Strategy Management Series: Strategy Formulation - Step Six: Strategy Selection

Introduction

• Series Context: Part of the Ready MBA series on Strategy Management.
• Current Focus: Sixth step in the strategy formulation process - Strategy Selection.
• Purpose: To identify and select courses of action for achieving a company's strategic intent, mission, vision, and objectives.

Generic Integration Strategies

• Previous Topics: Covered generic strategies for competitive advantage.
• Current Focus: Integration strategies.

Types of Integration Strategies

1. Vertical Integration

   • Definition: Integration of companies at different stages of the supply or distribution chain.
   • Types:
     • Forward Integration: Moving towards customers (e.g., opening stores).
     • Backward Integration: Moving towards suppliers (e.g., acquiring a wheat farm).

2. Horizontal Integration

   • Definition: Consolidation of companies within the same industry or supply chain stage.
   • Objective: Achieve economies of scale, increase market share, and reduce competition.
   • Example: Mergers or acquisitions of competitors.

3. Conglomerate Integration

   • Definition: Diversification into unrelated industries.
   • Objective: Risk reduction by not relying on a single industry.
   • Example: Diversification into different sectors.

Strategic Considerations

• Conglomerate Integration:

  • When to Use: When diversifying into different industries makes sense.
  • Benefits: Risk reduction, new revenue streams, innovation.
  • Challenges: Complexity, integration difficulties, potential loss of focus.

• Horizontal Integration:

  • When to Use: To expand business by acquiring similar companies.
  • Benefits: Increased market power, economies of scale, synergies.
  • Challenges: Antitrust issues, integration complexities, high costs.

• Vertical Integration:

  • When to Use: To control/improve supply/distribution chains.
  • Forward Integration: Control market, increase profit margins, customer loyalty.
  • Backward Integration: Control supply chain, cost savings, quality assurance.

Real-Life Examples

• Disney: Uses forward integration by operating theme parks.
• Apple: Uses backward integration by producing its own microchips.
• Fiat Chrysler and Peugeot Merger: Example of horizontal integration.
• General Electric (GE): Example of conglomerate integration.

Limitations and Challenges

• Cost and Complexity: High costs and complicated implementation.
• Regulatory Challenges: Potential antitrust issues and market dynamics.
• Business Overextension: Risk of overextending operations.

Conclusion

• Summary: Integration strategies can significantly impact business growth.
• Key Consideration: Choose the right integration strategy and execute carefully.
• Final Advice: Stay strategic, keep growing, and adapt to market changes.

Remember: Strategy formulation requires careful analysis and consideration to effectively position the business for success.