Directional Strategies

Directional Strategies - Directional Strategies Growth...

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Growth strategies include mergers, acquisitions, and strategic alliance. Mergers are the combining of two firms in which only one of the firms remains. Acquisition is the scenario in which one firm takes over another firm. This can be voluntary or involuntary. Growth strategies are usually considered to be healthy, but can be misleading indicators of the firms general health. For instance, an organization could be in growth mode but be masking a cash flow problem. Organizational slack is a term used to identify amounts of unused resources that could be used to resolve conflicts among divisions and departments (almost all conflict is caused by perceived inequity of resource allocation). If the organization needs to do a turn around strategy to overcome weaknesses, growth mode will provide resource cushions. Finally, growth strategies do provide career growth for employees of the organization. Two specific growth strategies are Concentration and diversification. Concentration consists of strategies aimed at growth within current product lines. This is a strategy to add various aspects of existing production and distribution channels to the organization. Backward integration would be acquiring suppliers and manufacturers of goods. Forward integration would be procuring organizations in the distribution channel for the product or service. As stated in prior notes, vertical integration provides greater economies of scale. The firm acquires control of costs and distribution channels for reduced per unit expenditures and improved levels of product distribution and price. Transaction cost economics is a means for analyzing vertical growth strategies vs. outsourcing strategies. Those are transaction uncertainty, specialized assets, frequent occurrence of transactions between the acquiring firm and the target of acquisition. There are varying levels of vertical integration. Full integration is 100% of all supplies or products are through owned entities. Taper integration is less than half. Quasi integration is partial control of the suppliers or distributors without actually purchasing them. For instance the controlling firm could purchase 20% of the other firm’s stock. Long term contracts are agreements between two firms without actual exchange of ownership. Many companies are moving away from growth and thus vertical integration strategies. In fact companies are downsizing by outsourcing functions Horizontal growth strategies focus on expanding the distribution of products or services to new geographic locations. For instance, KLM purchased controlling stock in Nortwest Airlines to gain access to American and Asian markets. If KLM purchased ground transportation to take its passengers to home destinations, this would be forward vertical
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This note was uploaded on 01/05/2012 for the course 101 melissa jo taught by Professor Acc101 during the Spring '11 term at Aarhus Universitet.

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Directional Strategies - Directional Strategies Growth...

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