Corporate & Business Level strategies

Corporate-Level Strategy

Corporate strategy is one, which decides what business the organization should be in, and how the overall group of activities should be
structured and managed. The strategies are then evolved for each strategic business unit and strategic business area. It describes a
company's overall direction in terms of its general attitude towards growth and management of its various business and product lines.

Grand Strategies

The Grand Strategies are the corporate level strategies designed to identify the firm’s choice with respect to the direction it follows to
accomplish its set objectives. Simply, it involves the decision of choosing the long term plans from the set of available alternatives.
The Grand Strategies are also called as Master Strategies or Corporate Strategies.

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Grand Strategies are Corporate Level Strategies, setting a choice of Direction that a firm should adopt. It could be a small entrepreneur
firm with single location and single business or a corporate conglomerate with multi-location, diversified several different businesses.
The Corporate Strategy in both cases is about setting the basic direction of the firm as a whole. Corporate Strategies are basic
decisions about allocating & transferring resources among different businesses and managing & nurturing portfolios to achieve overall
corporate objectives.

Types of Corporate Strategies

Corporate strategy deals with three areas in the corporation as a whole. Separate strategic options available to each category. There are
three categories:

Directional strategies = Directional strategy is the game plan a company decides on and implements to grow business, increase
profits, and accomplish goals and objectives. Small businesses to large corporations can create their own types of directional strategies
that work for the focus and scope of each individual business.

Types of directional strategies

Growth Strategies (Expansion Strategies) = Companies that follow a growth strategy seek to pursue new markets, develop new
products and find new income sources. A vertical growth strategy involves selling new products to existing customers. An example of
a vertical growth strategy for a soft drink manufacturer would be to offer sugar-free or healthier alternatives to their standard products.
A horizontal growth strategy includes seeking out new markets for potential customers. The soft drink company could also pursue a
horizontal strategy by pursuing marketing opportunities overseas.

Stability Strategies = A strategy focused on stability focuses on keeping operational changes to a minimum and maintaining the
status quo. Companies may pursue this strategy if they have a stable, reliable profit margin and want to avoid the risk that comes with
pursuing new opportunities. Managers also may opt for a stability strategy on a temporary basis, as they build resources toward the
next expansion project. 

Retrenchment Strategies = The goals of a retrenchment strategy are reducing costs, cutting back on existing products and reducing
the company's workforce. The idea is that a temporary retrenchment will allow the company to consolidate its resources and bounce
back when conditions are more favorable. Companies may opt for a retrenchment strategy due to economic downturns, industry-wide
problems or internal issues.

Portfolio Strategies =

Parenting Strategies

Expansion Strategies are of 5 types.

Expansion through Concentration: Firms tend to rely on doing what they know they are best at doing. Concentration is a growth
strategy in which firm achieves the growth through expanding existing business. It involves investment of resources in a product line
for an identified market. The firm has proven technology, market has high potential for growth and industry is sufficiently attractive
for concentration to take place. The firm should also have financial strength to sustain expansion. This is a first preference strategy of
firm doing what they are doing already and would like to invest more in known business. (Bajaj, Maruti).

Expansion through Integration: When firms use their existing base to expand in the direction of their raw material or the ultimate
consumer or acquire adjacent businesses; expansion through Integration takes place. This is exploring Vertical and Horizontal
dimensions of Grand Strategy. Expansions are pivoted around present base of customers. Scope of business definition is widened.
Alternative technologies are used for backward or forward integration. The firm moves up or down the value chain. The firm aims at
cost economics. It is also one type of ‘Make or Buy’ decision. All integration strategies require Trade-offs. There are two types of
Integrations. Integration strategy gives more control on Value chain but carry a risk as industry is set to serve same customer group
and in case product fails or becomes obsolete.

Vertical Integration = When an organisation start making new products that serve its own need or is for self consumption.

• Backward Integration means retreating to source of raw materials while forward integration moves the organisation to its
ultimate customers.

• Horizontal Integration: When an organisation takes up the same type of products at the same level for production or for
marketing. Many a times Horizontal Integration is a merger of like industries.

Expansion through Diversification= Several firms diversify to reduce the risk of dependence on product and same set of customers.
Diversification involves all dimensions of Strategic Alternatives. It could be internal or external, related or unrelated, horizontal or
vertical, technological etc. It changes business definition.

Concentric Diversification: The activity is related to existing business definition either in businesses, customer groups & functions
and /or alternative technology. It could be market related concentric diversification as different products for same set of customers or
Technology related Diversification as related technology to the present business or combination of Market & Technology related
diversification.

Conglomerate diversification: Diversification in activities which are totally unrelated to existing business definition of one or more
of its businesses. (ITC – Tobacco & Hotel, Essar – Shipping & Steel, Shriram – Nylon Fibre & Ball bearings, etc.

Co-operation& Internationalisation
Expansion through Co-operation:

1. Mergers Strategy

2. Takeovers or Acquisitions Strategy.

3. Joint Ventures Strategy.

4. Strategic Alliances Strategy

Expansion through Internationalisation:

1. International Strategy.

2. Multi-domestic Strategy.

3. Global Strategy.

4. Trans-national Strategy

Strategic Planning Gap

Strategic gap analysis is a business management technique that requires an evaluation of the difference between a business endeavor's
best possible outcome and the actual outcome. It includes recommendations on steps that can be taken to close the gap. Strategic gap
analysis aims to determine what specific steps a company can take to achieve a particular goal. A range of factors including the time
frame, management performance, and budget constraints are looked at critically in order to identify shortcomings.
Concentration Strategies = A strategic approach in which a business focuses on a single market or product. This allows the company
to invest more resources in production and marketing in that one area, but carries the risk of significant losses in the event of a drop in
demand or increase in the level of competition. It includes intensive growth and integrative growth

Ansoff Matrix

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing
products in new or existing markets. The output from the Ansoff product/market matrix is a series of suggested growth strategies
which set the direction for the business strategy. These are described below:

Market penetration

Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing
markets. Market penetration seeks to achieve four main objectives: Maintain or increase the market share of current products – this
can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources
dedicated to personal selling Secure dominance of growth markets Restructure a mature market by driving out competitors; this would
require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for
competitors Increase usage by existing customers – for example by introducing loyalty schemes A market penetration marketing
strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have
good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in
new market research.

Market development
Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.
There are many possible ways of approaching this strategy, including: New geographical markets; for example exporting the product
to a new country

New product dimensions or packaging: for example

New distribution channels (e.g. moving from selling via retail to selling using e-commerce and mail order)

Different pricing policies to attract different customers or create new market segments

Market development is a more risky strategy than market penetration because of the targeting of new markets.

Product development

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets.
This strategy may require the development of new competencies and requires the business to develop modified products which can
appeal to existing markets. A strategy of product development is particularly suitable for a business where the product needs to be
differentiated in order to remain competitive. A successful product development strategy places the marketing emphasis on:

Research & development and innovation

Detailed insights into customer needs (and how they change)

Being first to market

Diversification

Diversification is the name given to the growth strategy where a business markets new products in new markets. This is an inherently
more risk strategy because the business is moving into markets in which it has little or no experience. For a business to adopt a
diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of
the risks. However, for the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.

Stability strategies

The corporation may choose stability over growth by continuing its current activities without any significant change in direction. The
stability family of corporate strategies can be appropriate for a successful corporation operating in a reasonably predictable
environment. Stability strategies can be very useful in short run but can be dangerous if followed for too long.

Pause and proceed with caution strategy

It is employed by the firm that wish to test the ground before moving ahead with a full fledged grand strategy, or by firms that have an
intense pace of expansion and wish to rest for a while before moving ahead. The purpose is to allow all the people in the organization
to adapt to the changes. It is a deliberate and conscious attempt to postpone strategic changes to a more opportune time. Pause /
Proceed – with – caution Strategy is a temporary strategy like profit strategy and is used for consolidation. It is used to test the ground
before going ahead with full-fledged Grand Strategy. Sometimes after a major expansion firms need to stabilise, allow strategic
change to percolate through organisation structure and allowing existing systems to adopt the strategy and the move for further
expansions. It is also used to bide the time for more opportune time and move on with rapid strides again.

No change strategy
It is a conscious decision to do nothing new. The firm will continue with its present business definition. When a firm has a stable
internal and external environment the firm will continue with its present strategy. The firm has no new strengths and weaknesses
within the organization and there are no opportunities or threats in the external environment. No new threat of substitutes and new
entrants. However, this should be a conscious decision and should not arise out of inactivity and owing to inertia. It is dangerous to be
complacent. Taking into account this situation the firm decides to maintain its strategy.

Profit strategy
–No firm can continue with the No – Change Strategy. Sometimes things do change and the firm is faced with the situation where it
has to do something. A firm may assess the situation and assume that its problem are short lived and will go away with time. Till then
a firm tries to sustain its profitability by adopting a profit strategy;

Retrenchment Strategies Retrenchment strategies are employed when the company if facing serious problems in its operations.
Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an organization's operations. Retrenchment is
also a reduction of expenditures in order to become financially stable.
Types of Retrenchment Strategies
• Captive Company. Essentially, a captive company's destiny is tied to a larger company. For some companies, the only way to stay
viable is to act as an exclusive supplier to a giant company. A company may also be taken captive if their competitive position is
irreparably weak.
• Turnaround. If your company is steadily losing profit or market share, a turnaround strategy may be needed.There are two forms of
turnarounds: First, one may choose contractions (cutting labor costs, PP&E and Marketing). Second, they may decide to consolidate
Bankruptcy. This may also be a viable legal protective strategy. Bankruptcy without a customer base is truly a bad place. However, if
one declares bankruptcy with loyal customers, there is at least a possibility of a turnaround.
• Divestment. This is a form of retrenchment strategy used by businesses when they downsize the scope of their business activities.
Divestment usually involves eliminating a portion of a business. Firms may elect to sell, close, or spin-off a strategic business unit,
major operating division, or product line. This move often is the final decision to eliminate unrelated, unprofitable, or unmanageable
operations.
• Liquidation. This is very simple. Take the book value of assets, subtract depreciation and sell the business. This may be hard for
some companies to do because there may be untapped potential in the assets.

Portfolio Strategies

It is the second layer of corporate strategies. In the strategic development directional and portfolio strategies should be integrated.
Directional strategies can be validated based on portfolio strategies. The business portfolio is the collection of businesses and products
that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive
opportunities. Portfolio models help to analyze the current businesses and decide strategies.

Purpose of Portfolio Strategies

To analyse its current business portfolio and decide which businesses should receive more or less investment, and to develop growth
strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses
should no longer be retained.
Business Portfolio Models

BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the business brand portfolio and
its potential. It classifies business portfolio into four categories based on industry attractiveness (growth rate of that industry)
and competitive position (relative market share). These two dimensions reveal likely profitability of the business portfolio in terms of
cash needed to support that unit and cash generated by it. The general purpose of the analysis is to help understand, which brands the
firm should invest in and which ones should be divested.

Cash Cows
Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with
relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash
flows that the company needs for its Stars. The recommended strategy is Hold here the company invests just enough to keep the SBU
in its present position
Question marks
Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they
have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors.
Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or
shrink? The recommended strategies are build, harvest or Divest
Dogs
Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets.
Dogs may generate enough cash to breakeven, but they are rarely, if ever, worth investing in. The recommended strategies are harvest
or divest (depend on the situation)
Limitations of BCG
Market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage.
The growth-share matrix overlooks many other factors in these two important determinants of profitability. The framework assumes
that each business unit is independent of the others. In some cases, a business unit that is a "dog" may be helping other business units
gain a competitive advantage. The matrix depends heavily upon the breadth of the definition of the market. A business unit may
dominate its small niche, but have very low market share in the overall industry. In such a case, the definition of the market can make
the difference between a dog and a cash cow.

GE Matrix
In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool
for screening GE's large portfolio of strategic business units (SBU). This business screen became known as the GE/McKinsey Matrix.
The GE matrix however, attempts to improve upon the BCG matrix in the following two ways:
The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength" whereas the BCG matrix uses the
market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit. The
GE matrix has nine cells vs. four cells in the BCG matrix.
In the business world, much like anywhere else, the problem of resource scarcity is affecting the decisions the companies make. With
limited resources, but many opportunities of using them, the businesses need to choose how to use their cash best. The fight for
investments takes place in every level of the company: between teams, functional departments, divisions or business units. The
question of where and how much to invest is an ever going headache for those who allocate the resources.

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In 1970s, General Electric was managing a huge and complex portfolio of unrelated products and was unsatisfied about the returns
from its investments in the products. At the time, companies usually relied on projections of future cash flows, future market growth
or some other future projections to make investment decisions, which was an unreliable method to allocate the resources. Therefore,
GE consulted the McKinsey & Company and as a result the nine-box framework was designed. The nine-box matrix plots the BUs on
its 9 cells that indicate whether the company should invest in a product, harvest/divest it or do a further research on the product and
invest in it if there’re still some resources left. The BUs are evaluated on two axes: industry attractiveness and a competitive strength
of a unit.

Industry Attractiveness

Industry attractiveness indicates how hard or easy it will be for a company to compete in the market and earn profits. The more
profitable the industry is the more attractive it becomes. When evaluating the industry attractiveness, analysts should look how an
industry will change in the long run rather than in the near future, because the investments needed for the product usually require long
lasting commitment.

Industry attractiveness consists of many factors that collectively determine the competition level in it. There’s no definite list of which
factors should be included to determine industry attractiveness, but the following are the most common: [1]

 Long run growth rate

 Industry size
 Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of substitutes and available
complements (use Porter’s Five Forces analysis to determine this)
 Industry structure (use Structure-Conduct-Performance framework to determine this)
 Product life cycle changes
 Changes in demand
 Trend of prices
 Macro environment factors (use PEST or PESTEL for this)
 Seasonality
  Availability of labor
 Market segmentation

Competitive strength of a business unit or a product

Along the X axis, the matrix measures how strong, in terms of competition, a particular business unit is against its rivals. In other
words, managers try to determine whether a business unit has a sustainable competitive advantage (or at least temporary competitive
advantage) or not. If the company has a sustainable competitive advantage, the next question is: “For how long it will be sustained?”

The following factors determine the competitive strength of a business unit:

 Total market share

 Market share growth compared to rivals
 Brand strength (use brand value for this)
 Profitability of the company
 Customer loyalty
 VRIO resources or capabilities (use VRIO framework to determine this)
 Your business unit strength in meeting industry’s critical success factors (use Competitive Profile Matrix to determine this)
 Strength of a value chain (use Value Chain Analysis and Benchmarking to determine this)
 Level of product differentiation
 Production flexibility

Advantages
  Helps to prioritize the limited resources in order to achieve the best returns.
 Managers become more aware of how their products or business units perform.
 It’s more sophisticated business portfolio framework than the BCG matrix.
 Identifies the strategic steps the company needs to make to improve the performance of its business portfolio.

Disadvantages

 Requires a consultant or a highly experienced person to determine industry’s attractiveness and business unit strength as
accurately as possible.
 It is costly to conduct.
 It doesn’t take into account the synergies that could exist between two or more business units.

Strategic Implications
Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit based on its position on the
matrix as follows:
 Grow strong business units in attractive industries, average business units in attractive industries, and strong business units in
average industries.
 Hold average businesses in average industries, strong businesses in weak industries, and weak business in attractive industries.
 Harvest weak business units in unattractive industries, average business units in unattractive industries, and weak business
units in average industries

Parenting Strategies
  Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate
synergies across business units.

Parenting-Fit Matrix
 Parenting – Fit Matrix summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole.
This matrix emphasizes their fit with the Corporate parent Fit. This matrix composes of 2 dimensions: Positive contributions
that the parent can make and The negative effects the parent can make.

Heartland Businesses
Heartland Businesses should be at the heart of the corporation’s future. These Heartland Businesses have opportunities for
improvement by the parent, and the parent understands their critical success factors well. These businesses should have priority for all
corporate activities
Edge-of-Heartland Businesses
In these businesses some parenting characteristics fit the business, but other do not. The parent may not have all the characteristics
needed by a unit, or the parent may not really understand all of the unit’s strategic factors. E.g.: a unit in this area may be very strong
in creating its own image through advertising – a critical success factor in its industry. The corporate may however not have this
strength and tends to leave this to its advertising agency. If the parent forced the unit to abandon its own creative efforts in favor of
using the corporation’s favorite ad agency, the unit may struggle. Such business units are likely to consume much of the parent’s
attention, as the parent tries to understand them better and transform them into Heartland Businesses

Ballast Businesses
Ballast Businesses fit very comfortably with the parent corporation but contain very few opportunities to be improved by the parent.
Like cash cows may be important sources of stability and earnings. But if environmental changes, ballast could move to alien territory.
Therefore corporate decision makers should consider divesting this unit as soon as they can get a price that exceeds the expected value
of future cash flows.

Alien Territory Businesses

Alien Territory Businesses have little opportunities to be improved by the corporate parent, and a misfit exists between the parenting
characteristics and the units’ strategic factors. There is little potential for value creation but high potential for value destruction on the
part of the parent. The corporation must divest this unit while it still has value.
Value Trap Businesses
Value Trap Businesses fit well with parenting opportunities, but they are a misfit with the parent’s understanding of the units’ CSF.
This is where the corporate headquarters can make its biggest error. It mistakes what it sees as opportunities for ways to improve the
business units’ profitability or competitive position.
• E.g.: To make the unit a world-class manufacturer (because the parent has world-class manufacturing skills) it may not notice that
the unit is primarily successful because of its unique product development and niche marketing expertise.