Defining the Scope of the Firm

The range of products and markets a company wants to compete in. It includes the set of businesses and how they are connected.

The functions, customer groups, and technologies a firm uses to operate.

The number of functions, customer groups, or technologies a firm uses. It determines the breadth of a business's operations.

The various ways a company tailors its products and strategies to different customer groups.

The ability of a firm to meet the diverse needs of customers using different functions, customer groups, and technologies.

The degree to which a firm treats various segments differently based on functions, customer groups, and technologies.

A firm may choose to homogenize (same for all) or customize its offering based on the needs of its target customers.

Offering multiple products to address various needs by using different technologies from different industries.

A growth strategy focusing on selling more of existing products to current or new customers within the same market. It implies no change to the firm's product or market scope.

Using marketing tactics like advertising, promotions, or price reductions to increase sales volume.

Targeting current customers to buy more frequently or in larger quantities. This could involve incentives or product upgrades.

Targeting new customers who haven't used your product yet.

Using a company's competitive advantage, like lower prices or unique product features, to gain market share.

A growth strategy where existing products are modified or improved, but the target market remains the same.

Product development aims to enhance existing products to cater to the same customer base, maintaining the firm's market focus.

Risks of Market Penetration include dependence on market conditions, potential obsolescence of products, and a lack of diversification.

The company expands into new markets with new products, but these new activities are not related to the company's existing ones. This strategy involves a greater break from the current situation.

A strategic move where a company expands into new markets and products, aiming to utilize existing resources and expertise from its core business. This expansion can involve sharing distribution channels, technologies, or customer bases.

The benefits gained by combining two or more businesses, resulting in a greater overall value than the sum of individual parts. For example, shared resources, marketing efforts, or distribution networks can lead to cost savings or increased efficiency.

A type of related diversification where new businesses share a core competence or key asset with the dominant business. This allows for resource sharing and leveraging strengths within the core area.

A form of related diversification where each new business is connected to at least one other business, but not necessarily to a core competence. This allows for more flexibility in choosing new ventures, while still leveraging existing assets.

Developing new products that offer improved features or functions while serving the same purpose as existing products, targeting the same customer segment.

Expanding the range of a core product by offering different versions or formats to cater to diverse customer preferences and needs. The basic function remains the same.

Introducing a company's existing products to new markets, leveraging its existing technology and production capabilities to reach a wider audience.

Targeting new customer segments within the same industry, seeking to appeal to individuals with similar needs and preferences as the existing customer base.

Finding new ways to use an existing product, adapting it to different applications beyond its original purpose.

A business strategy focused on continuous innovation and product improvement, especially relevant in dynamic and competitive industries with short product lifecycles.

The expense of developing and launching new products, not always guaranteeing immediate success, hence the need for new products to align with the company's core strengths.

The ability to continually innovate and improve products requires significant resources and expertise in research and development, a key factor in achieving success with a product development strategy.

A company expands into new markets and introduces new products simultaneously, signifying growth and altering its scope.

A company expands its operations to control the entire production and distribution chain of its core product, becoming its own supplier or customer.

A company expands into activities that are upstream from its core product, focusing on its own sourcing of materials or components.

A company expands into activities that are downstream from its core product, focusing on directly reaching customers or distribution.

A company revises its portfolio by closing or restructuring existing businesses, potentially leading to a smaller or modified scope.

A company expands or exploits its traditional products and markets, focusing on growth within its existing area of expertise.

The larger and more specialized the investments needed for vertical integration, the greater the resulting rigidity. An integrated firm that isolates itself in the market reduces its innovative drive due to lack of interaction with suppliers or external customer situations, possibly leading to a competitive disadvantage.

When vertical integration replaces suppliers or customers, the integrated firm doesn't automatically inherit their profit margins. They must develop the same efficiency in the replaced functions to capture those margins.

Even if an integrated firm captures all the margins, it has to consider the investments (cost of setting up structures, managing operations) which can negatively impact overall performance.

Differences in the optimal scale of production stages can create challenges. When a firm's self-sufficiency in an earlier stage falls short of the volume needed for efficiency in the next stage, it's a dilemma: produce less and suffer cost disadvantages or sell excess output to competitors, losing control.

Vertical integration increases organizational complexity, requiring sophisticated planning, coordination, and control systems, which adds further costs.

Vertical integration, while tempting, has risks like a mismatch between the firm's capabilities and the demands of the integrated stages, leading to inefficiencies. Firms need to assess these risks and consider alternatives like strategic alliances to achieve the same benefits without the downsides.

Restructuring means a company modifies its business scope by potentially withdrawing from at least one business. This could be part of a broader overhaul (with or without portfolio restructuring).

There's no direct link between the degree of vertical integration and the level of risk or economic performance. It's more complex than just doing everything yourself.