Seven areas in which Long term objectives have to be established Profitability Productivity Competitive Position Employee Development Employee Relations Technological Leadership Public Responsibility

Scope of Operations Which product or service markets should the company compete

in? Which geographic markets should the company serve?

Extent and type of diversification How broad should the corporate portfolio of businesses be? Should related or unrelated diversification be pursued? Are there new businesses the company should enter? Are there existing businesses the company should terminate or

divest? Organizational structure and integration

How should the company be structured? How much should the company integrate its various lines or

units of business? Deployment of resources

How should the company allocate resources among business units?

Which business units will be stressed?

Acceptable Flexible Measurable Motivating Suitable to Mission Understandable Achievable – the BOD & Ceo are

involved in developing strategies at corporate level. It should be innovative, pervasive and futuristic in nature.

Growth Strategies Type: Concentration - Diversification –integration- new product development strategy-expansion(jv,

licensing, franchising, vertical expansion, horizontal expansion)

Level: Vertical Integration vs. Horizontal Integration Geographic location: International Growth vs. Domestic

Growth Stability Strategies

Pause, Digest and Consolidate after rapid growth or some turbulent events

Retrenchment Strategies (renewal strategies ) Turnaround through cost cutting, downsizing, divestment Bankruptcy and restructuring Liquidation

Focusing on expanding the company’s primary lines of business

Potential benefits of concentration Allows the company to specialize in and master one

business No dilution of management’s attention – the management

can focus on what the company knows and does best Drawbacks of concentration

The current industry may become mature and even decline The industry conditions can be too unstable Too much dependence on a single industry makes the

company vulnerable to risks of product obsolescence (due to changes in, e.g., technology or consumer preferences)

Miss the opportunity to leverage resources and capabilities to other businesses

It is a strategy in which a firms long term strategy is based on growth through acquisition of one or more similar firms operating at the same stage of the production-marketing chain

Potential benefits of horizontal integration Gain scale economies in production Cost savings from economics of scope by combining similar

operations (e.g., marketing and distribution) of different companies and reducing duplication of resources

Create value through product bundling, total solution and cross selling

Reduce the threat from substitutes Increase market power over suppliers and buyers May help increase market penetration and/or expand market

coverage geographically Drawbacks of horizontal integration

Not easy to integrate operations of companies with different cultures

Synergies may be more imaginary than real Reduction in competition can generate antitrust issues

It is a process in which a firm's grand strategy is to acquire firms that supply it with inputs (such as raw materials) or are customers for its outputs (such as warehouses for finished products).

Potential benefits of backward integration Lower transaction (purchasing) costs and capture additional profits

from expanded operations Have better control over the supply of inputs Reduce the bargaining power of supplier

Potential benefits of forward integration Lower transaction (selling) costs and capture additional profits Have better control over the distribution of products and services Reduce the bargaining power of distributors/buyers

Drawbacks of vertical integration Product costs may rise if best-cost external suppliers are not used Susceptible to industry fluctuations and cycles May face risks with growing maturity of the industry Increase bureaucratic costs

Diversification is a set of strategies. these strategies involve all the dimensions of strategic involvement. it may involve internal or external, related or unrelated, horizontal or vertical

Diversification involves a substantial change in the business definition singly or jointly in terms of customer functions, customer groups, or alternative technologies of one or more of a firm’s businesses.

Types Concentric diversification Conglomerate diversification

When they have excess resources, capabilities, and core competencies that have multiple uses

Diminishing growth prospects in present industry

Cost saving opportunities Capture strategic fits Capture financial economies Spread business risk Leverage brand name

When an organization takes up an activity in such a manner that it is related to the existing business definition of one or more of a firm’s businesses, either in terms of customer groups, customers functions or alternative technologies, it is called concentric diversification

Types MARKETING RELATED DIVERSIFICATION.

TECHNOLOGY RELATED DIVERSIFICATION.

MARKETING AND TECHNOLOGY RELATED DIVERSIFICATION.

Marketing related concentric diversification:

When a similar type of product is offered with the help of unrelated technology…

Technology related concentric diversification:

When a new type of product or service is provided with the help of related technology…

Marketing and technology related concentric diversification:

when a similar type of product or service is provided with the help of related technology…

(Advantages) Enable a firm to attain synergy by exchange of resources

and skills. To avail economies of scale (Disadvantage) Increase in risk and commitment Reduction in Flexibility Thus, the acquiring firm searches for new businesses

whose products, markets, distribution channels, technologies and resource requirements are similar to but not identical with its own, whose acquisition results in synergies but not complete interdependence

Involves diversifying into businesses whose value chains possess competitively valuable “strategic fits” with the value chain(s) of the present business(es)

Capturing the “strategic fits” makes related diversification a 1 + 1 = 3 phenomenon

Johnson and Johnson Engages in the research and development, manufacture, and sale

of various products in the health care field worldwide 3 segments

Consumer segment▪ Products for baby care, skin care, oral care, wound care,

and women’s health care fields, as well as nutritional and over-the-counter pharmaceutical products

Pharmaceutical segment ▪ Products for anti-infective, antipsychotic, cardiovascular,

dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management

Medical Devices and Diagnostics segment▪ Products for circulatory disease management, orthopedic

joint reconstruction and spinal care, wound care and women’s health, blood glucose monitoring and diagnostic products, as well as disposable contact lenses

When an organization adopts a strategy which requires taking up those activities which are unrelated to the existing business definition of one or more of its business either in terms of their respective customer groups , customer functions or alternative technologies it is called conglomerate diversification.

Involves diversifying into businesses with No strategic fit No meaningful value chain

relationships No unifying strategic theme

Approach is to venture into “any businessin which we think we can make a profit”

(Advantages) Better management and allocation of cash flows. Realizing a high return on investment. Reduction of risk by spreading investment in different

business and industries.

(Disadvantages) Diversion of resources and attention to other areas

leading to a lack of concentration. Facing the risks of managing entirely new business. They may seek a balance in their portfolio between

current businesses with cyclical sales and acquired businesses with countercyclical sales, between high-cash/low-opportunity and low-cash/high-opportunity businesses or between debt-free and high leveraged businesses.

United Technologies Corporation Provides technology products and services to the

building systems and aerospace industries worldwide Otis segment – elevators and escalators Carrier segment – air conditioning and

refrigeration UTC Fire and Security segment. Pratt and Whitney segment - aircraft engines;

parts and services Hamilton Sundstrand segment - aerospace

products and aftermarket services Sikorsky segment – helicopters UTC also engages in the development and

marketing of distributed generation power systems and fuel cell power plants for stationary, transportation, space, and defense applications

Dominant-business firms One major core business accounting for 50 - 80

percent of revenues, with several small related or unrelated businesses accounting for remainder

Narrowly diversified firms Diversification includes a few (2 - 5) related or

unrelated businesses Broadly diversified firms

Diversification includes a wide collection of either related or unrelated businesses or a mixture

Multibusiness firms Diversification portfolio includes several unrelated

groups of related businesses

Step 1: Assess long-term attractiveness of each industry firm is in

Step 2: Assess competitive strength of firm’s business units

Step 3: Check competitive advantage potential of cross-business strategic fits among business units

Step 4: Check whether firm’s resources fit requirements of present businesses

Step 5: Rank performance prospects of businesses and determine priority for resource allocation

Step 6: Craft new strategic moves to improve overall company performance

Companies with undervalued assets

Capital gains may be realized

Companies in financial distress

May be purchased at bargain prices and turned around

Companies with bright growth prospects but short on investment capital

Cash-poor, opportunity-rich companies are coveted acquisition candidates

A strategic alliance is a cooperative strategy in which firms combine some of their resources and

capabilities to create a competitive advantage

A strategic alliance involves exchange and sharing of resources and capabilities co-development or distribution of goods or services

Ways to enter foreign markets Exporting Licensing or Franchising Direct investment (joint ventures or wholly owned

subsidiaries) These alternative options vary in their degree of

speed, control, and risk, as well as the required level of investment and market knowledge.

Types of cross border market differences Differences in consumer tastes and preferences Differences in buying habits Differences in infrastructure and distribution channels Differences in Govt. regulations

Gain access to new markets with attractive growth

Capitalize on resource strengthsand competencies

Enablecost reduction

Diversifybusiness risks across a

wider market base

Get access to valuable natural resources

and raw materials

Multi-country

Competition

Global

Competition

Strategic Alliances and Joint Ventures Combine resources with foreign

partner(s) Multicountry

Think-global, act-local Tailor strategy to each country

Global Think-global, act-global Pursue same basic strategy worldwide

Stability Strategy A strategy that seeks to maintain the status quo

to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons.

It maintains the present status of the organization by concentrating on their present resources and rapidly develops a meaningful competitiveness with the market requirements.

Diversification efforts have become too broad, resulting in difficulties in profitably managing all the businesses

Deteriorating market conditions in a once-attractive industry

Lack of strategic or resource fit of a business A business is a cash hog with questionable

long-term potential A business is weakly positioned in its industry Businesses that turn out to be “misfits” One or more businesses lack compatibility of

values essential to cultural fit

Sometimes the profit of a company decline due to various reasons like economic recession, production inefficiencies and innovative breakthrough by competitors.

In many cases the management believes that such a firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences.

This is known as turnaround strategy. It is the temporary reduction in the activities

to make a stronger organisation. This is called downsizing or rightsizing.

Turnaround typically begins with one or both of the following forms of retrenchment being employed either singly or in combination.

1. Cost reduction It is done by decreasing the workforce through employee

attrition, leasing rather than purchasing equipment, extending the life of machinery, eliminating promotional activities, laying off employees, dropping items from a production line and discontinuing low-margin customers.

2. Asset reduction This includes sale of land, buildings and equipment not

essential to the basic activity of the firm. Research have showed that turnaround almost always was

associated with changes in top management. New managers are believed to introduce new perspectives, raise

employee morale and facilitate drastic actions like deep budgetary cuts in established programs.

Turnaround situation The model begins with the depiction of external and internal

factors as causes of a firm's performance downturn. When these factors continue to detrimentally impact the

firm, its financial health is threatened. Unchecked decline places the firm in a turnaround situation. Turnaround situations may be a result of years of gradual

slowdown or months of sharp decline. For a declining firm, stabilizing operations and restoring

profitability almost always entail strict cost reduction followed by shrinking back to those segments of the business that have been the best prospects of attractive profit margins.

Situation severity The urgency of the resulting threat to company survival

posed by the turnaround situation is known as situation severity.

Severity is the governing factor in estimating the speed with which the retrenchment response will be formulated and activated.

When severity is low stability can be achieved through cost reduction alone.

When severity is high cost reduction must be supplemented with more drastic asset reduction measures.

Assets targeted for divestiture are those determined to be underproductive.

More productive resources are protected and will become the core business in the future plan of the company

Turnaround response Turnaround response among successful firms typically

include two strategic activities: Retrenchment phase Recovery phase

Retrenchment phase It consists of cost-cutting and asset-reducing activities. The primary objective of this process is to stabilize the

firm's financial condition. Firms in danger of bankruptcy or failure attempt to halt

decline through cost and asset reductions. It is very important to control the retrenchment process in

a effective and efficient manner for any turnaround to be successful.

After the stability has been attained through retrenchment, the next step of recovery phase begins.

Recovery phase The primary causes of the turnaround situation

will be associated with the recovery phase. For firms that declined as a result of external

problems, turnaround most often has been achieved through creative new entrepreneurial strategies.

For firms that declined as a result of internal problem, turnaround has been mostly achieved through efficiency strategies.

Recovery is achieved when economic measures indicate that the firm has regained its pre-downturn levels of performance.

This strategy involves the sale of a firm or a major component of a firm

Reasons Partial mismatched between acquired firm

& parent firm Corporate financial needs Government antitrust actions

Hurdles Finding a buyer who is willing to pay a

premium above the value of a going concern’s fixed assets

It is a strategy through which the business agrees to a complete distribution of their assets to creditors, most of whom receive a small part of what they are owed

Outcome The business closes its doors Investors loose their money Employees loose their jobs Manager’s loose their credibility

As per this strategy the firm sells its parts at tangible asset value and not as a going concern.

It minimizes the losses of all the stakeholders

Corporate Strategies

GROWTH• Vertical (backward, forward), or horizontal integration• Related or conglomerate diversification

STABILITY

INVESTMENT REDUCTION• Retrenchment• Divestment

STABILITY

Environmental Status ThreatsOpportunities

Org

aniz

atio

nal

Sta

tus

Str

en

gth

sW

eak

nes

se

s

??????????????????????????????????