What Are Strategic Options? 12 Examples of Strategic Options

In business, a strategic option refers to a plan or corporate strategy for achieving a long-term goal. Successful businesses follow careful methodologies to devise their strategic options. They start by identifying long-term goals. Next, they take stock of any assets that can lead to value creation. This assessment includes internal resources—including financial, physical, and human resources. It also includes intellectual properties such as brands and patents. Once a company has studied these two considerations—its goals and its assets—it can settle upon strategic options that appear viable and productive.

As business leaders formulate competitive strategies, they call upon many types of strategic options that might further their goals. Here are twelve strategic options to pursue in business:

1. 1. Concentration: When companies employ a concentration strategy, they funnel resources toward particular departments or product lines. To do this, they must simultaneously divert funds away from other departments or product lines. Concentration takes many forms. As a business leader, you can focus on clawing your way into new market segments. Conversely, you can spend your resources on reinforcing your share of existing markets. The same choice exists for product development. You can direct money toward improving your existing products or choose to heavily invest in a line of new products. In all these scenarios, you choose to concentrate resources on particular objectives, thus going “all in” on their success.
2. 2. Market development: Companies will sometimes mildly alter their existing products to gain a market share in relevant market areas that are interested in similar products. For instance, a car manufacturer might practice market development by producing cars that are tailored to the car market in another country.
3. 3. Product development: Under a product development strategy, you can update existing products or create new related products that leverage the popularity of your current offerings. A consumer electronics company might issue new phone models on an annual basis, and it might also sell ancillary products designed with its phone’s users in mind.
4. 4. Innovation: Organizations or brands must innovate to meet their changing customer needs. An innovation strategy can involve adjusting the way a company operates, updating organizational structures, introducing new products, or rolling out a holistic effort to change many organizational components at once. For example, a company may introduce new pricing tiers to reach customers unable to afford products at current rates. A company could also innovate by creating a task force to study ways to reach less affluent customers via unorthodox pricing models.
5. 5. Horizontal integration: Companies often merge or acquire competitors as part of a horizontal integration strategy. Together, the merged companies command a larger sector of a particular market. This strategy is advantageous if your organization can get a significant competitive advantage from the size and scope of your business entity. When taken to an extreme, horizontal integration is illegal. It can create monopolies, which government regulators can dismantle.
6. 6. Vertical integration: Your company may decide to produce its own inputs as part of its manufacturing process. To do so is to embrace a strategic management technique called vertical integration. Vertical integration can involve either backward integration or forward integration. In backward integration, a company takes over its own supply chain and starts sourcing and producing more raw materials. In forward integration, a company takes over its own distribution and retail sales. In a full integration, a company takes over an entire product line or service line, from sourcing raw materials to manufacturing to shipping to sales.
7. 7. Joint ventures: A company may join together with another entity for a common business or economic goal. This strategy requires a sharing of ownership between the two parties. This is useful when larger companies wish to embrace smaller companies' innovation and agile actions. It also offers value when smaller companies need a larger entity to share risk or provide access to established retail partners. The larger companies can also operate at larger economies of scale—something that newer entrants rarely can.
8. 8. Concentric diversification: Your company may find it beneficial to develop newer products or services similar to those you already sell. There may only be a slight differentiation in the product, and it may appeal to a more niche market. Still, this concentric diversification strategy can bring in new customers who would not consider a company’s past offerings. Consider a razor company making a men’s razor and a women’s razor. Functionally, these two products are the same. Yet, due to differences in color scheme and marketing strategy, the company can sell them as different products.
9. 9. Conglomerate diversification: Companies can pursue a conglomerate diversification strategy by developing products or services drastically different from their prior offerings. Some business leaders see this business strategy as a quick way to boost cash flow, mainly when their company can produce new products without heavily investing in new equipment, real estate, or human capital. One example is a liquor company developing a side business selling hand sanitizer. Both products feature alcohol as a key ingredient—and something the brewer can produce in abundance—but they appeal to different retailers and a different core audience.
10. 10. Turnaround: A turnaround strategy involves divesting assets and cutting costs to recover from faulty decision-making or a period of inferior performance. Common turnaround strategies involve discontinuing product lines or closing underperforming stores.
11. 11. Divestiture: In a divestiture strategy, a company sells part of itself (or a subsidiary business unit) to another firm. This helps the company reclaim a competitive position in its core business.
12. 12. Liquidation: Liquidation is the final step in a lifecycle of a company. It occurs when a company stops all business operations and sells its assets. Sometimes companies arrive at liquidation in the wake of bankruptcy. In other cases, the company remains financially solvent, but its leadership loses the will to continue onward. Such companies may explore selling themselves outright, but they may discover there will be more to recoup if they sell off individual parts.

Today’s business leaders subscribe to multiple techniques for generating and prioritizing strategic options. Here are four particularly well-regarded strategic workflows.

• Ansoff matrix: Companies use Ansoff matrices to plot growth initiatives. The Ansoff matrix, devised by Igor Ansoff and first published in the Harvard Business Review in 1957, contains four sectors. One is for market penetration, where a company seeks to further establish its brand within an existing market. A second sector is market development, where companies push their existing products into new markets. A third sector covers product development, where new products roll out into existing markets. A final sector covers diversification, where new products enter new markets. Business leaders choose a sector to pursue, then direct their strategic initiatives toward that particular sector.
• Porter’s generic strategies: Porter’s generic strategies were developed by Harvard Business School professor Michael Porter, perhaps most famous for identifying Porter’s Five Forces. Porter submits that companies must choose whether to emphasize cost leadership, product differentiation, or market focus. According to Porter, a successful strategic option will only pursue one of these goals; trying to tackle more than one at a time will lead to boondoggles and failure.
• BCG growth-share matrix: A BCG matrix helps you analyze where your company’s services or products stand in relation to those of your competitors. BCG stands for Boston Consulting Group, which developed this analytical tool. This matrix is on a grid where the Y-axis represents the market's rate of growth, and the X-axis represents the relative share in the market. Your organization’s services and products are broken into four categories: cash cows, dogs, stars, and question marks. Cash cows yield significant cash flow, dogs have low feasibility of potential growth, stars boast the maximum market share, and question marks have low market share but high growth rate and potential. When you honestly assess your company’s offerings and group them into these categories, you gain a clear sense of what product lines deserve investment.
• SWOT analysis: SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. You can use a SWOT analysis to evaluate your company's internal business environment as well as the external environment. With that analysis in hand, you can carefully choose strategic options that seem most likely to succeed, given your knowledge of internal and external realities.

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