A simplified and concise definition of grand strategies is that they direct the organizations to the available paths open to them which would allow the achievement of their longterm objectives.
CONCENTRATION
The first strategy and the simplest is that of CONCENTRATION. The organization directs its efforts and resources to the profitable growth in the market and technology in which it is currently operating. The reason for this approach is the low additional resources required as well as low risk, since by their known competency they have prospered in the past. The negative side to this is the trends of industries in some cases have been shown to alter performance and the organization is then left with an outdated product. Also, the company may incur slow profitability and growth with this strategy. This is THE market penetration approach. You just have to aware of market conditions that help or may hinder prosperity using this approach. Having a corner on the market of the buggy whip business is not a good idea.
MARKET AND PRODUCT DEVELOPMENT
I will combine, in a fashion, the MARKET DEVELOPMENT (the second) and PRODUCT DEVELOPMENT (the third) strategies in the interest of space. Market development requires some modification in the product and in channels of distribution as a way to seek new markets. Also, variations in model and product size constitute an approach in this strategy. The product development factor is normally chosen to prolong the life cycle of currently sold products or to take advantage of a favorable reputation or brand name. Both of these involve moderate risk and cost.
INNOVATION
INNOVATION is our fourth strategy. Many industries have gone out of business because they refused to place due resources in R&D efforts. With the rapid turnover of technology, it is foolhardy not to place capital into the future of the business through innovation. This strategy differs from the product development in the extent to which products come out as brand new or fundamentally new though innovation. Innovation will make other products obsolete. The negative in this approach is in the failure rate: innovation is fraught with risk and uncertainty.
HORIZONTAL AND VERTICAL INTEGRATION
In the interest of brevity I will combine our two integration strategies; namely, HORIZONTAL INTEGRATION (HI) and VERTICAL INTEGRATION (VI). Both of these strategies allow growth through the acquisition route, but HI uses the purchase of a the organization in a similar
business in the same stage of the productionmarketing chain. VI permits growth through the acquisition of the organization which is a supplier of inputs to the acquirer and is known as BACKWARD INTEGRATION while the union with the organization closer to the ultimate consumer would be known as FORWARD INTEGRATION. HI allows the acquirer the advantage of new markets as well as eliminating competition and also allows more prudent use of capital which affords increased efficiency. There is moderate risk, but the negative is the further commitment to one type of business. Forward vertical integration is favored when the demand
can be assured due to ownership in the next production stage and backward integration is favored when suppliers to the acquirer are few and competitors are many. The costs in this case can better be controlled as well as an improvement in the margins. A negative for VI is that the strategic managers must broaden their base of competency as well as take on additional burdens.
JOINT VENTURE
Our seventh grand strategy is the JOINT VENTURE. This is the uniting of two or more organizations when they each lack the necessary resources for success in a particular competitive situation. It can be used in countries in which foreign interests desire to do business and the domestic the organization will not then feel threatened by foreign domination and
at the same time derive financial and human resource deployment benefits. Domestically the organizations are usually reluctant to use this because they each will feel increased risk as well as limited discretion, control, and profit potential. Also, their managerial attention and
other resources are diverted from their the organization's main activities. It is a risky strategy above all, if you are doing business with a certain company in a joint venture and a hot competitor with that same company in another piece of the business. The joint venture reduces your
ability to vigorously compete with that company: you don't want a joint venturer to go out of business, you expose your company's weaknesses to the joint venturer, and you lose a lot of control over the rate and direction of growth and opportunity you may want your company to go in. Be very careful with joint ventures, especially if the partnership is unequal: the bigger partner may force you into a divestiture, or buyout position. They may leave you holding a lot of unexpected debt. They may force your production cycle into a frenetic state to cause you to fail and allow them to buy you out or force you to a chapter 11 (reorganization/bankruptcy).
CONCENTRIC AND CONGLOMERATE DIVERSIFICATION
Our next two grand strategies are those of CONCENTRIC and CONGLOMERATE
DIVERSIFICATION. Simply stated, the principal difference is that concentric acquisitions emphasize common markets, products, and technology, whereas conglomerate acquisitions are based simply on profit consideration. The ideal concentric approach occurs when the combined the organization's profits increase strengths and opportunities and lessen weaknesses and risk exposure. The financial synergy is the consideration given to the conglomerate diversification. Drucker warns us here, however: stick to your knitting; remember your business and make it sound for both short and longterm profitability. If you get into business that you can't manage or
don't have the people or technology to support; you have a major builtin weakness. If you get into a business that your customer doesn't identify you with, you may fail before you get going.
RETRENCHMENT AND TURNAROUND
The tenth grand strategy is that of RETRENCHMENT/TURNAROUND. This is one of fortifying the basic competency by cost and asset reduction and trying to reverse the negative trends. Normally this approach is accompanied by top management changes as well. Many companies call this chapter 11. Still others may call this rightsizing, downsizing, or just basic leaning out in the sense of losing people through RIFs, early retirements, reorganizations, etc. If you get a new CEO or CAO, there is a likelihood that he/she will be a turnaround leader: watch the heads roll, deservedly or not (GM comes to mind).
DIVESTITURE AND LIQUIDATION
The last two strategies are those of DIVESTITURE and LIQUIDATION. These are last ditch efforts to be able to acquire a profit from the venture. The divestiture approach is that of trying to unload or sell a business and that of liquidation is the sale of business in parts for its assets and not as a "going" business. Many companies experience a variety of this strategy when they have a spinoff from the parent company.
(Pearce, Robinson, 2005)
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