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LEARNING OBJECTIVES

Define corporate strategy1

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Understand when it makes sense for a firm to own a particular strategy

Explain the corporate strategy implications of the stable and dynamic perspectives

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Corporate-LevelStrategy

Corporate-LevelStrategy

The overall organizational strategy that addresses the question “What business(es) are we in or should webe in?”

The overall organizational strategy that addresses the question “What business(es) are we in or should webe in?”

Corporate Strategy deals with three issues:

1. Directional Strategy: The firms overall orientation towards growth, stability, or retrenchment

2. Portfolio Strategy: The industries or markets in which the firm competes through its products and business nits.

3. Parenting Strategy: The manner in which management coordinates activities, transfers resources and cultivates capabilities among product lines and business units.

CORPORATE STRATEGY

DIRECTIONAL STRATEGY

Corporations decides its orientations towards growth by asking following questions:

1. Should we expand, cut back or continue our operations unchanged?

2. Should we concentrate our activities our current industry or should we diversify into other industries.

3. If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisition, merger or strategic alliances?

Corporations directional strategy is composed of three general orientations known as GRAND STRATEGIES.

1. Stability Strategies: Make no change to the company’s current activities

2. Growth Strategies: Expand the company’s activities

3. Retrenchment Strategies: Reduce the company’s level of activities.

GRAND STRATEGIES

STABILITY• Pause/Proceed with Caution

•No Change•Profit

GROWTH• Concentration•Diversification

RETRENCHMENT• Turnaround

•Sell Out/Divestment•Liquidation

GRAND STRTEGIES

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GrowthStrategy

GrowthStrategy

focuses on increasing profits, revenues, market share, or numberof places to do business

focuses on increasing profits, revenues, market share, or numberof places to do business

StabilityStrategy

StabilityStrategy

focuses on improving the way the company sells the same productsor services to the same customers

focuses on improving the way the company sells the same productsor services to the same customers

RetrenchmentStrategy

RetrenchmentStrategy

focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business

focuses on turning around very poorcompany performance by shrinkingthe size or scope of the business

A corporation may choose stability by continuing its current activities without any significant change in direction.

Sometimes viewed as a lack of strategy, the stability strategy can be appropriate for firms operating in reasonably predictable environment.

STABILITY STRTEGIES

II. GROWTH STRATEGIES

The most widely pursued corporate directional strategy are those designed to achieve growth in sales, assets, profits or some combination.

This strategy aims at high growth by substantially broadening the scope of one or more of its businesses. It aims at the improvement of its overall performance in business.

There may be five types of Expansion Strategies.

Concentration Integration Diversification Cooperation Internationalisation

EXPANSION STRATEGY

a) Expansion through concentration:It is also called as intensification, focus or specialization strategy. It involves concentration of resources on one or more of a firm business so that it leads to expansion.

b) Expansion through Integration:Integration means combining activities related to present activity of a firm. It is an expansion strategy which involves integrating to any business activity in the value chain ahead or backwards existing business of an organisation.

Potato Chips DistributionBackward Integration Existing business Forward Integration

EXPANSIONS STRATEGY

INTEGRATION

• General motors began operating steel plants

• Dupont moved from gunpowder making onto dynamite, nitro-glycerine, guncotton, and smokeless power

• Fed Ex acquired Kinko’s Drop off and pick up points for packages

Examples

??

Can a paper production plant be shared?Can a paper production plant be shared?

P & G manufactures paper towels and diapers.

INTEGRATION

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INTEGRATION

P & G STRATEGIC FIELD

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Vertical Integration

It is expressed by the acquisition of a company or addition of new capacity either further down the

supply chain, or further up the supply chain, or both.

Forward IntegrationOr

Upstream Integration

Vertical Integration

It is expressed by the acquisition of a company or addition of new capacity either further down the

supply chain, or further up the supply chain, or both.

Forward IntegrationOr

Upstream Integration

Backward IntegrationOr

Downstream Integration

VERTICAL INTEGRATION

VERTICAL & HORIZONTAL INTEGRATION

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Textile producer Textile producer

Shirt manufacturer Shirt manufacturer

Clothing store Clothing store

FULL & TAPER INTEGRATION

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Diversification involves a substantial change in the business of the organisation.

Concrete Diversification:- When the new activity is related to existing business activity.

Marketing Related, Technology Related, Marketing & Technology related

Levi Straus jeans for men - expanded to jeans for women and children (exploits product manufacturing capacity)Humana - hospitals and HMO's (exploits shared knowledge of patient care)IBM - mainframes and PC (exploits brand identity/technology through shared marketing/production/distribution efficiencies)

Conglomerate diversification: A strategy that plans to enter into an unrelated business activity for eg. Godrej locks/ Almirahs/ Referigerators/Soaps.

C) EXPANSION THROUGH DIVERSIFICATION

LEVELS & TYPES OF DIVERSIFICATION

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RELATED DIVERSIFICATION

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Haircare Pantene, Head & Shoulders, ClairolHousehold cleaning/care Flash, Febreze, Fairy

Laundry Daz, Ariel, Fairy, BouncePaper Bounty, Pampers, AllwaysBeauty Oil of Olay, Max Factor

Beverages Sunny DelightSnacks Pringles Petfood Iams

Related Diversification through acquisition and internal start-upsFits/Synergies

Same wholesale distributionCommon retail settings & shoppers

Advertised & promoted the same way

UNRELATED DIVERSIFICATION

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Virgin Travel (& Virgin Holidays)Virgin Retail (Music & Entertainment)

Virgin Investments (computer products, promotional blimps, property development)

Virgin Hotels Group (clubs & hotels in UK, Spain & Virgin Islands)

Virgin Communications (Virgin Interactive Entertainment, Publishing, Radio, TV)

DIVERSIFICATION

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Johnson & JohnsonConsumer - baby products (wipes, shampoos, cotton buds

etc); woundcare (bandaid); feminine hygiene (carefree, stayfree); reach dental products

Medical - non-prescription drugs (Tylenol, Pepcid AC); presecription durgs; surgical products; Accuvue contact lenses

Gillette- Grooming (Mach 3, Venus)- Oral Care (Oral B, Braun)- Portable Power (Duracell)

Philip Morris-Cigarettes (Marlboro, B&H…..)-Miller Brewing co.-Kraft Foods (Maxwell hse,

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FORMS AND SCOPE OF DIVERSIFICATION

Geographic

Horizontal• From one market

segment to another• From one industry

to another

Wal-Martexpanded into

Europe

Coke andPepsi expanded

into water

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EXAMPLE

EXAMPLE

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DIVERSIFICATION

Diversification process Types of businesses

Heavy reliance on acquisition

Many seemingly un-related businesses

Primarily organic Many businesses clustered in a few related industries

Company

Product extensions/new product lines

Few related product lines

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It is a strategy which works on the possibility of mutual cooperation with competitors; with the competition also going at the same time.

Mergers:-It is a strategy of two or more organisation in which one acquires the assets and liabilities of the other in exchange of share or cash.

Conglomerate mergers (2 unrelated firms) Horizontal mergers (2 firms in same business) Concentric mergers (2 related firms) Vertical mergers (2 firms creating complementary products)

D) EXPANSION THROUGH COOPERATION

TakeoverIt is a strategy where an attempt is made by one firm to acquire ownership or control over another firm against the wishes of the latter’s management.

Joint ventureIt is a strategy where two or more companies combine to form a new company in order to make use of the strengths of the partners to gain access to a new business. Eg. Maruti-Suzuki.

Strategic allianceTwo or more firms unite to pursue a set of agreed upon goals but remain independent subsequent to the formation of the alliance.

Low

High

Cost Pressures

Global Strategy

Transnational Strategy

International Strategy

Multidomestic Strategy

Low High

Pressure for local Responsiveness

These are the types of expansion strategies that require firms to market their products beyond the national market.

E) EXPANSION THROUGH INTERNATIONALIZATION

III. RETRENCHMENT STRATEGY

Retrenchment strategy is followed when organization aims at a contraction of the scope of business. It may involve a total or partial withdrawal from an existing business. A firm may adopt this strategy when faced with adverse external environment eg. Shrinking market share, diminishing profitability, falling sales, emergence of substitute products, adverse government policies, tougher competition, changing customer need & preferences etc.

It involves strategies like:a) Turnaround Strategies:It means devising a strategy to reversing the trend, negatively affecting the organization. The strategy implemented internally focus on the ways and means of reversing the process of decline.

b) Divestment:It is a strategy which cuts-off the loss- making units or divisions, a product list or any of its decline causing function etc. it involves a sale of a portion of business. It is adopted in case a turn-around strategy is not successful.

c) Liquidation:It is a strategy adopted to abandon all its activities completely. It involves closing down a firm and setting its assets. It is considered to be the last resort for any strategist as it involves both loss to employees as well as to the organisation.

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A firm may divest (sell) businesses that are not part of its core operations. For example,

Eastman Kodak, Ford Motor Company, and many other firms have sold various

businesses that were not closely related to their core businesses.

To obtain funds. For example, CSX Corporation made divestitures to focus on its core

railroad business and also to obtain funds so that it could pay off some of its existing

debt.

Firm's "break-up" value is sometimes believed to be greater than the value of the firm

as a whole. This encourages firms to sell off what would be worth more when liquidated

than when retained.

To create stability. Philips, for example, divested its chip division called NXP because

the chip market was so volatile and unpredictable that NXP was responsible for the

majority of Philips's stock fluctuations.

A division is under-performing or even failing.

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1999, revenues of Xerox Corp (Xerox), the world's largest photocopier maker, began to fall, and in 2000 it reported a loss of $273 million. Xerox also lost $20 billion in stock market value (from April 1999 to May 2000).

In May 2000, he was replaced by his predecessor Paul Allaire, and Anne Mulcahy (Mulcahy) was made COO.

Xerox revealed a Turnaround Programme in December 2000, which included cutting $1 billion in costs, and raising up to $4 billion through the sale of assets, exiting non-core businesses and lay-offs. Subsequently, in August 2001, Mulcahy was made CEO.

Xerox continued to report losses in 2001, but it returned to profit in 2002 and continued to report profits in 2003.

STRATEGY SELECTION

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IV. COMBINATION STRATEGIES:

It is strategy adopted by an organisation as a mixture of Stability, Expansion &

Retrenchment either at the same time in its different businesses or at different

times in the same business with the aim of improving its performance. In

practice it is very difficult to find any organization that has run its business on

a single strategy.

Types

Simultaneous

Sequential

Simultaneous & Sequential

DIMENSIONS OF GRAND STRATEGIES

Internal/external dimensionRelated/Unrelated dimensionHorizontal/Vertical Dimension

Active (Offensive)/Passive (Defensive) Dimension

32 POSSIBILITIES

4 Grand Strategies , 4 Dimensions & 2 types

CONCLUSION:-

Thus, it shows that there exists various strategic alternatives before a strategist. Depending on the:

•Type and nature of business•Growth & future of business•Nature and number of competitors•External environmental variables•Overall philosophy of the top-management•Internal strengths & weaknesses etc;

a given strategy or a combination is adopted

INTENSIVE STRATEGIES

Market Penetration, Market Development and Product Development are sometimes referred to as intensive strategies because they require intensive efforts if firm wants to improve its competitive position with existing products.

IntensiveStrategies

MarketPenetration

MarketDevelopment

ProductDevelopment

Example

MarketPenetration

SABMiller Plc spent $500 million in 2010 on marketing its Miller brands of beer

Market Development

JetBlue is adding dozens of new routes

ProductDevelopment

GM developing hydrogen powered automobiles or Pfizer developing a new antismoking pill

ANSOFF’S MATRIX

•Selling more of an existing product to an existing market. This is going deeper into a market so it is called market penetration (More Promotion)

•Selling an existing product in a new market, for instance bringing out different bottle sizes to attract different buyers. This is called market development.

•Selling a new product to an existing market. This is called product development as it means making changes to a product, for instance a new flavour like Coca-Cola Vanilla. •Selling a new product to a new market. This is called diversification. Coca-Cola identified the need for a new sports drink and launched Powerade.

COCA COLA

Market Penetration Strategy

This focuses growth on the existing product range by encouraging higher levels of take-up of a service among the existing target markets. Seeking increased market share for present products or services in present markets through greater marketing efforts.

Example: A supplier of fresh orange juice encouraging its customers to drink orange juice on occasions when they might otherwise consume milk.

Why ? To dominate market How ? To increase usage or get new customers; reduce price;

expand distribution or increase promotional activities When ? When market is growing What to look out for ? Competitive reaction; cost of conversion Example: Airlines used reduced fares & promotion various family

travel packages to penetrate market

Guidelines for Market PenetrationGuidelines for Market Penetration

Current markets not saturatedUsage rate of present customers can be increased significantlyMarket shares of competitors declining while total industry sales increasingIncreased economies of scale provide major competitive advantages

Market Development Strategy

This strategy builds upon the existing product range, which an organization has established, but seeks to find new groups of customers for it.

Why ?To venture into new markets How ?Sell existing products in new markets; modify product; use different

distribution; use different advertising/sales strategy When ? Present market is saturated What to look out for ? Competitive reaction; understand new buyers;

adaptability Example: Hong Kong and China Gas (Towngas) is to invest HK$2 billion

in the transmission of natural gas in China in year 2011, in a continued bid to expand away from its base in Hong Kong.

Introducing present products or services into new geographic area

Guidelines for Market DevelopmentGuidelines for Market DevelopmentNew channels of distribution that are reliable, inexpensive, and good qualityFirm is very successful at what it doesUntapped or unsaturated marketsCapital and human resources necessary to manage expanded operationsExcess production capacityBasic industry rapidly becoming global

Product Development Strategy

An organization may choose to develop new products for its existing markets.

Again referring to mobile phones, many companies have developed innovative products to offer as additional accessories to existing customers, including “hands-free” car kits, traffic information services and on-line information services.

NIVEA Visage Soft Facial Cleansing Wipes show product development. Women who bought NIVEA skincare products were looking for new ways to clean and care for their skin.

Why ? To satisfy buyer’s need How ? New or improved product; innovate or augment

product When ? Customer has a need or a problem What to look out for ? •Market size/volume•competitor reaction•effect on existing products•resources to deliver new products Examples: Acer; Soundblaster 1, 2, 3

Seeking increased sales by improving present products or services or developing new ones

Guidelines for Product DevelopmentGuidelines for Product DevelopmentProducts in maturity stage of life cycleCompetes in industry characterized by rapid technological developmentsMajor competitors offer better-quality products at comparable pricesCompete in high-growth industryStrong research and development capabilities

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