Corporate Level Strategic Alternatives
Corporate Level Strategic Alternatives
Corporate Level Strategic Alternatives
Strategic Alternatives
Strategy
A
strategy
is
a
unified,
comprehensive, and integrated plan
that relates the strategic advantages
of the firm to the challenges of the
environment. It is designed to ensure
that the basic objective of the
enterprise are achieved through
proper execution by the organization
Levels of Strategies
Stability
strategies
Expansion strategies
Retrenchment strategies
Combination
strategies
No change
strategies
Pause/proc
eed with
caution
strategies
Profit
strategies
Turnarou
Concentration
Integration
Diversification
Cooperation
nd
Divestm
ent
Liquidati
on
Internationalizat
Simultane
ous
Sequential
Combinati
on
of both
Stability Strategies
A firm pursues stability strategy when
1.It continues to serve the public in the
same product or service, market, and
function sectors as defined in its
business definition.
2.Its main strategic decisions focus on
incremental improvement of functional
performance.
Types of Stability
Strategies
1.No change strategies
2.Pause/proceed with caution
strategies
3.Profit strategies
No Change Strategies
Taking no decision sometimes, is a
decision too!
This
strategy
is
relevant
in
predictable and certain external
environment
and
stable
organizational environment.
Small and medium sized firms rely on
this strategy
Profit Strategies
Things do change
It is assumed that the problem is
short lived
Only motive is sustaining profitability
for a temporary phase
It works only if the problems are
really short lived
Pause/Proceed With
Caution Strategies
It is employed to test the ground
before moving ahead with a fullfledged corporate strategy
The purpose is to let the system
adapt to the new strategies
It is deliberate and conscious
attempt
Expansion
Strategies
Concentration strategies
Integration strategies
Diversification strategies
Cooperation strategies
Internationalization strategies
Digitalization strategies
Expansion Strategies
The corporate strategy of expansion is
followed when an organization aims at high
growth by substantially broadening the
scope of one or more of its business in
terms of their respective customer groups,
customer
functions
and
alternative
Expansion Strategies
Expansion through concentration
Expansion through integration
Expansion through diversification
Expansion through cooperation
Expansion through
internationalization
Expansion through digitalization
Concentration Strategies
Concentration is a simple, first-level type
of expansion strategy. It involves
converging resources in one or more of a
firm businesses in terms of their
respective customer needs, customer
functions, or alternative technologieseither singly or jointly- in such a manner
that expansion results.
Concentration Strategies
Concentration strategies involve an
investment of resources in a product
line for an identified market, with the
help of proven technology.
Ansoff Product-Market
Matrix
Three Types of
Concentration Strategies
Market penetration
Market development
Product development
Diversification
Market Penetration
Market penetration involves selling more
product to the same market: a firm may
attempt at focusing intensely on existing
markets with its present products, using
a
market
concentration.
penetration
type
of
Market Development
It involves selling the same products to
new markets: it may try attracting new
users for existing products, resulting in a
market
development
type
of
Product Development
It involves selling new products to the
same markets: it may introduce newer
products in the existing markets by
concentration on product development.
Eg: Nokia Lumia
Advantage of Concentration
Strategy
Involves minimal organizational changes
Enables the firm to master in one or a
few businesses and specialize in it
Helps to develop competitive advantage
Known situations leads to handle
problems prudently
High level of predictability puts decision
making under less pressure
Limitations of Concentration
Strategy
Concentration on one industry may affect
firm intensely
Product obsolescence, technology
upgradation, uncertainty of market pose
risk
Develops organizational inertia
Leads to cash surplus in mature stage of
business leaving less scope to invest in
same business, hence leads to integration
and diversification
Expansion Strategies
Expansion through concentration
Expansion through integration
Expansion through diversification
Expansion through cooperation
Expansion through
internationalization
Expansion through digitalization
Expansion
Through
Integration
Integration Strategies
Integration (from the Latin integer,
meaning whole or entire) generally
means combining parts so that they
work together or form a whole.
Integration strategies are designed to
widen scope of its business along with
same customer group and customer
function, changing its alternative
technologies undergo a change.
Horizontal Integration
When an organisation takes up the
same type of products at the same
level of production or marketing
process, it is said to follow a strategy
of horizontal integration.
Horizontal
Integration
Defined
Seeking
ownership or
increased
control over
competitors
Example
Takeover of United
Western Bank into
IDBI to increase its
retail presence
Benefits of Horizontal
Integration
Economies of scale
Economies of scope
Increased product differentiation
Increased market power
Replicating a successful business
model
Reduction in industry rivalry
Vertical Integration
When an organization starts making new
products that serve its own needs, vertical
integration takes place.
Backward integration: Any new activity
undertaken with the purpose of either
supplying inputs(such as raw materials)
Forward Integration: Serving as a
customer for outputs (such as marketing of
firm's product) is vertical integration.
Backward Integration
Backward integration is a form ofvertical
integrationthat involves the purchase of
suppliers. Companies will pursue backward
integration when it will result in improved
efficiency and cost savings.
For example, backward integration might cut
transportation costs, improveprofit
marginsand make the firm more competitive.
Backward
Integration
Defined
Seeking
ownership or
increased
control of a
firms
suppliers
Example
Reliance integrated
backwards by making
a foray in to polyester
filament yarn
business
Forward Integration
Forward integration is a business
strategy that involves a form
ofvertical integrationwhereby
activities are expanded to include
control of the direct distribution of its
products.
Forward
Integration
Defined
Gaining
ownership or
increased
control over
distributors or
retailers
Example
Comvita-Natural
healthcare product
Company acquired
Hong Kong
distributor
GreenLife Ltd to
access Asian
market easily
Expansion Strategies
Expansion through concentration
Expansion through integration
Expansion through diversification
Expansion through cooperation
Expansion through
internationalization
Expansion through digitalization
Expansion
Through
Diversification
Diversification Strategies
Concentric
Diversification
Types of Concentric
Diversification
Marketing-related concentric
diversification-: A similar type of product is
offered with the help of unrelated technology.
Technology-related concentric
diversification-: A new type of product or
service is provided with the help of related
technology.
Marketing-and technology-related
concentric diversification-: A similar type
of product or service is provided with the
help of a related technology.
Conditions/Reasons for
Concentric Diversification
Realizing financial synergies in terms of
transaction cost savings and tax savings
Realizing marketing synergies by
increased market power & multipoint
market contact with distributors and
customers
Realizing operational synergies through
utilizing human resource and skills for
another business
Conglomerate
Diversification
When an organisation adopts a
strategy which requires taking up
those activities which are unrelated
to the existing business definition of
any of its businesses, it is
conglomerate diversification.
Conditions/Reasons for
Conglomerate
Diversification
Expansion Strategies
Expansion through concentration
Expansion through integration
Expansion through diversification
Expansion through
internationalization
Expansion through cooperation
Expansion through digitalization
Expansion
Through
Internationalizati
on
Internationalization
Strategies
International strategies are type of
expansion strategies that require
organizations to market their products
or services beyond the domestic or
national market. For doing so, an
organization would have to assess the
international environment, evaluate
its own capabilities and devise
strategies to enter foreign markets.
Types Of
Internationalization
Strategies
International strategy-:
Firms adopt an international strategy when
they create value by transferring products
and services to foreign markets where these
products and services are not available.
Multidomestic strategy-:
Firms adopt a multidomestic strategy when
they try to achieve a high level of local
responsiveness by matching their products
and service offerings to the national
conditions operating in the countries they
operate in.
Types of
Internationalization
strategies
Global strategy-:
Firms adopt a global strategy when they rely
on a low-cost approach based on reaping the
benefits of experience-curve effects and
location economies and offering standardised
products and services across different
countries.
Transnational strategy-:
Firms adopt a transnational strategy when
they adopt a combined approach of low-cost
and high local responsiveness simultaneously,
for their products and services.
Advantages Of Expansion
Through
Internationalization
Advantages Of Expansion
Through
Internationalization
Disadvantages Of
Expansion Through
Internationalization
Disadvantages Of
Expansion Through
Internationalization
Expansion Strategies
Expansion through concentration
Expansion through integration
Expansion through diversification
Expansion through
internationalization
Expansion through cooperation
Expansion through digitalization
Expansion Through
Cooperative
Strategies
Cooperative Strategies
Cooperative strategies take into
account the possibility of mutual
cooperation with competitors, at the
same time competing with them so
that the market potential could
expand.
Types Of Cooperative
Strategies
Mergers and acquisitions
Joint Ventures
Strategic Alliances
Acquisitions:
When one company takes over the
other and rules all its business
operations, it is known as
acquisitions.
Horizontal mergers
Vertical mergers
Concentric mergers
Conglomerate mergers
Benefits of M&A
Brings synergy that offers a surplus power that
enables enhanced performance and cost
efficiency.
Increases cost efficiency because any kind of
merger actually improves the purchasing power
as there is more negotiation with bulk orders.
easy to maintain the competitive edge because
there are many issues and strategies that can e
well understood and acquired by combining the
resources and talents of two or more companies.
BASIS FOR
COMPARISON
MERGER
ACQUISITION
Meaning
Formation of a new
company
Yes
No
Nature of Decision
Friendly or hostile
decision of acquiring
and acquired
companies.
Minimum number of
companies involved
Purpose
To decrease
competition and
increase operational
efficiency.
For Instantaneous
growth
Size of Business
Disadvantages in joint
ventures
Problems in equity participation
Foreign exchange regulations
Lack of proper coordination among
participating firms
Cultural and behavioural differences
and the possibility of conflict among
the parteners
Strategic Alliances
Yoshino and Rangan define strategic
alliances in terms of three necessary
and sufficient characteristics:
Two or more firms unite to pursue a set
of agreed upon goals, but remain
independent subsequent to the
information of the alliances
The partners firms contribute on a
continuing basis, in one or more key
strategic area, for ex. technology
Types Of Strategic
Alliances
Procompetitive alliances (low
interaction/low conflict).
Noncompetitive alliances (high
interaction/low conflict).
Competitive alliance (high
interaction/high conflict).
Precompetitive alliance (low
interaction/high conflict).
Ways to manage
strategic alliance
1. Clearly define a strategy and assign
responsibility
2. Phase in the relationship between
partners
3. Blend the cultures of the partners
4. Provide for an exit strategy
Pitfalls In Strategic
Alliances
Lack of trust and commitment
Perceived misunderstandings among
partners
Conflicting goals and interests
Inadequate preparation for entering into
partnership
Hasty implementation of plans and focussing
on controlling the relationship rather than
on managing it for mutual benefits
Expansion Strategies
Expansion through concentration
Expansion through integration
Expansion through diversification
Expansion through
internationalization
Expansion through cooperation
Expansion through digitalization
Digitalization Strategies
Computerization, electronisation,
digitisation, networking and
telecommunication enables to merge all
types of information into a common
digital form by the process called as
digitalization.
Digitalization is defined as digital coding
of information and the growing
productivity gains in processing and
transmission it enable.
Retrenchment strategies
A retrenchment strategy is pursued by
a firm when:
It sees the desirability of or
necessity for reducing its product or
service lines, markets, or
functions
It focuses its strategic decisions on
functional improvement through
the reduction of activities in units
with negative cash flows.
Why Retrenchment
strategies?
The management no longer wishes to
remain in business either partly or
wholly, due to continuous losses and
the organization becoming viable
Stability can be ensured by
reallocation of resources from
unprofitable to profitable businesses
The environment faced is
threatening
Types of Retrenchment
strategies
Turnaround strategies
Divestment strategies
Liquidation strategies
TURNAROUND STRATEGIES
Turnaround strategy means to convert,
change or transform a loss-making
company into a profit-making company.
Turnaround strategy is an analytical
approach to solve the root cause failure of
a loss-making company to decide the most
crucial reasons behind its failure. Here, a
long-term strategic plan and restructuring
plans are designed and implemented to
solve the issues of a sick company.
TURNAROUND STRATEGIES
Reversing a negative trend
Retrenchment - internal/external - improve internal
efficiency - Divestment/liquidation
Reasons/conditions for turnover:
Persistent negative cash flows
Negative profits
Declining market share
Deterioration in physical facilities
High turnover, low morale, Mismanagement
Uncompetitive products, sick company
MANAGING TURNAROUND
Existing team - support external consultant - if C.E credibility rare
Existing team - withdraws temporarily - turnaround
specialist employed
Replace existing team / C.E
Approaches to Turnaround:
- Surgical
- Human approach
DIVESTMENT
Divestment Strategyis another form of
retrenchment that includes the
downsizing of the scope of the
business. The firm is said to have
followed the divestment strategy,
when it sells or liquidates a portion of
business or one or more of its strategic
business units or a major division, with
the objective to revive its financial
position.
Conditions/Reasons for
Divestment
LIQUIDATION
TheLiquidation Strategyis the most
unpleasant strategy adopted by the
organization that includes selling off its
assets and the final closure or winding up
of the business operations.
Difficult for large companies to liquidate
Buyers rare for purchase of assets
Court, voluntary, subject to supervision of court
Combination Strategies
Its main strategic decisions focus on
the conscious use of several grand
strategies
(expansion,
stability,
retrenchment)
at
the
same
time(simultaneously) in several SBUs of
the company.
Combination Strategies
It plans to use several grand
strategies at different future times
(sequentially)
Why Combination
Strategies?
If the organization is large and faces
complex environment
The organization is composed of
different businesses, each of which
lies in a different industry, requiring a
different response
Combination Strategies
Simultaneous combination
strategies
Sequential combination strategies
Combination of simultaneous and
sequential
astrategies