to 95% of its revenues from one of the two markets.   Rijamampianina, Abratt and February (2003) state that this growth strategy is undertaken by organisations who:
• Have a core business
• The diversification is going to be very close to the core business and
• Have identified their strengths and weaknesses and are able to minimize their weaknesses and provide synergies for the organisation through diversification. 

Related diversification

Ng (2007) states that related diversification is where the organisation is able to use its resources and capabilities to engage in more than one product market.  These markets or products are complementary to each other.  The objective of this strategy, according to Hansen et al (2002), is for the organisation to achieve economies of scope which are cost savings achieved by being able to transfer the capabilities and competencies of an organisation across multiple pursuits.  Barney and Hesterly (2008) add that less than 70% of the organisations revenues are derived from one single business.

Unrelated diversification

Hunger and Wheelen (2007) identify this strategy to be where an organisation is aware that the current industry they are competing in is becoming less attractive or that they lack the necessary capabilities and competencies to compete effectively, hence they transfer their resources into an industry which is unrelated to the one in which they are currently competing.  According to Hansen et al (2002), this strategy affords an organisation with financial economies whereby there are cost savings which are realised through more efficient allocation of resources.  Hunger and Wheelen (2007) add that this strategy assists with cash flow and reduction of risk for the organisation.

Vertical Integration

Hunger and Wheelen (2007) identify that growth can be achieved by engaging in a function which was previously being performed by a supplier or distributor.  This strategy may be used to reduce costs, gain a competitive advantage over a scarce resource, enhance the quality of the existing product or obtain access to a new customer base.  According to Christensen (2001) this strategy is advantageous to those organisations that are competing in an industry whereby the customers have not had their needs met through the existing products.
Issues with Growth and Diversification strategies

Slywotzky and Wise (2002) identify that today, many organisations are finding it difficult to grow due to the markets they are competing in being saturated and the products on offer to the market are undifferentiated in performance. 
The challenge according to Slywoksky et al (2002) will be for an organisation to take a longer view of their market and utilise their existing assets to meet the demands of customers which are not yet being met.   Gulati (2004) agrees and adds that changing the focus of organisations from products to customers needs may mean that processes, structure and culture of the organisation may need to be adapted to meet the needs of their customers.
Gamble and Thompson (2009) state that unrelated diversification have two negative issues associated with them.  These being;
1. Managerial requirements which are demanding, due to the businesses being in different industries or markets.  It is difficult for the managers to stay up to date with each business or industry as well as identifying appropriate personnel to successfully manage the differing businesses.
2. Limited competitive advantage potential as the businesses are unrelated and a competitive advantage can only be derived by an individual business within the group.
According to Rijamampianina, Abratt and February (2003) low level diversification strategies are more successful than any other diversification strategy.  This is due to companies losing their existing competitive advantage due to poor choices in other diversification strategies and losing sight of what made them successful in the first instance.  The authors posit that successful growth is difficult to achieve without having at least one business which is strong and already differentiated from its competitors. 
According to Gamble and Thompson (2009) issues associated with vertical integration are as follows;
• Increases the capital employed by the organisation into the industry.
• Increases business risk due to being involved in more value chain activities. 
• Organisations may be slow in embracing new technology due to having to outlay capital to improve on existing facilities.
• Requires the organisation to develop new skills and capabilities which have different key success factors which are not known to the organisation.

References

1. Barney, J.B., & Hesterly, W.  (2008).  Strategic Management and Competitive Advantage,  Prentice Hall,  New Jersey.
2. Boone, L.E., & Kurtz, D.L.  (1992).  Management,  McGraw Hill,  Hightstown.
3. Christensen, C.M.  (2001).  The Past and Future of Competitive Advantage,  MIT Sloan Management Review,  V42 (2), pg 105-109.
4. Daft, R.L,  (2008).  Management 8th Edition,  Thomson South Western, Mason.
5. Forcadell, F.J.  (2007).  The Corporate Growth of the Firm: A Resource Based Approach,  The Journal of American Academy of Business,  V11 (2), pg 151-160.
6. Gamble, J.E., & Thompson, A.A.  (2009).  Essentials of Strategic Management: The Quest for Competitive Advantage,  McGraw-Hill Irwin,  New York.
7. Gulati, R.  (2004).  How CEO’s manage growth agendas,  Harvard Business Review,  July – August,  pg 124-132.
8. Gulati, R., & Kletter, D.  (2005).  Shrinking core, Expanding periphery: The relational architecture of high performing organisations,  California Management Review,  V47 (3),  pg 77-104.
9. Hanson, D., Dowling, P., Hitt, M.A., Ireland, R.D., & Hoskisson, R.E.  (2002) Strategic Management Competiveness and Globalisation,  Thomson, South Bank.
10. Hunger, D.J, & Wheelen, T.L.  (2007).  Essentials of Strategic Management 4th Edition,  Prentice Hall,  New Jersey.
11. Ng, D.W.  (2007).  A modern resource based approach to Unrelated Diversification,  Journal of Management Studies,  44 (8),  pg 1481-1502.
12. Rijamampianina, R., Abratt, R., & February, Y.  (2003).  A framework for concentric diversification through sustainable competitive advantage,  Management Decision,  V41(4), pg 362-370.

2009-08-04 15:16:04