A strategy is a long-term plan for the whole organisation. Igor Ansoff defined corporate strategy as ‘The positioning and relating of the firm/organisation to its environment in a way which will assure its continued success and make it sure from surprises.
He devised a grid setting out the possibilities available to an organisation to generate economic growth: Product market penetration involves increasing current market share in existing markets e.g. by adding existing products to those already offered, offering new product types, or improving existing products.
Market development involves developing new markets for the firm’s current product lines e.g. by moving into new countries. For example, companies like Coca-Cola and McDonald’s have moved into China and other new emerging markets.
Product market development involves the firm maintaining its existing markets but developing new product markets within them. Diversification strategies involve the firm entering new product markets outside its present business.
Generally, there are eight main types of strategies that most organisations are involved with at any time:
- Growth involves the expansion of a business, its markets, products, size etc. Successful growth strategies are based on: having the resources to support growth identifying the markets that make growth worth while being better than the competition in these growth markets
- Stability involves a consolidation strategy for the organisation, often before a period of growth. The organisation needs to establish clear procedures and systems during this period before moving on.
- Profitability. Seeking profit is an important business strategy, particularly in organisations where shareholders have considerable influence.
- Efficiency. Efficiency is concerned with how well resources have been used in meeting organisational objectives. It is an important strategy for public sector service organisations where it is important to show that taxpayer’s funds have been used well.
- Market leadership strategies are all about being number one in your market. The market leader is able to gain considerable cost advantages over rivals because by definition other firms will have a smaller market share and therefore fewer opportunities for economies of scale.
- Survival is an essential business strategy. In a highly competitive business environment survival is the key to most organisations. By surviving they are able to develop other strategies.
- Merger and acquisition enable businesses to benefit from the advantages of integration.
- Globalisation strategies involve expanding internationally e.g. by developing manufacturing or distribution/sales facilities in other countries.
Horizontal integration involves joining with another business at the same stage of production e.g. two ice cream producers joining together.
Vertical integration involves integrating with a different stage of production e.g. the ice cream manufacturer takes over retailers (forward integration) or buys up a herd of dairy cows (backward integration).
Lateral integration involves taking over a different type of firm but where there are related benefits e.g. joint marketing or distribution of products.