Seven identifiable strategies that can be used in developing an organization

There are seven strategies that could by used to develop an organization (1):
1.Forward integration defined as gaining ownership or increased control over distributors or retailer.
2.Backward integration defined as seeking ownership or increased control of a firm’s suppliers.
3.Horizontal integration defined as selling ownership or increased control over competitors.
4.Vertical integration defined as either backward or forward integration (or both together).
5.Concentric diversification defined as adding new, but related, products or services.
6.Conglomerate diversification defined as adding new, but unrelated, products or services.
7.Horizontal diversification defined as adding new, unrelated products or services for present customers.
As we can see from these definitions, the developing strategy could be either Integration or Diversification.

In theory, the integration can be total from the raw ore to the distribution of the final products to consumers but diversification is adding something new. Vertical integration is the joiner of two or more successive stages of production. Efficiencies, avoiding government restrictions and to take advantage of monopoly-related conditions are the three categories of reasons why firms adopt vertical integration. Vertical integration is favoured by companies that desire a high level of control over their channels. For example, Sears obtains over 50 percent of the goods it sells from companies that it partly or wholly owns; Sherwin-Williams make paint but also own and operate 2,000 retail outlets (2). Often a business’s sales and profits can be increased through backward integration (acquiring a supplier), forward integration (acquiring a distributor), or horizontal integration (acquiring a competitor).

The aim of integration in this case for expanding firm is to capture these profit but we said previously often. In some cases, the more threat of integration may lead suppliers to reduce their prices for components, or customers to offer more attractive terms. We should understand that if one’s suppliers appear to be earning excessive profits, there is no guarantee that a firm integrate backward will be able to achieve such returns. Control over suppliers “may” reduce costs but over integration can cause the opposite effect (3). One of the most known examples of that is Nissan, before it has been taken over by Renault; backward integration caused the opposite effect to them. The integration by existing suppliers will increase the capital requirement of entry into a market and will put potential entrants at a cost disadvantage. Mergers, acquisitions and joint ventures can be methods used to allow companies to achieve company diversification strategies.

Acquisitions and Mergers are the quickest way for a company to diversify. Growth through diversification can be achieved in two ways, either by internal expansion or externally by acquiring, consolidating with, or merging other firms. A purchase of another business is an acquisition. A sales contract is executed under, which the buyer assumes all or some of the seller's assets and assumes all, some, or none of the seller's liabilities. The sale of the RCA computer division to Sperry-Univac in 1971 was through acquisition. A merger is absorption of one company by another company, including all its assets and liabilities. In 1937, Nash Motors absorbed the Kelvinator Corporation, and changed its name to Nash-Kelvinator Corp. Then, in 1954 , the Nash-Kelvinator Corp., changed its name to American Motors, and merged with the Hudson Motor Car Company (4).

The 1990s witnessed record levels of mergers and acquisitions not only in the U.S. but worldwide. In 1998, there were approximately 9,200 mergers and acquisitions involving U.S. companies. These activities had a value of about 1.3 trillion dollars, representing a 13 percent average annual increase in the number of such individual transactions over the last three years. Joint ventures have become a key method utilized by companies to expand or strategically increase a segment of their business. As a part of this, some companies may want to grow fast and move quickly through mergers, acquisitions and joint ventures, sometimes failing to look at what they are buying or joining into. Records were set both in numbers and in the size of the combinations, such as the Daimler-Chrysler and Exxon-Mobil combinations, and the previous example Nissan- Renault. Despite the popularity of such efforts, varieties of retrospective studies have shown that mergers and acquisitions create shareholder value only in a surprisingly small proportion of the cases (5). HP and Compaq is will know example of these unsuccessful mergers.

As we mentioned before, the integration can be total from the raw ore to the distribution of the final products to consumers but diversification is adding something new. The aim of integration is to capture more profit but control over suppliers or distributors “may” reduce costs but over integration can cause the opposite effect. Yes, Acquisitions and Mergers are the quickest way for a company to diversify but there are some limitations to that. The internal growth will reduce equity position to investor's and it will take the organization time to build additional market share and profit. On the other hand, the external growth as it requires stockholder’s consent it may also require added funds to accommodate acquisition to needs and the integrating acquires firm into operations can be a problem. However, another leading strategist, Igor Ansoff, argued that a company should first ask whether a new product had a “common thread” with its existing products. He defined the common thread as a firm’s “mission” or its commitment to exploit an existing need in the market as a whole. Ansoff noted, “Sometimes the customer is erroneously identified as the common thread of a firm’s business (6). As a result, we should be aware about these type of problems associated with the strategies that could be used for organizational development before we make our development decisions.