combination strategy

What is Combination Strategy ?

A combination strategy is said to be employed by a company when it tries to achieve several business objectives with the aid of a single strategy. Business strategies usually involve objectives like growth, consolidation or stability. Some business strategies can be combined like offering differentiated products in a niche market and growth. Combination strategies are aimed at improving the competitive position of a company in the industry. In the combination strategy, the organisation attempts to achieve two or more business objectives at the same time. 

Combination Strategy Example : Reliance Industries started off as a textile manufacturer. However because of distribution inefficiencies in the market the company was forced to open retail outlets of its own under the brand name "Vimal". By getting into direct retailing of its products Reliance was able to sidestep the wholesaler and retailers in the market who were not pushing his products. Reliance therefore used a combination of horizontal and vertical integration. Reliance was using many petrochemicals in its existing business Reliance then decided to get into the manufacture of petrochemicals so that it could price its products competitively. In this, it got into the manufacture of Polyester Staple Fibre (PSF). It further got into the refining of crude oil and set up a world class oil refinery at Hazira. Large diversified companies are using combination strategies to meet their objectives. This also satisfies the diversified needs of all the strategic business units of a company. A company is not a slave to a single strategy but can be practising several strategies at the same time. Some units of a company could be pursuing a growth strategy whereas some of the other units of the organisation could be in the decline or maturity of the product life cycle and hence could be in a process of retrenchment or stability.

Combination strategy is by itself a combination of several strategies - stability, growth, retrenchment. This is because individual business units in a company have different products at different stages of the product life cycle and each are facing different problems. The combination strategies can be of the following types :
  1. Stability in some part of the business and growth in another.
  2. Stability in some business and retrenchment in some other part.
  3. Growth in some businesses and retrenchment in another.
  4. Stability, growth and retrenchment in various businesses.

Reasons to Adopt Combination Strategy

The reason a company adopts a combination strategy is that different business units in a company have different problems and there cannot be a single solution for all of them. The specific reasons to follow a combination strategy are:

1) Different Products in Different Product Life Cycle : 
The different products of a company are in different stages of the product life cycle.
For example, products which are in the growth stage require a lot of investment in advertisement and sales promotion because at this stage the company wants more and more customers to try the product. Similarly products which are in the maturity stage of the product life cycle call for a stability strategy and in this the company is trying to milk these products for profits and not make any new investment in them. Products which are in the declining stage require to be retrenched.

2) Business Cycle : 
Different divisions and products of the company are also affected differently by the business cycle. This may provide growth opportunities for some businesses and for others it may spell disaster. Hence, in some businesses the company will go for expansion while in others there will be retrenchment.

3) Number of Businesses : 
Companies sometimes grow so fast that the number of products and businesses become unmanageable. Hence it makes sense for the management to reduce the number of businesses. This is also necessary as the resources available are limited and can only be allocated to companies where the returns are maximum.

Types of Combination Strategy 

The following are just a few of the possible combination strategies, all companies which have multi-businesses and products use a combination strategy. This is also true if they cater to different markets. Combination strategies can be simultaneous or sequential depending on the particular type of business situation. Two types of combination strategies are as follows: 

1) Simultaneous Combination :
This strategy can be used in the following way : 
  • Divesting a Strategic Business Units (SBU) or product line while at the same time adding a SBU or product line somewhere else.
  • For some products or businesses the company may adopt a turnaround strategy whereas for others it may adopt a growth strategy.
  • The company may be harvesting some products whereas for others it may follow a growth strategy.

2) Sequential Combination : 
This can be used by the company in the following ways :
  • At first employing a growth strategy and then switching over to a stability strategy
  • First employing a turnaround strategy and then using the growth strategy once the ground level situation gets better.