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Combination Strategy

Updated on March 20, 2024
Article byAswathi Jayachandran
Edited byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Combination Strategy?

A combination strategy is one that simultaneously combines the elements of master strategies, enabling the achievement of the primary objective. It is a network of diverse strategies that are interconnected and interdependent on one another. Depending on the data, it may be linked to either poor or better performance.

Combination Strategy

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Combining strategies are advantageous, particularly when the business is large and operates in a complicated environment. The corporation comprises various enterprises, each of which belongs to a different industry and necessitates a different response. It further facilitates the sequential application of several diverse strategies at various future points in time.

Key Takeaways

  • A combination strategy is a strategy that employs a mixture of other major strategies to boost efficiency, particularly when the company is big and operates in a complex environment.
  • It is often utilized when the corporation is composed of numerous businesses, each member of a distinct industry, and calls for a different approach.
  • Combination strategies are frequently used, particularly for complex businesses operating in dynamic and highly competitive environments.
  • The types of combination strategies are simultaneous strategies, Sequential strategies, and a mix of simultaneous and sequential strategies.

Combination Strategy Explained

A Combination strategy entails simultaneously employing other master strategies, such as stability, expansion, or retrenchment. It is any major strategy a company uses in collaboration with another in the same business or a separate business at certain points to increase efficiency. Competitive strategies are the choices made by the company to position itself for success in a particular market or sector.

This includes choosing how the business will compete in each industry or strategic business unit (SBU). Understanding the factors that influence the intensity of the competition and how to compete effectively is necessary for developing a competitive strategy in strategic management.

Organizational levels such as corporate, company, and functional levels all have a role in formulating strategies. Based on the levels of strategy, the approach differs. The highest level of strategic decision-making is at the corporate level, which includes actions about the firm’s goal, the acquisition and distribution of resources, and the coordination of multiple SBUs’ plans for the best performance. There are different corporate combination strategy options.

The expansion strategy includes intensifying, diversifying, buying, and merging businesses, forming strategic alliances, and other expansion methods. Other strategies include stability, retrenchment, combination, and turnaround strategies. The strategies mentioned above don’t have to be used in succession. Combining the approaches mentioned above is feasible to meet specific scenarios. For example, an organization might look for stability in some areas of operation, expansion in others, and retrenchment in others. Combination strategies are hence a preferred option.

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Types

The following are the main types of corporate combination strategies:

#1 – Simultaneous combination strategies

Simultaneous Combinations can be used in the following way:

  • During the divestment of a product line or strategic business unit (SBU) while simultaneously incorporating it into another SBU or product line.
  • When a company or business uses a turnaround strategy for some commodities and pursues a growth strategy for others.
  • The corporation may be harvesting for some products, and for others, it is pursuing growth. 

#2 – Sequential combination strategies

The business may utilize sequential strategies in the following ways:

  • Starting with a growth strategy and moving on to a stability approach later.
  • Deploying the growth plan after implementing the turnaround strategy as soon as the situation on the ground improves.

#3 – Combination of simultaneous and sequential strategies

As the name suggests, it combines both simultaneous and sequential strategies.

Examples

Check out the following examples to get a better idea:

Example #1

Cotton Club is a clothing company specializing in manufacturing comfort clothes for small babies (0–1 years). At first, it produced only normal clothes, but slowly it started manufacturing socks and hats for babies (stability). Later, it expanded to produce clothing for children and adults (shifting focus to capturing market segments of other age groups—expansion). Finally, to concentrate more on business development, it decided to discontinue manufacturing baby shoes as it was not profitable (retrenchment).

Here, multiple stability, expansion, and retrenchment strategies were employed to grow the business, thus adopting a combination strategy.

Example #2

Incorporated in June 1980 by airline investor Frank Lorenzo, Texas Air Corporation, usually known as Texas Air, is headquartered in Houston, Texas. The corporation’s subsidiary, “Eastern Air Lines,” reported a loss of $885.6 million in 1989. On the other hand, another company carrier, Continental Airlines, showed improvement. Following the loss of Eastern, Texas Air changed its name to “Continental Airlines Holdings” in June 1990 to reflect that the company’s core business is Continental. In 1991, Eastern Air Lines filed for bankruptcy and was liquidated.

Here, the company made two major decisions or strategies quickly. The first was to keep what was profitable, renaming it Continental Airlines Holdings, and the second was to cut off what was not profitable by liquidating Eastern Air Lines.

Retrenchment And Combination Strategy

Let us look at the major differences between retrenchment and combination strategy:

ParticularsCombination strategyRetrenchment strategy
Meaning and essenceA combination strategy employs other major strategies. When a company pursues a combination of strategies, it aims to use the benefits of all of them employed together. This strategy focuses on reducing or cutting down activities. When a company pursues a retrenchment plan, it recognizes the necessity or appeal of decreasing its product or service lines, markets, or operations. Therefore, it focuses its strategic options on functional improvement by bringing down operations in units with negative cash flows. 
AimWith combination strategies, the company aims to expand and be efficient apart from increasing profits. On the other hand, retrenchment has a primary motive of cutting down operations and functions to save the company some loss. This saved money is then diverted to activities that make a profit. 
TypesSimultaneous Strategies, Sequential strategies, and a combination of simultaneous and sequential strategies. Turnaround Strategy, Divestment Strategy, Liquidation, and captive Strategy.

Frequently Asked Questions (FAQs)

1. When do companies want to use a combination strategy?

A combination strategy in strategic management is used to boost efficiency, particularly when the company is big and operates in a complex environment. It is applied when the corporation is composed of numerous businesses, each member of a distinct industry, and calls for a different approach.

2. How does a combination strategy work?

Different major strategies can be combined in a corporate combination strategy. It covers a company’s adoption of a different strategy in each of its business units and the use of many strategies in a single business unit at the same or various times.

3. Why is combination strategy important?

The primary goal of combining strategies by companies is to improve business performance and identify sectors that can expand and contract in response to changing market conditions. In addition, using this approach makes it simpler for businesses to make changes to their plan as it is flexible.

4. Is using a combination of strategies better than using a single strategy?

The choices depend on the companies and their priorities. Pursuing a corporate combination strategy can prove extremely beneficial. However, they also carry a risk if stretched too far.

This has been a guide to what is Combination Strategy. Here, we explain the topic in detail with its types, examples, and comparison with retrenchment. You can learn more about financing from the following articles –

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