summaries the following in your own words :
5. Horizontal Integration
Horizontal integration is the range of product and service segments that a firm serves within its market. A company who wants to expand its horizontal scope has an opportunity to do that through mergers and acquisitions. A merger is combining two or more companies into a single corporate entity, with the newly created company often taking on a new name. An acquisition is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired. Horizontal mergers and acquisitions usually involve combining the operations of firms within the same general industry (Thompson, 2012). Horizontal mergers and
acquisitions provide an effective means for firms to rapidly increase the scale and horizontal scope of their core business. Combining two or more companies is an attractive strategic option for strengthening the company’s competitiveness and it also opens avenues for new market opportunities. Increasing a company’s horizontal cope can strengthen the business and increase its profitability in five ways: (1) by improving the efficiency of its operations, (2) by heightening its product differentiation, (3) by reducing market rivalry, (4) by increasing the company’s bargaining power over suppliers and buyers, and (5) by enhancing its flexibility and dynamic capabilities. In order to achieve the benefits of a horizontal integration, companies must be able to aim their strategies to one of the following outcomes: by increasing the company’s scale of operations and market share; by expanding a company’s geographic coverage; extending the company’s business into new product categories; by gaining quick access to new technologies or complementary resources and capabilities; and/or by leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.For Kmart, they were able to accomplish a horizontal integration back in 2004 when they merged with Sears, Roebuck Co. Kmart and Sears are very similar companies, offering very similar types of products. Up until the past 5 years or so, this has worked really well for both companies. With the rise of Amazon, other major companies like Walmart and Target executing the same strategy as Kmart, they are driving business away from them. Like stated above, there have been 225 locations closed down just in 2017 with another 60 estimated to close in 2018. With such a decline in revenues over the years, it is not economical for them to keep stores open that are not making money. If not for the merger in 2004, Kmart would not still be around today because other companies are doing the same thing better, cheaper, and more cost effective.
6. Company Value Chain
A company’s value chain identifies the primary activities that create customer value and the related support activities. The value chain is the underlying intent of a company’s activities to do things that ultimately create value for buyers (Thompson, 2012).To be successful, a company must think about what choices it will make now and in the future. Once a company focuses on the value-creating activities, the value chain is an ideal tool for examining how a company delivers on its customer value proposition. This allows the company to look at its cost structure and ability to offer lower prices. This allows them to look at what emphasis is placed on activities that enhance differentiation.Kmart is continually making improvements to their value chain because if not, they will fall behind to the likes of their competitors. With the popularity of online shopping taking over, Kmart offers all of their products sold in store on their website. Doing this helps ensure the customer has the best experience and can access any product whether it is online or in-store. This also allows Kmart more “shelf space” because they can sell some products strictly online and keep the more popular items in store. Kmart also offers a layaway program for customers to put items on hold, make payments, and receive the item once it is paid off. Many of their competitors do not offer layaway anymore due to credit cards being readily available. Lastly, Kmart, along with Sears, offers customer a rewards program called Shop Your Way. Shop Your Way allows customers to earn 10 points for every $1.00 spent, 1,000 points equals $1 in value, and they can earn points at any of the participating locations
(“About Points”). Rewards programs are great values to customers because they can earn back money they spent, which in turn will incentivize them to shop more at Kmart
Outsourcing, is business practice used by companies to cut costs and increase profit over the long term by sending nonessential functions on work to third parties. These third parties are usually able to specialize in that specific function better than the main company can. This makes it possibly cheaper for a business to pay a third party to perform an activity rather than performing the activity themselves. Outsourcing is important to do because it allows a business to spend more time and money on the more important functions of the business.
In Kmart’s case, they outsource much of their IT infrastructure to a third party called CSC. The Kmart help desk is also currently handled mostly by Indian workers. Although outsourcing preserves the resources that Kmart has, it has also taken jobs away from Kmart employees in America. Since Kmart is currently closing down stores in order to salvage the little “good reputation” it has left, it may need to think about outsourcing other nonessential functions in order to focus on saving the rest of its stores.
Horizontal integration is the acquisition of those business activities that are at the same level of the value chain, could be in similar or different industries. Inorganic/ External expansion via a merger or acquisition (M&A) or Organic/ internal expansion via a reinvestment of operating profits/ shares are used to carry out a Horizontal integration. Horizontal integration allows them to share resources at that level. It brings economies of scale, increases economies or scope, increased market power and reduces the overall fixed and variable costs.
Example given is of Sears, Roebuck Co. Kmart and Sears, offering similar types of products. Amazon and Walmart are trying to acquire smaller competitors.
A value chain describes and connects the overcall process in which a company receive raw materials, add technology/ process to convert into final product/ materials and then sell that end product to customers. Companies do conduct value-chain analysis at every phase/ step/ process to create a better product and identifying ways to increase the process efficiency of the chain and reduces the production costs involved in it. The goal is to drive maximum value in the least possible total cost and create a competitive advantage in the market.
Example- Kmart improved it’s payment and product options on offline and online modes, running loyalty discounts, driving more footfalls and online customer traffic.
Outsourcing is a very prevalent business practice nowadays and involves hiring a party outside a company to perform services/ deliver a part of service/ create goods that could or should be actually done in-house by the company's own employees and staff. Most common reason is cost-cutting, and done in activities like customer support/ manufacturing/ back office.
Example- K mart reduced the IT infrastructure cost and manpower cost by outsourcing is to other company and got a flexibility to manage its profits by adjusting its fixed and variable costs
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