Forward and Backward Integrations...

Forward and Backward Integrations Forward and backward integrations are two integration strategies which are adopted by organizations to gain competitive advantages in the market and to gain control over the value chain of the industry under which they are operating. These strategies are one of the major considerations when developing future plans for an organization. Together these two strategies are known as vertical integration.  The process of backward and forward integrations is shown in Fig 1 Fig 1 Process of backward and forward integration Vertical integration is the degree to which the organization owns its upstream suppliers and its downstream buyers for further product processing. Contrary to the horizontal integration, which is a consolidation of many organizations that handle the same part of the production process, vertical integration is typified by one organization engaged in different parts of production (e.g. production of raw materials, manufacturing, transporting, marketing, and/or downstream processing of end products. Vertical integration describes when an organization purchases or starts a company that it either buys from or sells to and integrates this new business into its own. In case of forward integration the organization integrates its businesses toward the end customer while in case of backward integration the organization integrates its activities in the direction away from the customer. Backward integration can be a part of the organizational strategy due to the competitive benefits it provides. Organizations which governs the entire value chain are, however, very rare. Some organizations choose to adopt for forward integration while other organizations opt for backward integration. Also some other organizations continue to operate disintegrated depending on the environment under which these organizations are operating and also depending upon the future strategic planning which these organizations have done for their future operations. Forward integration extends organizational...

Diversification Strategy...

Diversification Strategy A diversification strategy is the strategy that an organization adopts for the development of its business. This strategy involves widening the scope of the organization across different products and market sectors. The strategy is to enter into a new market or industry which the organization is not currently in, whilst also creating a new product for the new market. Diversification strategy is a form of growth strategy which helps the organizational business to grow. It opens up new possibilities for the organization. By adopting this strategy, the organization not only diversifies its products offerings in the target markets but also expands its business horizons. The strategy helps the organization to increase sales volume and revenues while keeping costs to minimum. Diversification is part of the four main growth strategies defined by Igor Ansoff’s Product/Market matrix (Fig 1). The other three strategies in this matrix are market penetration, product development, and market development. Ansoff pointed out that a diversification strategy stands apart from the other three strategies. These other three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires an organization to acquire new skills, new techniques and new facilities. Fig 1 Igor Ansoff’s Product/Market matrix Growth strategies adopted through diversification involve a significant increase in performance objectives beyond past levels of performance. Many organizations pursue one or more types of growth strategies. One of the primary reasons is the view held by many investors that ‘bigger is better’. Growth in sales is often used as a measure of performance based on the assumption that if sales increase, profits will eventually follow. Diversion strategy is associated with higher risks as it requires the organization to take on new experience and...