Offensive and Defensive Strategies
Offensive and defensive strategies are by products or results of the corporate strategies. A corporate strategy is a comprehensive set of activities developed by top management to aid an organization achieve its corporate objectives. Involving all parts of an organization, these strategies consider both internal and external environments.
As the name suggests these strategies are aimed at placing the organization in a ‘attack mode’ of sorts. Organizations employing such strategies generally believe in acting before their opponent. Such strategies are usually achieved through internal growth, though some like mergers and acquisition, etc are external.
Concentration on a single product or service
The firm chooses to specialize in a single product, product line, or service. It plans to do one thing with great effectiveness and efficiency. This specialization allows an organization to do whatever it does extremely well, perhaps even better than other organizations. Used mostly by small organizations, it reduces the amount of resources required and as such is a low risk strategy. However, it ties up all of the firm’s resources on a single product, service, or product line. The firm’s success and growth is dependent entirely on that particular product with nothing to fall back on were that product to fail. Also, coupled with the facts that this strategy limits an organization’s growth and opportunities, it can be considered a high-risk strategy as well. E.g. a company deciding to specialize only in the production and distribution of a particular brand of chocolate will find their chances for growth and profits tied inexorably with the market acceptance of that chocolate. Failure of the product will spell doom for the company.
Despite these pitfalls, the concentration strategy has nevertheless borne fruit for organizations like Holiday Inns. Considered one of the largest hotel chains in the world with 1800inns, Holiday Inns have achieved unparalleled success by focusing on the hospitality industry.
Put plainly concentric diversification is said to be when a firm originally concentrating on one specific product, service, or product line decides to add related products or services to its already existing retinue. These new products or services are added internally (i.e. it can be a management decision) or may be acquired through acquisitions. A good example is Cadbury. Though initially focusing on biscuits, the company today has an impressive line-up that includes not only biscuits, but also chocolates and ice cream as well.
One of the major reasons why companies choose to follow such a strategy is the potential for faster growth, and the lure of establishing a diverse if related product line. This ensures that if one product were to fail, there would still be something to fall back on.
Vertical integration occurs when one firm acquires another that is involved either in an earlier stage of the production process (backward integration) or a later stage of the production process (forward integration). The firm that is acquired usually follows the same line of business as that of the parent company. While backward integration will give the firm more control over the quality and quantity of its raw materials, forward integration will ensure that the firm’s products will enjoy a good demand.
This occurs when a firm decides to branch out and add products or services that are unrelated to its existing products and services. Conglomerate diversification can occur through acquisitions or it may be based on management decisions. The purpose in employing such a strategy is to increase sales and earnings, spread risks, or in the case of acquisitions simply to make an attractive investment.
Merger or acquisition
A merger involves combining the operations of two companies to form a new and unified organization. Acquisitions on the other hand is the taking over of another firm but allowing the acquired firm to function as a independent division or subsidiary of the acquiring firm. The main aim of this strategy is to achieve growth both in sales and earnings, which it does more quickly than any internal strategies.
An accurate example would be the recent merger of carmakers Chrysler and Mercedes Benz. An example of acquisition would be BMW’s takeover of Rolls Royce.
Joint venture is when two or more firms combine resources to accomplish a task that an individual firm could not have done alone, or to do a job more efficiently. Considered as a means to implement a strategy rather than a strategy, joint ventures offer a way for organizations to undertake projects and spread any risks as well as operate more efficiently. General Motor’s collaboration with Toyota is an example of a joint venture.
Reducing the scope of operations or activities to improve effectiveness and efficiency is retrenchment. Organizations adopting such a strategy generally believe that making the organization more effective and efficient will give it a better chance to return to a higher level of profitability. In some cases a firm may simply cut costs, reduce personnel, etc, but will decide to maintain all its current line of business, whereas, in extreme cases a firm may decide to get rid of certain product lines or services.
Divestment is when a firm spins off or sells segments of its operations. The main reasons for such a situation to arise are: a firm may have acquired another firm that either interferes or does not contribute to its current organization mission, a segment may not be functioning satisfactorily enough to justify the resources invested in it, or the segment might be earning a profit but the management decides its resources are better utilized elsewhere.
Stopping the decline in a firm’s performance and bringing a return to successful performance involves turnaround. It combines a defensive strategy (retrenchment or divestment) with a growth strategy. The turnaround of Chrysler Corporation in early 1980’s from a failing enterprise to a successful one is a good example.
Usually a last resort strategy, it involves selling or disposing of the organization assets. The entire organization or only part of it may be sold. It occurs when turnaround was a failure or may not have been viable. Undertaken mainly to provide the stockholders a return on their investment, it is one of the most unpleasant strategies.
The various offensive and defensive strategies are not separate, and are used in complement with one another. Most firms employ a variation or a mixture of the various strategies. The only important factor is deciding which strategy will better suit the conditions presently being faced by the firm.