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CHAPTER 5 Corporate Strategies

Integrative Growth Strategies

Integrative Growth Strategies, which are essentially external growth strategies, involved investing, the
resources of the organization in another company or business to achieve growth goals. Integration
growth strategies are essentially acquisition strategies.

Types of integrated growth strategies include horizontal integration and vertical integration. Two types
of vertical integration are backward integration and forward integration.

1. Horizontal integration is the strategy where the organization acquires another computing business.
There are valid reason for undertaking horizontal integration. First, organizations may employ horizontal
integration to eliminate real or potential competitors because some competitors can present themselves
as deadly threats to an organization. For example, Jollibee purchase Mang Inasal for fear and losing
there market share in the fast food industry. Another possible reason is the desire of the organization to
simply expand its reach, expand its market demographically and maintain its market statuss market
leader, market challenger or a market follower. Lastly an organization may undergo horizontal
organization to help increases its revenue.

2. Vertical integration is the process of consolidating into an organization other companies involved, in
all aspects of a product's or a service's process from raw materials to distribution. It is an itegrated
growth strategy adobted by an organization to gain control over it's suppliers and distributors. Increase
the company's market shares, minimize transactions in inventory costs, and ensure adequate stocks in
the real stores. Vertical integration can either be backward or forward.

a. Backward integration is another integrative acquisition growth strategy where the organization buys
one of it's suppliers. An organization may carry out backward integration to better control its supply
chain and ensure a more reliable or a cost effective supply of input. Furthermore, an organization
eliminate inefficiencies to secure quality output or according set conformance standards. The
organization can apply and process strategies so that the right products are produced and the right
service are rendered at the right time. Effective backward integration can help increase profitability of
an organization and thus, create competitive advantage. For example, if a nokia is a manufacturer or a
mobile phones, it can buy its supplier of phone cases.

b. Forward integration is carries out when the organizations buys distribution companies that are part of
its distribution chain. In effect, the organization is able to remove the intermediary, thus, eliminating
distribution cost. Forward integration allows an organization to reinvent its marketing outlook and
redesign its marketing strategies. For an example, an organization engaged in garment manufacturing
can buy retail outlets that are displayingand selling their clothing lines to help increase their sales.

In summary, integrated growth strategies are corporate to nature. This strategies may include
horizontal or vertical integration. The latter can be either forward or backward. In inward integration, an
organization buys one of it's suppliers. This form of integration is beneficial to the organization because
the cost of buying from suppliers decrease significantly. In forward integration the organization takes
over the marketing strategies over of its retailes.
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The Boston Consulting Group Model

The Boston Consulting Group Growth-Share Paradigm started to make its impact on corporate strategy in
the early 1970's. The BCG model was develop by Bruce Henderson of the Boston Consulting Group. This
model classifies the products of business units of an organization in terms of two parameters, namely,
market share and market growth, in relation to the marketing leader.

Market share is the relative sales percentage of a company in relation to the total sales percentage of the
market in consideration. This metric value gives a general idea of how the company stands with respect
to the market and its competitors. Thus, Company X can have a low market share (5%) or a high market
share (80%) of Hamburger sales in relation to its competitors.
On the other hand, market growth refers to an increase in demand over time. It may be high or
low. The BCG model illustrates four broad categories in relation to market share (low, high) and market
growth (low, high). Thus, we have the following:

A high market share in high market growth defines stars. They are the market leaders and if the market
continuous to grow, they are likely to become cash cows.

A high market share in a low market growth defines cash cows. Since they are the market leaders in
mature market growth, establishing a competitive advantage can generate a lot of cash flow and bring
about high profit margins.

A low market share in a high market growth defines question marks. These essentially new products
need promotional strategies.

A low market share in a low market growth defines dogs. They should essentially be minimized, if not
avoided. They can be expensive to the company.

The General Electric Model

McKinsey conceptualized the General Electric (GE) Model for the company. This model is an
improvement of the BCG Model. It is used to assess the strength of a strategic business unit (SBU) of an
or an organization. It takes into consideration two parameters to determine the overall strength of an
SBU. These parameters are market attractiveness and business strength.

External factors that may affect market attractiveness include market size and growth, market niche
and segmentation, demand, and overall risk. On the other hand, the internal factors that may affect
business strength include brand strength, staying power, profit margins, quality, customer patronage,
and others.
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General Electric Model (Chunawala 2002)

High Attractiveness Strong Competitive Position

The strategy advice for this cells is to invest for growth. Consider the following strategies:

• Provide Maximum investment

• Diversify

• Accept moderate near-term profits to build share

High Attractiveness Average Competitive Position

The strategy advice for this cells is to invest for growth. Consider the following strategies:

• Build selectively on strength

•Define the implications of challenging for market leadership

• Fill weaknesses to avoid vulnerability

• Consolidate your position to focus your resources

High Attractiveness Weak Competitive Position

The strategy advice for this cell is to opportunistically invest for earnings. However, if you cannot
strengthen your enterprise you should exit the market. Consider the following strategies:

• Ride with the market growth

• Seek niches or specialization

• Seek an opportunity to increase strength through acquisition

Medium Attractiveness Strong Competitive Position

The strategy advice for this cells is to invest for growth. Consider the following strategies:

• Invest heavily in selected segments

• Establish a ceiling for the market share you wish to achieve

• Seek attractive new segments in apply strengths

Medium Attractiveness Average Competitive Position

The strategy advice for this cells is to invest for earnings. Consider the following strategies:

• Segment the market to find a more attractive position

• Make contingency plan to protect your vulnerable position

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Medium Attractiveness Weak Competitive Position

The strategy advice for this cells is to preserve for harvest. Consider the following strategies:

• Act to preserve or boost cash flow as you exist the business

• Seek an opportunistic sale

• Seek a way to increase your strengths

Global Strategies

In some instances, organizations pursue global strategies for external business expansion. Global
strategies cover three main areas: International, Multi-national and Global. Companies who might want
to sell their excess products outside their home market pursues international strategies. A company is
said to be doing international business although its focus is the home market.

On the other hand, a company can engage in multinational strategies when it is involved in a
number of markets outside of home country. The challenge in undertaking multinational strategies is to
sell competitive and distinct products and services that are suited to the customers demands of
different countries. Thus, the strategy in one country may vary in another depending in customers
expectations.

In global strategies the company treats or considers the world as a whole, one market and one
source of supply with slight local variations.

Benefits of Global Strategies

Pursuing global strategies can be beneficial to companies. Given a larger market for its
products,companies can enjoy larger sales and earnings. They can benefit from the global branding of
their products and services,not to mention,the earnings from the economies of scale. Higher production
volume with efficiency increases savings and creates greater advantage for companies.

Sourcing of labor can be studied on optimize labor cost.

Resources Required

In building a global strategy, certain resources are necessary to establish a level of competitiveness. They
are

1. Substantial capitalization because funding requirements can be demanding.

2.Managerial and strategic leadership to be able to come up with the best strategies for success.

3. Expertise and capabilities on the part of management and the employees and

4. Quality and Differentiated Products and Services

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World's Greatest Strategists

Bernand Amault: Louis Vuitton

Bernand Amault is a luxury brand builder who is many steps ahead of his generation. He is credited to
building a luxury goods juggemaut with 40 billion dollar in annual sales. At 65, his family controls 46.5%
of Parts-based Louis Vuitton products turning them into a red hot brand. He has added lustrous new
names like Bulgari in jewelry and Thomas Pink in shirts and has raised them to the company's status
labels.

Because sales of spirits and leather goods were flat the previous year, the richest man in France is not
taking it lying down. He is investing in new designers and paying more attention to menswear and shoe
brands. Still on his list is to pick an heir to fill his own big Berlutis shoes when he decides to step down.

Strategies

 We have unique products

 Our strategy is to trust the creators
 We do not like failures
 Designers are closer to artists than to engineers
 Every time there has been crisis, we have gained market share
 We do not put the entire company at risk by introducing all new products all the time.
 If one day we must sell something, first we want to turn it around and make it profitable.
 Sometimes you do not succeed.
 We learned that genius is not enough to succeed.
 The key to success is this daulity-timelessness and the utmost modernity.
 It is not enough to have a talented designer, the management must be inspired too. The creative
process is very disorganized, the production process has to be very rational.
 A good product can last forever.

CHAPTER 6

Organizational Structure

Refers to the system or mode by which a group of individuals is able to achieve its desired goals. The
organizational structure of an organization /company is subject to many factors like technological
breakthrough by competitors, changes in customers lifestyles ,and those that are environmental in
nature.

Managements, employees, suppliers, customers , government and society are example of external
factors that significantly affect organizations one way or another. Suffice it to say , servicing and product
companies need to be dynamic to stay in the business mainstream. They need to possess a built –in
flexibility that will enable them to adapt readily to unstable conditions.

Types of organizational structure

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An examination of the different organizational chart of popular and successful companies will show a
variety of organizational structure. Depending on their organizational goals and specific objectives , this
built-to last companies adopt appropriate organizational forms that may range from functional to
territorial, or from product to market centered to matrix.

Functional organizational structure

Organizations adopt a specific structural arrangement for a reason. Structuring an organization

effectively requires that the management should know the goals of the organizations ,the skills, of its
people , the needs and goals of its subordinates , the available resources , and the time , cost, and
environmental constraints that are existingSimilarly, it requires management to bring together the
human, technical, marketing ,and financial resources of the organization.

Particularly, human resources are brought together in units , team or projects so that job
specialization can be optimized while special skills can be managed. There is a need for the marketing
department to interact and coordinate with personnel in other major functional areas. The
production/ operation department follows the requirements set by the marketing department while the
financial department efficiently allocate funds to achieve the organizations set objectives. All these
departments need to act together to accomplish the organizations overall vision , mission, and goals.
Thus , an organization should be structured effectively so that its human resources , marketing,
productions/operations , and finance department can work collaboratively.

Territorial organizational structure

As an organization begin to serve its customer who are spread over a growing geographical area,
a territorial structure becomes a viable design. In this system, the target market is divided into
geographical units according into a certain criteria.

Territorial structural arrangements have several advantages. First personnel familiar with the history
of customers in the area, their culture, their preferences , expectations, and habit of living can cultivate
the local markets. Second, the company and its sales force can respond quickly to changes in the
competitive environment . Third, there is closer contact between managers familiar with the territory
and their subordinates. Finally , because management is familiar with local conditions it can make
quicker strategic decisions.

Adopting a territorial structure has its downsides. As the product line becomes more varied the
territory structures becomes more cumbersome. The creation of multiple territory offices results in
duplications of services and possibly the appointment of less qualified individual to supervisory
positions. Thus , there is the need for competent managers. An increase in expenses is inevitable.

Sometimes , having unprepared or weak managers in territories may negatively affect sales , may
create a damaged public image and may lower morale among employees . Figure 6.2 shows
department’s territorial structure used by an organization.
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Product organizational structure

Traditionally, organizational divisions follow a product structure. In some companies , the sub-
businesses are assigned to product group managers, each of them are given key operating and staff
functions. As long as the product markets , and customers are diverse and mutually exclusive , there is
no limit to the number of product management system used. When different types of product are
involved , division are likely to include research and development and engineering departments. These
allow manager to operate independently . They are responsible for both current and future decisions
about the product market since the long term goal is to increase and not just to maintain the current
market.

Marketing manager follow their product from conception to the time when is made available to
the consumers. They coordinate all information relating to the product with the other department in the
company. Marketing manager are likewise involve in various company operations.

Some specific task include gathering and centralizing all information relating to the products ,
preparing product strategy alternatives, preparing forecast , defining the marketing strategies to
achieved planned objectives , ensuring the profitability of the product , monitoring its life cycle ,
monitoring the accomplishments of programs previously drawn up , and suggesting ways to improve or
create new or improve products.

There are four courses of action that an organization can implement to improve or replace. any
product management structure. They are: 1. Conducting training programs in forecasting , interpersonal
skills, planning, motivation, and control to improve the ability of product managers to do the job. 2.
Switching from a marketing manager to a marketing team that implements activities to market the
product effectively;3. Eliminating product ,managers of minor brands and consolidating them with other
products. This is feasible when the product line appeals to similar consumers or industrial users:4.
Establishing division around the major company product and using functional structural arrangements
within divisions. Despite the problem involved in the product structure, this organizational form can be
successful.

The key to good performance is top management support with reasonable budget , planning,
and resource allocation. Without top management support product/brand managers will experience
difficulty in gaining the cooperation of those from the advertising, marketing research, and sales
divisions.
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Market centered organizational structure

Companies can structure their business to fit their markets. A market centered organizational structure
describe the wide range of structural forms that center on a group of customers needs rather then a
region, product line, or functions.

A market centered organization is decentralized by market. A market is a profit center. Organizations in

the following situations suited for the market centerd structure.

When a competitor threatens market leadership, market centering can restore a competitive advantage
by improving knowledge on customer, distributor ,and retailer needs.

When a new market is introduced and is affecting a company to a certain extent,a market centered
approach can stimulate new ideas because the firm technical specialist receive more information about
market needs.

When a product manufacturer can achieve high profit by diversifying into services with larger margins of
returns.

When marketing related product or services requires the so called marketing intelligence by conducting
or implementing smart customer strategies.

When a manufacturer who has been selling product performance benefit shifts marketing strategies to
feature the financial benefits of customer profit improvement , market centering make it easier to gather
information on how customers make their profit.

When a marketer wants to attract more entrepreneurial managers , market centering offers managers
wide responsibilities and a variety of supervisory duties.

A market centered organizational structure group company activities around important and
relevant criteria and forms SBUs that will formulate marketing strategies , among others. Each unit is
responsible for profits. In many cases ,large division have their own marketing departments. Division
marketing may also be structured by product, market , customer or any combination of these factors.
Often, a new division starts with a functional organization , but changes to one that is structured by
product , customer, or market as the business increases.

SBU ORGNIZATIONAL STRUCTURE

This division structure raises the issue of whether any marketing functions should be performed at the
corporate staff level. Some companies maintain a minimum marketing services structure at the
corporate level. For example, market research, advertising, and the media planning services are provided
to each territorial division in Luzon, Visayas , and Mindanao from a corporate staff group in manila.

The decision, whether to maintain some corporate –level marketing staff services or otherwise , depends
primarily on the size of the division.

If a division is large enough to afford its own marketing structure , it will usually have one. Figure 6.4
shows an SBU structural arrangement. A group vice – president who is directly responsible to the chief
executive officer of the company heads each SBU. This type of structure places emphasis on planning
and analysis of company strategies.
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Matrix organizational structure

The matrix structure is efficient for stablishing specialist resources but is best for integrating
functions.

On the other hand , the creation of SBUs introduces effective integration at the expense of resources
specialization. The matrix organizational structure seeks the best of both. Firms such as Unilever, Shell,
Dow Chemical Company, and Texas instruments use various forms of the matrix organizational structure.

A matrix is any organization that employs a multiple “boss” arrangement. For example , a person can
have two bosses , one for functional and the other one for product. Matrix structure have been adopted
in manufacturing , services, professionals, and non- profit organizations. A marketing specialist is a
member of two units , one of which is more or less a permanent home and the second is the temporary
home. Thus , the matrix structure combines the idea of specialized department with the idea of
specialized departments with the idea of self sufficient and somewhat autonomous unit.

In an organization that uses a matrix structure , one must cut across departmental boundaries to
get the job done. A team working on a job is comprised of a group of specialist so that the ability to work
together is very important. Figure 6.5 illustrate how teamwork among production , marketing , and
finance specialist is required to complete projects. The key features is that both the functional and
product lines of authority overlap where both product and functional managers share managerial
authority over the people in each cell.

Choice of an organizational structure

Some of the factors which may influence the firm’s decision to adopt the type of organizational
structure appropriate to its needs include; size of the firm, product offerings, market of its product ,
prevailing competition, and management philosophy.

Size of the firm

Generally speaking , the size of the firm will indicate the complexity of its organization. A firm
producing and selling in a restricted territory may find the functional organization the best form of their
purposes , whereas a larger firm which produces several products and sell to a wider market may opt for
a regional form of organization to maximum selling efforts.

The products

The nature of the product or product to be sold is another factor that influences the choice of an
organizational structure. Consumer and industrial goods may require different types of services from the
producer.Some products require extensive after-sale servicing to customers and the marketing
organizational structure can take care of this task. Technical products may require a different type
of salesmanship and advertising as comparted to non technical products. This is also true with product
requiring wide distribution reach like soft drinks. These are examples wherein the nature of the product
can influence the choice of a marketing structure.

The market

Characteristic of the market like geographical dispersion , income class, and buyer behavior
needs to be considered in organizing the market unit. If markets are concentrated , the stakeholder may
find it easier to sell directly to the consumers. If market are dispersed , or if consumer buy in a small
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quantities which does not justify direct sales , then the producer may opt to use intermediaries. Thus ,
the producer efforts will be concentrated on selecting middlemen and devising way to assist them rather
than supervising total sales operation.

Competition

A firm may find it necessary to organize its marketing effort following the requirements of
.competition . If a major competitor uses an existing pattern on distribution , the firm may find it
necessary to accommodate such a pattern. If brand name merchandising is an established feature of a
particular industry, like ready to wear jeans , then the newcomer may have to strive to establish his own
brand. If a change in organizational structure proves to be successful in an already established firm, then
other firms may imitate such change.

Philosophy of Management. A final factor that affects the structure of an organization is the
management philosophy prevailing in the company. In each case, the structure of the business units
differs. Some companies are more business-oriented than others and will have a business unit that is
involved in a wider scope of activities. In addition, if management firmly believes in centralization rather
than in decentralization, then most of the responsibilities will be borne by the home office rather than
by district or regional offices.

Evaluation of an Organizational Structure.

A number of criteria may be used in evaluating organizational structures. This criteria includes the
ability of organizational structure to facilitate control, draw coordination among the employees.

Facilitating Control. Control in an organization involves a comparison of actual performance with

pre-established standards or plans. If the organizational structure enables a manager to identify problem
situations and take necessary corrective actions, then firm may be said to have a control mechanism. If
each person clearly understands the scope of his authority and areas of responsibility, and if the
organization provides suitable channels for communication, then the company has a solid framework for
management control.

Coordination. The coordination of an individual actions is often called team effort. A firm employing
several specialists and line officers at different levels may still produce ineffective results if efforts are not
properly coordinated. The presence of effective teamwork is usually indicative of an efficient and well-
organized marketing operation.

Providing information. Because markets are dynamic and subject to change, it is essential for
managers to gather information in order to anticipate changes and make decisions accordingly. A good
organization should have an adequate information system and proper channels through which
information flows.

Cost of the System. A firm can choose from the simplest to the most complex type of organization.
However, it has to strike a balance among three important factors– the organizational information it
desires, the organizational control it wishes to employ, and the costs of organizing its personnel. The
number of people employed in marketing management is not criterion of the efficiency of the
organization.Theoretically, an optimum size produces the greater efficiency for the marketing
management team for each firm. Inefficiency may result from overstaffing, as well as from understaffing.
It is the responsibility of the top management in the company to continually evaluate the performance
of an organization. A basic procedure in this evaluation is to weigh the performance against its costs.
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Flexibility. To be able to cope with the dynamic and changing environment, the firm should have an
organization that can adjust to changes. Flexibility is necessary to attain good performance. Peter
Drucker (1954) in his book The Practice of Management, identifies criteria for evaluating organizational
strategies.

It's capability to realize its set business goals and objectives. These business goals and objectives
include spending on other promotional strategies, upgrading or purchasing new facilities and equipment,
experimenting and developing new products, hiring additional manpower, increasing salaries and wages,
training employees, and most significantly, ensuring continued existence of the organization.

ORGANIZATION POLICY
The organization milieu includes company policies, which are the lifeblood of an organization.
They put organizational structure and system in place. They ensure order, hierarchy of authority, clear
delineation of functions, efficiency, productivity, and good interpersonal relationships. They make
possible the smooth actualization of operations and functions and facilitate the attainment of set goals
and objectives, whether measurable or otherwise.

In summary, entities include organizational components that collaborately synergize to achieve

desired goals and objectives. Guided by a vision and a mission statement, management sets the
direction of the organization. Employees working together and facilities and equipment enable
organizations to fuction efficiently and effectively. Policies give direction and structure to an
organizations supported by needed financial resources.Mission, and plans of the enterprise in
accordance to set goals and objectives; a liaison officer who serves as conduit for the employees who
belong to the different business units or groups; a mediator who settles concerns, issues, and other
problems between labor and management; a facilitator who negotiates the allocations of resources; a
delegatorwho assigns responsibilities, empowers employees, and monitors them periodically and
efficiently; a problem-solver who tackles organizational concerns and provides adequate solutions; and a
decision-maker who makes appropriate decisions, both qualitative and quantitative, and as needed by
the organization.

Skills of a leader: technical skills or being competent in his respective field to play his role adequately
and to perform his tasks effectively: human relations skills or being adept in dealing with personal and
interpersonal employee relationships; and other skills required to attain organizational success.Vision
refers to the image that the organization aims to establish and project to both its employees and the
public while Mission refers to the purpose of the organization. This is explicit stated in the mission
statement of the organization.

The mission statement of the organization can include any or all of the following: it must express the
image the organization wants to project to the public; it must clearly state the objectives of the
organization;it must enumerate the product/service of the organization; it must describe the customers
it serves; and it must explain the thecnology or the process being adopted by the organization.

On the other hand, goals and objectives refer to what the organization aims to attain. Goals are
general, macro, and long-term in nature, whereas objectives are specific, micro, and short-term. More
specifically, organizational objectives should pesses the following qualities: immediate or short-term,
prioritized, carefully chosen and specific, attainable, flexible, quantifiable, if possible, consistent, alligned
to the vission-mission of the organization, and realistic.
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Employees. Aside from the management, employees constitute a significant part of the organizational
milieu. They are the very people who work, support, and earn profits for the organization. They are
found in all levels, performing tasks ranging from the sophisticated to the difficult, practical, and odd
ones. They work in the different functional areas of marketing, finance, and production whether formally
or informally structured. Employees are expected to give their best in performing their assigned
tasks. Several factors affect their productivity. A simple definition describes productivity as the ratio of
the output with respect to input. Certain variables affect productivity. They include salary, fringe
benefits, work environment, and organizational climate.

Generally, management expects employees to experience and graduate through three levels of
relationships, as shown in figure 6.6. They are employee satisfaction, employee involvement, and
employee commitment.

Employee satisfaction. it is an emotional state where the employee experiences a feeling of content in
the workplace. Any or all of the following generally bring employee satisfaction: acceptable salary, fringe
benefits and incentives, positive interpersonal relationships between and among management and
employees, and acceptable conditions in the workplace. Thus, an employee is generally said, “to be
satisfied with his job”.

Employee Involvement. Satisfied with his work conditions, an employee may graduate to a higher level
of organizational relationship called employee involvement. He becomes more participative in company
activities and essentially aims to contribute to the growth of the company.

Employee Commitment. This degree of employee relationship is further heightened when the employee
reaches the highest level that is employee commitment. Here, the employee cultivates within himself an
attitude and a “sense of owning” when he treats the interests and welfare of the enterprise as if he owns
it.

Facilities and Equipment

Another important component of the organizational environment is the facilities and equipment.
These facilities and equipmentmay be simple and crude as they are functioning and producing the
desired output. On the other hand, organizations with sufficient capitalization, use the most
sophisticated and the latest machinery and facilities, and application of technology. Management of
buildings and site maintenance needs to be appropriate for the type o business the organization is
engaged in. Physical structures have to be maintained properly, secured for safety, and optimized when it
comes to layouts.Management of machinery means making sure that the right types of equipment or
machinery are in place and including the right quantities as needed by the organization.Management of
facilities means that amenities such as washrooms and canteens need to be in good and healthy working
conditions as thase are important to the workforce

Application of technology has become the unifying force in facilities and equipment management.
Technology asset management refers to the business processes and enabling information systems that
support the management of both physical and non-physical assets of the organization

.Financial Resources
In addition to facilities and equipment, organizations need sufficient financial resources. The
financial resources of the organization determine the direction the organization will take and affect.
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