To minimize risk by spreading it over several businesses It may be used to

To minimize risk by spreading it over several

This preview shows page 15 - 18 out of 24 pages.

To minimize risk by spreading it over several businesses It may be used to capitalize on its capabilities – so as to maximize organizational strengths or minimize weaknesses if growth in existing businesses is blocked due to environmental and regulatory factors- then going for diversification. Risks of Diversification Diversification, especially unrelated, is a complex strategy to formulate and implement Diversification strategies demand a wide variety of skills Diversification results in decreasing commitment to a single or few businesses and diverting it into several of them at the same time Diversification often does not result in the promised rewards Diversification increase the administrative cost of managing, integrating and controlling a wide portfolio business. --- DEFENSIVE STRATEGIES
Image of page 15
The purpose of a defensive strategy is to protect a preexisting competitive advantage. The goal of a firm using defensive strategies is to maintain a current position and to keep away threats from other businesses. The defensive strategy is not to make progress put to simply maintain the status quo. Approaches There are two approaches to defensive strategies. The first approach is to actively block competitors who attempt an attack on the firm's market share. For example, if a firm faces a new entrant to the market, it could take them on directly by cutting prices in order to drive them out. The second approach is to simply make it known that any attack on the business will be met with a strong counterattack, for instance by making announcements about product developments. Benefits The major benefit of a defensive strategy is that it is considerably less risky than an offensive strategy and requires fewer resources. A defensive strategy can help a firm to dominate its existing market and to maintain its current success. Drawbacks The single largest drawback of a defensive strategy is that it does not allow for development. A company that uses only defensive strategies may be able to hang on to its current position and present competitive advantage, but it is unable to grow beyond that stage. Defensive Tactics According to Porter, defensive tactics aim to lower the probability of attack, divert attacks to less threatening areas or reduce the intensity of attack.
Image of page 16
a) Rise Structural barriers: - 1. Offer a full line of product in every profitable market segment to close off any entry points 2. Channel access by signing exclusive agreement with distributors 3. Raise buyer switching costs by offering low-cost training to users 4. Raise the cost gaining trial users by keeping price low 5. Increase scale economies to reduce unit costs 6. Limit outside access to facilities and personnel 7. Tie up suppliers by obtaining exclusive contracts or purchasing key location 8. Avoid suppliers those who are serving competitors 9. Encourage the government to raise barriers b) Increased Expected Retaliation For example, Management may strongly defend any erosion of market share by drastically cutting prices c) Lower the inducement for attack
Image of page 17
Image of page 18

You've reached the end of your free preview.

Want to read all 24 pages?

  • Fall '18
  • Management, Strategies, Horizontal integration, customer functions

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture