Strategy Types

What are generic strategies and what are they good for?

Andy Weeger

Neu-Ulm University of Applied Sciences

September 1, 2023

Learning outcomes

After this session, you should have a solid understanding of

• different generic strategies as proposed by Ansoff, Porter and Mintzberg;
• the competitive characteristics that define the strategy types and their applicability;
• the significance of locating (and focusing on) the core business;
• the concepts of vertical and horizontal integration, internal and external growth; and
• the importance of trade-offs in strategic management;

You are able to apply the knowledge gained to real-life scenarios to describe and provide explanations for strategic decisions made by firms, particularly to develop initial guidance regarding the selection of an appropriate strategy.

Reflection

Before we start: Any questions or comments regarding the different types of corporate strategies outlined by Galbraith, Craig, and Schendel (1983) and my questions?

Galbraith and Schendel

Overview

Consumer goods:

Harvest, builder, continuity, climber, niche & cashout

Industrial products:

Low commitment, maintenance, growth & niche

Galbraith, Craig, and Schendel (1983) developed a typology of strategy encompassing six generic strategies for consumer goods and four for industrial products based on empirical data. The typology reaffirms that distinct, consistent, and recurring patterns of strategic behavior exist.

Ansoff

Overview

The Ansoff-matrix (Ansoff 1965)

 

 

 

 

 

Figure 1: The Ansoff-matrix (Ansoff 1965)

The Ansoff-matrix (Ansoff 1965) is a strategic framework that helps organizations consider growth strategies based on two key factors: products (what they offer) and markets (who they serve). The matrix consists of four growth strategies, each with its own focus.

Porter

Overview

Porter’s three generic strategies (Porter 1980)

 

 

 

 

Figure 2: Porter’s three generic strategies (Porter 1980)

Porter (1980) proposed three generic strategies that organizations can pursue to gain a competitive advantage in their respective industries. These strategies are based on the scope of the target market and the competitive advantage sought.

Exercise

Form small groups, write down the definition and find examples for each of the following strategies:

Forward integration, backward integration, horizontal integration, market penetration, market development, product development, and diversification

Look at each example and find reasons for selecting the strategy—does it make sense?

Strategy	Definition	Example
Forward Integration	Gaining ownership or increased control over distributors or retailers	Amazon began rapid delivery services in some U.S. cities.
Backward Integration	Seeking ownership or increased control of a firm’s suppliers	Starbucks purchased a coffee farm.
Horizontal Integration	Seeking ownership or increased control over competitors	&T acquired Susquehanna Bancshares.
Market Penetration	Seeking increased market share for present products or services in present markets through greater marketing efforts	Under Armour signed tennis champion Andy Murray to a 4-year, $23 million marketing deal.
Market Development	Introducing present products or services into new geographic area	Gap opened its first five stores in China.
Product Development	Seeking increased sales by improving present products or services or developing new ones	Amazon just began offering its own line of baby diapers and wipes.
Related Diversification	Adding new but related products or services	Facebook acquired the text-messaging firm WhatsApp for $19 billion.
Unrelated Diversification	Adding new, unrelated products or services	Kroger and Whole Foods Market are cooking meals, becoming restaurants.

Mintzberg

Overview

According to Mintzberg (1988) families of strategies can be divided into five broad groups:

Locating the core business, distinguishing the core business, elaborating the core business, extending the core business & reconceiving the core business

Exercise

Extending the core business by means of integration strategies usually involve merging with or acquiring another firm.

1. What are benefits of merging with or acquiring another company?
2. What risks involved in company acquisitions?

Benefits:

• To provide improved capacity utilization
• To make better use of the existing sales force
• To reduce managerial staff
• To gain economies of scale
• To smooth out seasonal trends in sales
• To gain access to new suppliers, distributors, customers, products, and creditors
• To gain new technology
• To gain market share
• To enter global markets
• To gain pricing power
• To reduce tax obligations
• To eliminate competitors

Risks:

• Integration difficulties up and down the two value chains
• Taking on too much new debt the target firm owes or to buy the target
• Inability to achieve synergy
• Too much diversification
• Difficult to integrate different organizational cultures
• Reduced employee morale due to layoffs and relocations

Blue Ocean Strategy

Overview

Create and capture value without intense competition by means of

Identifying and converting noncustomers, four actions & six paths

Blue ocean strategy is a business strategy framework that encourages organizations to seek new and uncontested market spaces, where they can create and capture value without intense competition. The “blue ocean” represents uncharted waters, free from the competition seen in the “red ocean,” which symbolizes saturated and highly competitive markets (Kim and Mauborgne 2005).

By applying the principles of blue ocean strategy, organizations can break away from head-to-head competition in overcrowded markets and discover new growth opportunities by creating innovative value propositions and appealing to new customer segments.

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

1. Define and discuss vertical integration (or another generic strategy)
2. Give some guidelines when vertical integration (or another generic strategy) is an excellent strategy to pursue.
3. What are advantages and disadvantages of vertical integration (or another generic strategy)?
4. Define and give an example of a “blue ocean strategy.”
5. Define and explain “first mover advantages.” To which generic strategies does it relate?
6. Discuss whether it is best for a small firm to grow internally (organically) or to grow externally using means such as partnerships, joint ventures or mergers and acquisitions.
7. Give reasons why so many companies are divesting (spinning off) key segments/divisions of the firm.
8. Explain the following statement: Unlike with cost leadership where a firm examines how to reduce costs along its value chain, with differentiation one looks to maximize value along each level of the value chain.
9. Called de-integration, there appears to be a growing trend for firms to become less forward integrated. Discuss why.
10. What conditions, externally and internally, would be desired/necessary for a firm to diversify?
11. What are major benefits of acquiring another firm?
12. Why is it not advisable to pursue too many strategies at once?
13. There are cooperative and competitive strategies. What is the difference? What are advantages and disadvantages?

Homework

Read Hallegatte (2009) and make notes on following questions:

• Why should climate change be a strategic topic for contemporary firms?
• How does the article describe the uncertainty associated with climate change and its impacts?
• What are the implications of this uncertainty for businesses and organizations?
• What is robust decision-making in light of the climate change as proposed in the article?
• What are insights offered into how individuals, communities, and organizations can efficiently adapt to climate change? How can these insights inform and enhance the strategic management process?
• While only briefly mentioned in the article, economic evaluation is crucial in both climate adaptation and strategic management. How can organizations assess the cost-effectiveness of their strategies and make informed decisions about resource allocation in light of the many uncertainties of climate change?
• What are the five examples of practical strategies discussed in the article? Why are they particularly suited to coping with the high level of uncertainty that climate change is creating?

Q&A

Literature

Ansoff, H. I. 1965. Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion. McGraw-Hill.

David, F. R., and F. R. David. 2016. Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Global Edition. Psychology Express. Pearson Education.

Galbraith, Jay R., Cynthia A. Craig, and Dan Schendel. 1983. “An Empirical Analysis of Strategy Types.” Strategic Management Journal 4 (2): 153–73.

Hallegatte, Stéphane. 2009. “Strategies to Adapt to an Uncertain Climate Change.” Global Environmental Change 19 (2): 240–47.

Kim, W. C., and R. Mauborgne. 2005. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. BusinessPro Collection. Harvard Business School Press.

Mintzberg, Henry. 1988. “Generic Strategies: Toward a Comprehensive Framework.” Advances in Strategic Management 5 (1): 1–67.

———. 2014. The Strategy Process: Concepts, Contexts, Cases. Pearson education.

Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.