***Integrations***
Topics covered by the lesson:




Business level strategy
Corporate level strategy
Strategies for firms in foreign markets
Mergers and acquisitions
Examples…
Strategic management process
Corporate mission and goals
Internal analysis
External analysis
Strategic choice
Corporate level strategy
Business level strategy
Portfolio analysis and entry and exit
strategies
Choosing
organizational
structure
Conflicts, Politics
and Change
Matching Strategy,
structure and controls
Feedback
Choosing
organizational
controls
Corporate level strategy
1.
2.
3.
4.
5.
Stable growth
Growth
- Concentration on a single product or service
- Concentric diversification
- Vertical integration
- Horizontal integration
- Conglomerate diversification
Endgame strategies
Retrenchment
- Turnaround
- Divestment
- Liquidation
Combination
Business level strategy
1. Overall cost leadership – emphasizes producing and
delivering the product or service at a low cost relative
to competitors, while not neglecting quality or service
2. Differentiation strategy – requires a product or
service that is recognized industry wide as being
unique, thus permitting to charge above average
prices
3. Focus strategy – involves concentrating on a
particular group of customers, geographic markets or
product line segments in order to serve narrow
market better than competitors serve broader
market
GROWTH
Corporate level strategy-explained
 Horizontal integration
- Growth trough the acquisition of one or more similar firms
operating at the same stage of the production chain
(competitors)
ADV:
- Eliminate competitors and provide the acquiring firm access to
new markets expl. MOL-Tifon
- Economies of scale and increasing efficiency of capital use
- Moderately increased risk as the success of the expansion
usually depends upon proven abilities
RISK: Increased commitment to one type of business
GROWTH
Corporate level strategy-explained
 Vertical integration
- Growth trough acquiring firms that supply original firm
with inputs or are customers for its outputs
- Backward – move into supplying products and services
used in production
- Forward – move towards distribution of own products
- Reasons: decreasing dependability of the supply or to take
control over sales or distribution channels
Raw
material
Intermediate
Manufacturer
Assembly
Distribution
Retail
 Vertical integration
Value is added by:
- production cost savings (production processes carried out in
quick succession)
- avoidance of market costs (no buying/selling costs)
- better quality control
- protection of proprietary technology
Disadvantages:
- cost disadvantages (commitment to certain supplier or retailer)
- technological change
- demand uncertainty
GROWTH
Vertical and horizontal integrations
Textile producer
Textile producer
Shirt manufacturer
Shirt manufacturer
Clothing store
Clothing store
Acquisition or merger of competing businesses – HORIZONTAL integration
Acquisition or merger of suppliers or customer businesses –VERTICAL
integration
GROWTH
 Concentric diversification
– departure from firm’s existing base of operations, typically by
acquisition of a separate business with synergic
possibilities counterbalancing the strengths and
weaknesses of the two businesses – example Head
- in concentric diversification products and services added
must lie within organization’s know how, experience in
technology, distribution channels or customer base
- Difference among horizontal integration and concentric
diversification – horizontal integration aims at competitors
GROWTH
 Conglomerate diversification
-
-
Growth pattern based on the most promising opportunity
available (little attention given to creating product-market
synergy with the existing businesses).
Reasons: balance in portfolio, better access to capital,
synergy
Possible forms: product conglomerate, geographical
conglomerate, pure conglomerate
Joint ventures
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-
-
Separate corporate entity jointly owned by two or
more organizations
One organizational form for achieving
organizational objectives that neither organization
could normally attain acting alone
Reasons for entering joint ventures: formal
restrictions, economies of scale, risk sharing,
access to resources
Mergers & acquisitions
 Methods used for previously mentioned
strategies
 MERGER – two companies combine their
operations creating a third company (A+B=C)
 Extensive organisational changes
 ACQUISITION – one company buys and
controls other company (loss of economic
independence; still separate legal entity)
 M&A can be in the following forms:
- horizontal
- concentric
- vertical
- conglomerate
 Reasons for M&A
- market value of stock of both firms
- better utilization of existing manufacturing facilities
- Smoothing out present cyclical trends in present
products or services
- Providing resources for expanding the organization
- Securing a source of raw materials
- Providing avenue for selling organization’s stock
 Carrying out mergers and acquisitions
- Can be carried out in friendly or a hostile environment
- Friendly M or A when stockholders and management
of both organizations agree that the combination will
be good for both organizations, and they work
together to ensure its success
- Takeover (hostile M or A) when organization that is to
be acquired (target firm) resists the attempt
 Factors to avoid in order to ensure a successful
M or A:
- Paying too much
- Straying to afield
- Marring disparate corporate cultures
- Counting on key managers staying
- Assuming a boom market won’t crash
- Leaping before looking
- Swallowing to large company
Strategic Alliances
 Partnerships that exist for a defined time
period during which partners contribute their
skills and expertise to a cooperative project
(common goal!)
 In the form of formal and informal agreements
Acquisition
Joint Venture
Strategic
Alliance
Allows 100% control
No need for interfirm
consensus
Less flexible
Larger commitment of
resources
Greater risk
May cause conflicts of
corporate culture
Requires combining IS
Affords cost cutting
possibilities
Can be used to correct
previous errors in
strategy selection
Firms intersect over
narrow, well-defined
segments
Exploit distinctive
opportunities
Usually involves only
two firms
Enables joint production
of a single product
Combines known
resources
Can be used to avoid
risks in merger
transaction
Tensions: Each firm
seeks to learn as much
possible but not to
convey too much
Useful for creating
complex systems
among multiple firms
Partners usually larger
than in joint venture
Allows firms to focus
on fewer core
competencies
Difficult to measure
contribution of
participants
Limited time duration
Active participation of
senior managers
Substitute for
governmentprohibited, crossborder mergers