LESSON 4 – SM 1

Types of Strategies
The model illustrated in figure 2-1 provides a conceptual basis for applying strategic
management. Defined and exemplified in Table 2-1, alternative strategies that an enterprise
could pursue can be categorized into thirteen actions: forward integration, backward integration,
horizontal integration, market penetration, market development, product development,
concentric diversification, conglomerate diversification, horizontal diversification, joint venture,
retrenchment, divestiture, liquidation, and a combination strategy. Each alternative strategy has
countless variations. For example, market penetration can include adding salespersons,
increasing advertising expenditures, couponing, and using similar actions to increase market
share in a given geographic area.

1. Integration Strategies

Forward integration, backward integration, and horizontal integration are sometimes

collectively referred to as vertical integration strategies. Vertical integration strategies allow
a firm to gain control over distributors, and/or competitors.

 Forward integration involves gaining ownership or increased control over distributors or

retailers. One company that is betting a large part of its future on forward integration is
Coca Cola. Coke continues to purchase domestic and foreign bottlers. Coke has been
able to improve its acquired bottler’s efficiency in production and distribution. As
indicated in the Information Technology Perspective, Peapod is an example company
using a forward integration strategy by receiving grocery orders online and delivering
goods to consumers’ homes.

An effective means of implementing forward integration is franchising.

Approximately 2,000 companies in about 50 different industries in the United States use
franchising to distribute their products and services. Businesses can expand rapidly by
franchising because costs and opportunities are spread among many individuals. Total
sales by franchises in the United States are about $1 trillion annually.

 Backward Integration is a strategy of seeking ownership or increased control of a firm’s

suppliers. They strategy can be especially appropriate when a firm’s current suppliers
are unreliable, too costly, or cannot meet the firm’s needs.

More and more, consumers are buying products according to environmental

considerations, which include recyclability of the packages. Some firms are thus using
backward integration to gain control over suppliers of packages. Aluminum is still the
most recyclable package, having a scrap value of $650 per ton versus plastic’s $200,
steel’s $60, glass’s $50, and paperboard’s $30. Aluminum is recycled at a current rate
of 64 percent, compared to steel at 25 percent, plastic at 15 percent, glass at 25 percent,
and paperboard at 25 percent. Coca-Cola Company and PepsiCo are currently
experimenting with bottles made completely from other recycled bottles.

Some industries in the United States (such as the automotive and aluminum
industries) are reducing their historical pursuit of backward integration. Instead of
owning their suppliers, companies negotiate with several outside suppliers. Ford and
Chrysler by over half of their components parts outside suppliers such as TRW, Eaton,
General electric, and Johnson Controls. Deintegration makes sense in industries that
have global sources of supply. Outsourcing, whereby companies use outside suppliers,
shop around, play one seller against another, and go with the best deal, is becoming
widely practiced.

Global competition is also spurring firms to reduce their number of suppliers and
to demand higher levels of service and quality from those they keep. For example,
Motorola recently reduced its number of suppliers from 10,000 to 3,000. Xerox cut its
suppliers from 5.,000 to 500, Digital Equipment cut from 9,000 to 3,000, General Motors
from 10,000 to 5,500, and Texas Instruments from 22,000 to 14,000. Although
traditionally relying on many suppliers to ensure uninterrupted supplies and low prices,
American firms are now following the lead of Japanese firms, who have far fewer
suppliers and closer, long-term relationships with those few. “Keeping track of so many
suppliers is onerous,” says Mark Shimelonis of Xerox.
2. Intensive Strategies

Market penetration, market development, and product development are sometimes

referred to as “intensive strategies” they require intensive efforts to improve a firm’s
competitive position with existing products.

 A market penetration strategy seeks to increase market share for present products and
services in present markets through greater marketing efforts. This strategy is widely
used alone and in combination with other strategies. Market penetration includes
increasing the number of salespersons, increasing advertising expenditures, offering
extensive sales promotion items, or increasing publicity efforts. Procter & Gamble is an
example of this, spending heavily on advertising to increase market share of Venezia, its
upscale perfume. Its advertising campaign includes full-page ads with scent strips in
glossy magazines. Microsoft’s multimillion dollar advertising campaign to promote the
new Window 95 software is another example.

 Market development involves introducing present products or services into new

geographic areas. The climate for international market development is becoming more
and more favorable, as illustrated in the Global Perspective. In many industries such as
airlines, it is going to be hard to maintain a competitive edge by staying close to home.

Wal-Mart is an example firm that aggressively pursued a market development

strategy throughout the 1980s and 1990s. Finally, with the opening of its store in
Bennington, Vermont in 1995, Wal-Mart could say it operated stores in all 50 states.
The Wal-Mart in Bennington is located in a small downtown store rather than a huge
suburb store, a concession to many local small businesspeople who vehemently
opposed Wal-Mart expanding into Vermont.

 Product development is a strategy that seeks increased sales by improving or

modifying present products and services. Product development usually entails large
research and development expenditures. An example firm betting on its future on a
product development strategy is FastShip Atlantic, which in 1998 plans to introduce the
first transatlantic seagoing jet-powered freighter. This freighter will travel 38 knots in
rough seas rather than 21 knots, which is normal for large cargo ships today. CEO
David Giles says, “This ship is going to do for the movement of things exactly what the
Boeing 707 did for the movement of people.”

Large expenditures in product development are a major reason why automotive

and computer firms, such as General Motors, Ford, IBM, and Apple, do not own their
distributors or dealers. Tandy is the only computer company that owns its distributors,
which are Radio Shack stores. By the year 2000, GM plans to launch new car models
monthly. The end of the fall new-car season is almost here.

3. Diversification Strategies

There are three general types of diversification strategies: concentric, horizontal, and
conglomerate. Overall, diversification strategies are becoming less and less popular as
organizations are finding it more difficult to manage diverse business activities. In the 1960s
and 1970s, the trend was to diversify so as not to be dependent on any single industry, but
the 1980s saw a general reversal of that thinking. Diversification is now on the retreat.
Michael Porter of the Harvard Business School says, “Management found they couldn’t
manage the beast.” Hence, businesses are selling, or closing, less profitable divisions in
order to focus on core businesses.

Peters and Waterman’s advice to firms is to “stick to the knitting” and not to stray too
far from the firm’s basic areas of competence. However, diversification is still an appropriate
and successful strategy sometimes. For example, Philip Morris derives 60 percent of its
profits from sales of Marlboro cigarettes. Hamish Maxwell, Philip Morris’ CEO, says, “We
want to become a consumer-products company.” Diversification makes sense for Philip
Morris because cigarette consumption is declining, product liability suits are a risk, and
some investors reject tobacco stocks on principle. In a diversification move Philip Morris
spent $12.9 billion in a hostile takeover of Kraft General Foods, the world’s second-largest
food producer behind Nestle.

 Adding a new, but related, products or services is widely called concentric

diversification. An example of this strategy is the recent entry of Bell Atlantic
 Corporation, a telephone company, into the video programing business. The cable
industry had lobbied heavily against allowing telephone companies to sell programming.

MCI is an example company pursuing a concentric diversification conglomerate

selling everything from consuming services to paging, software, internet access, and
cellular communications. CEO Bert Roberts, Jr. plans for half of MCI’s revenues in the
year 2000 to come from products that the company does not sell in 1995. Investors are
not excited about MCI’s strategy as evidenced by the firm’s stock price falling 16 percent
between 1993 and 1995 when the S&P 500 Index rose 27 percent.

 Adding new, unrelated products or services for present customers is called horizontal
diversification. This strategy is not as risky as conglomerate diversification, because a
firm should already be familiar with its present customers. For example, Motorola
recently entered the cordless phone market by introducing a flip-top, 7.5-ounce cordless
phone to be sold initially only through Sears Roebuck. AT&T dominates the $700 million
US cordless market with a 48-percent market share, followed by Panasonic with a 10-
percent share and Sony with 8 percent. Motorola is producing the new phones in its
Grayslake, Illinois, factory.

Another example of horizontal diversification is the 1995 Converse, Inc.

acquisition of Apex One, Inc. Apex was a leading maker of specialty sports apparel for
professional athletes, and Converse is the tennis shoe producer. Converse saw Apex
as a cheap way to enter the apparel business and pick up valuable sponsorships. But
the strategy failed for Converse, which, after owning Apex for only three months and
being unable to solve their severe marketing and production problems, liquidated Apex
and took a $41.6 million pre-tax loss on the initial
investment.

 Adding anew, unrelated products or services is called conglomerate diversification.

Some firms pursue conglomerate diversification based in part on an expectation of
profits from breaking up acquired firms and selling divisions piecemeal. Richard West,
dean of New York University’s School of Business, says, “The stock market is rewarding
deconglomerations, saying company assets are worth more separately than together.
There is a kind of anti-synergy, the whole being worth less than the parts.”

Of the seven regional companies created by the breakup of AT&T, U.S. West
has pursued the most risky diversification strategy. U.S. Qwest, a telecommunications
firm, now owns operations in industries such as cable TV, equipment financing,
advertising services, real estate development, cellular telephones, and publishing.
Based in Denver, U.S. West recently purchased Financial Security Assurance for $345
million, further diversifying into financial services.

General electric is an example of a firm that is highly diversified. GE makes

locomotives, light bulbs, power plants, and refrigerators; GE manages more credit cards
than American Express; GE owns more commercial aircraft than American Airlines.

4. Defensive Strategies

In addition to integrative, intensive, and diversification strategies, organizations could

also pursue joint venture, retrenchment, divestiture, or liquidation.

 Joint venture is a popular strategy that occurs when two or more companies form a
temporary partnership or consortium for the purpose of capitalizing on some opportunity.
This strategy can be considered defensive only because the firm is not undertaking the
project alone. Often, the two or more sponsoring firms form a separate organization and
have shared equity ownership in the new entity. Other types of cooperative
arrangements include research and development partnerships, cross-distribution
agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-
bidding consortia.

Joint ventures and cooperative arrangements are being used increasingly

because they allow companies to improve communications and networking, to globalize
operations, and to minimize risk. Kathryn Rudie Harrigan, professor of strategic
management at Columbia University, summarizes the trend toward increased joint
venturing:
 “In today’s global business environment of scarce resources, rapid rates of technological
change, and rising capital requirements, the important question is no longer, “Shall we form a joint
venture?” Now the question is, “Which joint ventures and cooperative arrangements are most
appropriate for our needs and expectations?” followed by, “How do we manage these ventures
most effectively?”

Cooperative agreements even between competitors are becoming popular. For

example, Canon supplies photocopies to Kodak, France’s Thomson and Japan’s FVC
manufacture videocassette recorders, Siemens and Fujitsu work together, and General
Motors and Toyota assemble automobiles. For collaboration between competitors to
succeed, both firms must contribute something distinctive, such as technology,
distribution, basic research, or manufacturing capacity. But a major risk is that
unintended transfers of important skills or technology may occur at organizational levels
below where the deal was signed. Information not covered in the formal agreement
often gets traded in day-to-day interactions and dealings of engineer, marketers, and
product developers. American firms often give away too much information to foreign
firms when operating under cooperative agreements. Tighter formal agreements are
needed, and Western companies must become better learners since leadership in many
industries ha shifted to the Far East and Europe.

 Retrenchment occurs when an organization regroups through cost and asset reduction
to reverse declining sales and profits. Sometimes called a turnaround or
reorganizational strategy, retrenchment is designed to fortify an organization’s basic
distinctive competence. During retrenchment, strategists work with limited resources
and face pressure from shareholders, employees, and the media. Retrenchment can
entail selling off land and buildings to raise needed cash, pruning product lines, closing
marginal businesses, closing obsolete factories, automating processes, reducing the
number of employees, and instituting expense control systems.

In some cases, bankruptcy can be an effective type if retrenchment strategy.

Bankruptcy can allow a firm to avoid major debt obligations and to avoid union contracts.
There are five major types of bankruptcy:

 Chapter 7 bankruptcy – is a liquidation procedure used only when a corporation sees no

hope of being able to operate successfully or to obtain the necessary creditor
agreement. All the organization’s assets are sold in parts for their tangible worth.

 Chapter 9 bankruptcy – applies to municipalities. The most recent municipality

successfully declaring bankruptcy is Bridgeport, the largest city in Connecticut. Some
states do not allow municipalities to declare bankruptcy.

 Chapter 11 bankruptcy – allows organizations to reorganize and come back after filing
for a petition for protection. Declaring Chapter 11 bankruptcy allowed the Manville
Corporation and Continental Products to gain protection from liability suits filed over their
manufacture of asbestos products. Million-dollar judgments against these companies
would have required liquidation, so bankruptcy was a good strategy for these two firms.
Similarly, Wang Laboratories recently emerged from Chapter 11 with one of the
strongest balance sheets in the computer industry.

 Chapter 12 bankruptcy – was created by the Family Farmer Bankruptcy Act of 1986.
This law became effective in 1987 and provides special relief to family farmers with debt
equal to or less than $1.5 million.

 Chapter 13 bankruptcy – is a reorganization plan similar to Chapter 11 but available only

to small businesses owned by individuals with unsecured debts of less than $100,000
and secured debts of less than $350,000. The Chapter 13 debtor is allowed to operate
the business while a plan is being developed to provide for the successful operation of
the business in the future.

 Divestiture is selling a division or part of an organization. Divestiture is often used to

raise capital for further strategic acquisitions or investments. Divestiture can be part of
an overall retrenchment strategy to rid an organization of businesses that are
unprofitable, that require too much capital, or that do not fit well with the firm’s other
activities.

Divestiture has become a very popular strategy as firms try to focus on their core
strengths, lessening their level of diversification. In 1994, U.S. companies completed
divestitures worth a record $22.6 billion. During the first half of 1995, more divestitures
with a market value of $16.7 billion were closed and additional deals worth $18 billion
 were pending. In 1994 shares of spun-off companies appreciated an average of 20.2
percent in their first year, compared with the S&P’s rise of 1.5 percent. Brian Finn, co-
head of mergers and acquisitions at First Boston Inc. says “divestitures are the last great
opportunity for companies to dispose of a business tax-tree.” Divestiture to shareholders
is tax-free to both investors and the company; this is not true of divestiture to an
individual or a company. Lee Hillman says, “the day of the conglomerate is a thing of
the past.”

 Liquidation is selling all of a company’s assets, in parts, for their tangible worth.
Liquidation is a recognition of defeat and consequently can be an emotionally difficult
strategy. However, it may be better to cease operating than to continue losing large
sums of money. Container-shipping pioneer Malcolm P. McLean liquidated Mclean
Industries, the 115-year old shipping company. Reorganization under Chapter 11
bankruptcy had failed. Based in Charlotte, North Carolina, the company was 85-percent
owned by Mr. McLean.

 Combination. Many, if not most, organizations pursue a combination of two or more

strategies simultaneously, but a combination strategy can be exceptionally risky if
carried too far. No organization can afford to pursue all the strategies that might benefit
the firm. Difficult decisions must be made. Priorities must be established.
Organizations, like individuals, have limited resources. Both organizations and
individuals must choose among alternative strategies and avoid excessive indebtedness.

Organizations cannot do too many things well because resources and talents get
spread thin with competitors gain advantage. In large diversified companies, a
combination strategy is commonly employed when different divisions pursue different
strategies. Also, organizations struggling to survive may employ a combination of
several defensive strategies, such as divestiture, liquidation, and retrenchment,
simultaneously.

INFORMATION TECHNOLOGY – Do you do online grocery shopping?

More than 10,000 households in Chicago, San Francisco, and Boston today do their grocery shopping
online from home. Peapod, with annual sales over $20 million, provides online grocery shopping through a network
of 4450 employees who fill orders and deliver goods to homes. Time is money, and online grocery shopping can
save a lot of time. Peapod’s cost is $29.95 start-up fee, $4.95 monthly service fee, and 5% of the grocery order. In
return Peapod takes your order by computer, shops for the best prices, and delivers your groceries exactly when you
desire delivery.
About 75% of Peapod’s customers are women, in contrast to most competitors, 75% of whose online
shoppers are men. Peapod’s system allows grocery items to be chosen from menus organized by broad category
(drinks), narrow category (beer), or brand name (Coors). Items can be sorted by cost per ounce or by what’s on sale
to figure out the best buys. This saves consumers money. Shoppers can also add comments, such as “I want green
bananas.” Shoppers see a running tally of their order. Peapod takes coupons, credit cards, checks or online
payments. Online grocery buying reduces impulse buying, thus saving customers money.
Microsoft Chairman Bill Gates predicts that one-third of all grocery sales in the United States will be
purchased electronically by the year 2005. This is an expected huge shift in the &400 billion US grocery business,
where only 1% of groceries are now bought from home, and that mostly by phone rather than computer. Strategic
implications of this trend are immense for food wholesalers and retailers.

Source: Adapted from Susan Chandler, “The Grocery Cart in your PC,” Business Week, (September 11, 1995); 63-
64.

TABLE 2-1 Alternative Strategies Defined and Exemplified

STRATEGY DEFINITION EXAMPLE

Forward Integration Gaining ownership or increased Slot-machine maker Alliance

control over distributors or Gaming buys casino operator
retailers Bally Gaming.

Backward Integration Seeking ownership or increased Mottel-8 acquires a furniture

control of a firm’s supplier manufacturer.

Horizontal Integration Seeking ownership or increased First Union Bank acquires First
 control over competitors Fidelity Bancorp.

Market Penetration Seeking increased market share Johnson Insurance doubles its
for present products or services number of agents in Mexico.
in present markets through
greater marketing efforts

Market Development Introducing present products or Wal-Mart expands into Europe.

services into new geographic
area

Product Development Seeking increased sales by Chrysler will soon offer Prowler,
improving present products or a hot-rod-styled sports car.
services or developing new ones

Concentric Diversification Adding new, but related products Gannet, the newspaper
or services producer, acquires Multimedia,
the television and cable
company.

Conglomerate Diversification Adding new, unrelated products Westinghouse Electric acquires

or services CBS entertainment.

Horizontal Diversification Adding new, unrelated products MCI, the phone company, adds
or services for present customers consulting and paging.

Joint Venture Two or more sponsoring firms Ford Motor Company and Song
forming a separate organization Cong Diesel in Vietnam build an
fir cooperative purposes auto assembly plant near Hanoi.

Retrenchment Regrouping through cost and Glaxo Wellman is restructuring

asset reduction to reverse its U.S. operations, cutting 1,000
declining sales and profits jobs.

Divestiture Selling a division or part of an Tenneco sells Case construction

organization Corp.

Liquidation Selling all of a company’s assets, Ribol sells all its assets and
in parts, for their tangible worth ceases business.

Guidelines for Pursuing Strategies

Table 2-3 reveals situations, conditions, and guidelines for when various alternative
strategies are most appropriate to pursue. For example, note that a market development
strategy is generally most appropriate when new channels of distribution are available that are
reliable, inexpensive, and of good quality; when an organization is very successful at what it
does, when new untapped or unsaturated markets exist; when an organization has the needed
capital and human resources to manage expanded operations; when an organization has
excess production capacity; and when an organization’s basic industry is rapidly becoming
global in scope.

TABLE 2-3
Guidelines for Situation When Particular Strategies Are Most Effective

FORWARD INTERGRATION
 When an organization’s present distributors are especially expensive, or unreliable, or incapable
of meeting the firm’s distribution needs
 When the availability of quality distributors is so limited as to offer a competitive advantage to
those firms that integrate forward
 When an organizations competes in an industry that is growing and is expected to continue to
grow markedly; this is a factor because forward integration reduces an organization’s ability to
diversify if its basic industry falters
 When an organization both has the capital and human resources needed to manage the new
business of distributing its own products
 When the advantages of stable production are particularly high; this is a consideration because
an organization can increase the predictability of the demand for its output through forward
integration
 When present distributors or retailers have high profit margins; this situation suggests what a
company could profitably distribute its own products and price them more competitively by
 integrating forward

BACKWARD INTEGRATION
 When an organization’s present suppliers are especially expensive, or unreliable, or incapable of
meeting the firm’s needs for parts, components, assemblies, or raw materials
 When the number of suppliers is few and the number of competitors is many
 When an organization competes in an industry that is growing rapidly; this is a factor because
integrative-type strategies (forward, backward, and horizontal) reduce an organization’s ability to
diversify in a declining industry
 When an organization has both the capital and human resources needed to manage the new
business of supplying its own new materials
 When the advantages of stable prices are particularly important; this is a factor because an
organization can stabilize the cost of its raw materials and the associated price of its product
through backward integration
 When present suppliers have higher profit margins, which suggests that the business of supplying
products or services in the given industry is a worthwhile venture
 When an organization needs to acquire a needed resource quickly

HORIZONTAL INTEGRATION
 When an organization can gain monopolistic characteristics in a particular area or region without
being challenged by the government for “tending substantially” to reduce competition
 When an organization competes in a growing industry
 When increased economies of scale provide major competitive advantages
 When an organization has both the capital and human talent needed to successfully manage an
expanded organization
 When competitors are faltering due to a lack of management expertise or a need for particular
resources that your organization possesses; note that horizontal integration would not be
appropriate if competitors re doing poorly because overall industry sales are declining

MARKET PENETRATION
 When current markets are not saturated with your particular product or service
 When the usage rate of present customers could be significantly increased
 When the market shares of major competitors have been declining while total industry sales have
been increasing
 When the correlation between sales and marketing expenditures has historically been high
 When increased economies of scale provide major competitive advantage

MARKET DEVELOPMENT
 When new channels of distribution are available that are reliable, inexpensive, and of good quality
 When an organization is very successful at what it does
 when the new untapped or saturated markets exist
 when an organization has the needed capital and human resources to manage expanded
operations
 when an organization has excess production capacity
 when an organization’s basic industry is rapidly becoming global in scope

PRODUCT DEVELOPMENT
 When an organization has successful products that are in the maturity stage of the product life
cycle; the idea here is to attract satisfied customers to try new (improved) products as a result of
their positive experience with the organization’s present products and services
 When an organization competes in an industry that is characterized by rapid global developments
 When major competitors offer better quality products at comparable prices
 When an organization competes in a high-growth industry
 When an organization has especially strong research and development capabilities

CONCENTRIC DIVERSIFICATION
 When an organization competes in a no-growth or a slow-growth industry
 When adding new, but related, products would significantly enhance the sales of current products
 When new, but related, products could be offered at highly competitive prices
 When an organization’s products are currently in the decline stage of the product life cycle
 When an organization has a strong management team

CONGLOMERATE DIVERSIFICATION
 When an organization’s basic industry is experiencing declining annual sales and profits
 When an organization has the capital and managerial talent needed to compete successfully in a
new industry
 When an organization has the opportunity to purchase an unrelated business that is an attractive
investment opportunity
 When there exists financial synergy between the acquired and acquiring firm ; note that a key
difference between concentric and conglomerate diversification is that the former should be
based on some commodity in markets, products, or technology, whereas the latter should be
 based more on profit considerations
 When existing markets for an organization’s present products are saturated
 When antitrust action could be charged against an organization that has historically concentrated
i=on a single industry

HORIZONTAL DIVERSIFICATION
 When revenues derived from an organization’s current products or services would significantly
increase by adding the new, unrelated products
 When an organization competes in a highly competitive and/or a no-growth industry, as indicated
by low industry profit margins and returns
 When an organization’s present channels of distribution can be used to market the new products
to current customers
 When the new products have countercyclical sales pattern compared to an organization’s current
products

JOINT VENTURE
 When a privately owned organization is forming a joint venture with a publicly owned
organization; there are some advantages of being privately held, such as the ownership; there
are some advantages of being publicly held, such as access to stock issuances as a source of
capital. Sometimes, the unique advantages of being privately and publicly held van be
synergistically combined in a joint venture
 When a domestic organization is forming a joint venture with a foreign company; joint venture can
provide a domestic company with the opportunity for obtaining local management in a foreign
country, thereby reducing risks such as expropriation and harassment by hos country officials
 When the distinctive competencies of two or more firms complement each other especially well
 When some project is potentially very profitable, but requires overwhelming resource and risks;
the Alaskan pipeline is an example
 When two or more smaller firms have trouble with a large firm
 When there exists a need to introduce a new technology quickly

RETRENCHMENT
 When an organizations has a clearly distinctive competence, but has failed to meet its objectives
and goals consistently over time
 When an organization is one of the weaker competitors in a given industry
 When an organization is plagued by inefficiency, low profitability, poor employee morale, and
pressure from stockholders to improve performance
 When an organization has failed to capitalize on external opportunities, minimize external threats,
take advantage of internal strengths, and overcome internal weaknesses over time; that is, when
the organization’s strategic managers have failed (and possibly been replaced by more
competent individuals)
 When an organization has grown so large so quickly that major internal reorganization is needed

DIVESTITURE
 When an organization has pursued a retrenchment strategy and it failed to accomplish needed
improvements
 When a division needs more resources to be competitive than the company can provide
 When a division is responsible for an organization’s overall poor performance
 When a division is a misfit with the rest of an organization; this can result from radically different
market, customers, managers, employees, values, and needs
 When a large amount of cash is needed quickly and cannot be reasonably obtained from other
sources
 When government antitrust action threatens an organization

LIQUIDATION
 When an organization has pursued both a retrenchment strategy and a divestiture strategy, and
neither has been successful
 When an organization’s only alternative is bankruptcy; liquidation represents an orderly and
planned means of obtaining the greatest possible cash for an organization’s assets. A company
can legally declare bankruptcy first and then liquidate various divisions to raise needed capital
 When the stockholders of a firm can minimize their losses by selling the organization’s assets

Source: Adapted from F. R. David, “How Do We Choose Among Alternative Growth

Strategies?” Managerial Planning 33, no. 4 (January-February 1985): 14-17, 22.