Relationship Between Strategy And Integration Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

In this essay we have discussed about the relationship between strategy and integration of the organisation, and how technology and a scientific approach to forecasting innovation and technological can contribute to the growth within the industry or a company.

There are two types of integration of the company one is called horizontal and second one called vertical integration. Horizontal integration is the expansion of a firm within an industry in which it is already active for the purpose of increasing its share of the market for a particular product or service. While In microeconomics and management, the term vertical integration describes a style of management control. Vertical integration is one method of avoiding the hold-up problem.

As we studied before about the product life cycle which have four stages (entry, growth, maturity and decline), most of the companies always try to increase their product life cycle and in that aspect they always try to introduce some new feature in their product whether it is a consumer product or a software they all have to make some advancement and changes which results in the satisfaction by the customers.

Vertical integration refers to a firm's ownership of vertically related activities. The greater the firm's ownership and control over successive stages of the value chain for its product, the greater its degree of vertical integration. The term vertical integration always indicated by the firm's value added to its sales revenue. Highly integrated companies tend to have low expenditures on bought-in goods and services relative to their sales.

Vertical integration can occur in two directions:

Backward integration: where the firm takes ownership and control of producing its own inputs. For example Henry's ford upstream expansion from automobile assembly to production of his own components, back to the production of basic materials including steel and rubber.

Forward integration: where the firm takes ownership and control of its own customers. For example coca-cola acquiring its local bottlers.

Vertical integration may also be full or partial:

Full integration exists between two stages of production, where companies do the first stage of production by themselves and pass it to second stage for sales or purchase where they do not involve the third parties.

Partial integration exists when stages of production are not internally self-sufficient. These companies get the part from the external supplier or they manufacture their parts and sell them to other manufacturers.

Horizontal integration

In microeconomics and strategic management, the term horizontal integration describes a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets. Horizontal integration in marketing is much more common than vertical integration is in production. Horizontal integration occurs when a firm is being taken over by, or merged with, another firm which is in the same industry and in the same stage of production as the merged firm, e.g. a car manufacturer merging with another car manufacturer. In this case both the companies are in the same stage of production and also in the same industry

Technological change is a term that is used to describe the overall process of invention, innovation and diffusion of technology or processes. The term is redundant with technological development, technological achievement, and technological progress. In essence TC is the invention of a technology (or a process), the continuous process of improving a technology (in which it often becomes cheaper) and its diffusion throughout industry or society. It its earlier days, technological change was illustrated with the 'Linear Model of Innovation', which has now been largely discarded to be replaced with a model of technological change that involves innovation at all stages of research, development, diffusion and use.


Managing technology

This part of the essay is about the relationship between technology and strategic success. It is easy for any organisation to get distracted by technology development without relating to its overall strategy and asking how the creation and sharing of knowledge about the technology will be managed in the organisation. But the answer how to do this technological change in the organisation is difficult as we need to focus on the aspect of this technological change as well. Like if the organisation adopt that new technology then it is not easy to adopt by the competitors in the same market and same industry, because if the competitors will adopt the same technology then the organisation have to choose different strategy for their product with the new invention which make their product different from the competitors.

Technology and the competitive situation

-competitive forces

-technology diffusion


Organising technology

-location and funding

-enabling processes

Technology and strategic capability

-core competence

-developing/acquiring technology

Gerry Johnson, Kevan Scholes, Richard Whittington (2006), Exploring Corporate Strategy, Text and Cases, 7th edition edition page 480

Technology and the competitive situation

As it is mention in the diagram above the relation between strategy and the technology, in the first block the diagram describing the technology and the competitive situation, where some factors involve like barriers to enter for potential new entrants particularly in the global and this should influence how the strategies of individual organisation develop in the future. Also include the relative power of suppliers and buyers, which also can be change with the technology like the Microsoft operating system is necessary in the business and house hold.

Diffusion of innovation

Diffusion is the extent and pace at which a market is likely to adopt new products or the improved performance of the existing product, this may help the organisation to improve the product life cycle as we have discussed in this essay before or it can be negative impact of the product sometime in the market by the customer because some time the customers like the invention or changes in the product and sometime the customers do not accept the changing. And in the part the organisation focus the supply side issues and the demand side issues together.

The organisation also have to focus the degree of improvement in performance like the to replace the television set with the wide screen television, and it also have to compatible with the networks and other factors, and it has to be less complex and to be launch after the complete test. And how easy to get information, place orders and to get the support.

For the demand issues the organisation need to aware their customer about the new technology and to observe the customer that on what basis they will adopt the new technology and how the organisation can spread it to the distributors and what is the benefits for the distributor from this new technology. Also the organisation has to focus their customer type as some of the customers are innovators (the first one to adopt the technology) and the laggard (the last one to adopt the new technology).

The importance of the various factors which the technology strategies (for product/service improvements) can be match to the market conditions in which the new or improved products will need to complete. For example for these new technological changes in the product or services most of the time the managers get the response from the customers and inform that to research and development department. It would start by showing why the improved features might be valued by the customers sufficiently to switch or upgrade the purchase.

A final observation about diffusion is that demand tends not to increase steadily, there might be a very good response by the customer or may be very slow adoption process and in the worst scenario when the development is not according to customer's requirements it might go to take off or to decline the purchase.

Core competences

To identifying the importance of core competences is the basic of an organisation's competitive advantage. Technology itself is easy to copy by the competitors and therefore most of the organisations like to use not usually a unique resource or a core competence, there are of course, exceptions to this where the technological breakthroughs have been carefully patented.

Developing or acquiring technology

Developing or acquiring the technology is an importance decision of an organisation where they can develop the new technology in house or they can acquire externally, and for an organisation this is the key element as it can be successful or it might be the failure of the product.

In-house development may be feasible for an organisation because in that technological development they could be the first in the market which launch the new technology what none of the other organisation in the market introduces before. But for the in-house development of technology need a good knowledge of the product and secondly the organisation is willing to take the financial and commercial risks.

Alliances are likely to be appropriate for 'threshold' technologies rather than ones on which competitive advantage is to be built. In the alliances the prior knowledge and reputation is always low influencing factor while the complexity influence factor is high as the complexity of product or market knowledge is beyond the current knowledge base. the speed is always medium with the organisation risk factor is medium as well.

Acquisition of current players or right may be particularly appropriate if speed is importance and there is no time for learning. In this process prior knowledge and reputation is very low while the complexity is high influencing factor and the speed is always high but the risk low.

The location and funding of technology development

This is very important factor for an organisation that who will be diving the technology development and who will be funding it. The new technology development this can be very important so the duties and responsibilities can be divided in between the department that how they can get the information and the new features asked by the customers or better for the customers. Some time the technological expertise of an organisation might be greater than the current business can exploit - leading to consideration of spin-off of research and development (in whole or in part ) to allow new opportunities to be exploited by the licensing technology o third parties.

Enabling processes

The importance of organisational process in enabling the success of strategies, and this is particularly true in technology development where the real danger is and the new technology can exploited commercially. Scanning the business environment, technology and market developments and spotting the opportunities of gaining advantage and the potential threats of the current business.

Strategic uses of IT-A classification and factors for success

From a research base of over 150 such examples the following classification can be shown to be helpful in considering the implications of strategic IT use. There are four main type of strategic systems appear to be:

Those does that link the organisation via technology based systems to its customers/consumers and/or suppliers.

Those that produce more effective integration of the use of information in the organisation's value added process.

Those that enable the organisation to develop, produce, market and deliver new or enhances products or services based on information.

Those that provide executive management with information to support the development and implementation of technology.

Process of technological innovation

the process of technological innovation has been formalised by Myers and Marquis as a series of stages.

Recognition: its always based on the research by the research department that how the market is changing due to any reason or in any aspect and what strategy they should have to adopt to stay in the market or to get the more market share.

Idea formulation: after finding the research result the organisation need to formulate the idea of getting the attention of their target market.

Problem solving: in the case of losing market share the company have to diagnose the problem and with the new invention or new technological change they have to solve that problem..

Solution: once the organisation find the problem that what factor is effecting their market they need to find the right solution and sort that problem out.

Utilisation and diffusion: is the last process of the technological advancement or to innovate the new technology for an organisation.

New product strategies

Johnson and Jones have classified new product objectives defined in two dimensions:

Increasing the market newness and increasing technological newness. Although this a an old matrix but still provides a very useful framework for analysing innovations and developing suitable marketing strategies.

The choice open to a company may be to involve the following:

No change (sometimes referred to as 'masterly inactivity')

Stay in the same market, but endeavour to improve market share by policy of reformation (product modification) or replacement (product innovation).

Stimulate demand for present products in existing markets by remerchandising, by planned improvements and by widening the line of products.

Identify and expand into new market segments involving, perhaps, product modification and or diversification.

New product development revisited

The new product development process strategy is a flexible and powerful tool for designing and marketing successful new products. It is always necessary for to development new product to get the feedback from the current customers and their needs for make that product better. For that process that product should have to match with the customers, including the target market and always give a high value to the customer, it has to be innovative, also a factor of technical superiority, screened on growth, analysis, Decision support system, favourable competitive environment, fit internal company strength, technology of communication among functions, also needs a top management support, enthusiastic champion, new product organization, use new product process, avoid unnecessary risk, short time to market, it has to be worldwide strategy, to have a good quality and a customer satisfaction.

Reason for failure revisited

Market too small , poor match for the company, its not new or not different from the previous version, and it has not got any real benefits, also poor positioning verses competition, inadequate support from channel of distribution, forecasting errors, poor timing, competitive response, major shifts in technology, changes in customers tastes, changes in environmental constraints, poor repeat purchase or no diffusion of sales, poor after sales service, insufficient return on investment, lack of co-ordination in functions, organizational problems.

Corporate strategy