Unit III
Unit III
Unit III
This strategy is opted by the organization when the industry has slow
or no growth prospects.
Stability Strategy
Stability Strategy
No-Change Strategy
No-change stability strategy in strategic management means not to
adopt anything new, which means and to stay on current work. Stability
strategy is not meant there is no strategy adopted by the organization.
This means an organization is not working on any expansion. If the
organization is satisfied with earnings, they can adopt for stability
strategy.
In case the company can estimate some major problems in the external
environment which can disturb the business, at the time this strategy will
work fine.
Stability Strategy
Profit Strategy
Profit stability strategy in strategic management is
adaptable when the objective is to create more sales, in this
case, stability strategy is most suitable.
In this scenario, the company wants to generate more cash
and for that, they can even give up some of its market shares.
Stability Strategy
Pause Strategy
If the company has good growth years last years they can adopt
for pause strategy.
Pause strategy gives the time to the company for planning and
getting ready for future growth strategy.
It can also, be when the company is taking their steps very
carefully before they are taking a step of growth or expansion.
Another reason can be where the company want to improve their
internal processes to grab more opportunities in future.
Stability Strategy
Stability Strategy
Stability Strategy- Examples
Expansion Strategy
Expansion Strategy
In other words, when a firm aims to grow considerably by broadening the scope
of one of its business operations in the perspective of customer groups, customer
functions and technology alternatives, either individually or jointly, then it follows
the Expansion Strategy.
The reasons for the expansion could be survival, higher profits, increased
prestige, economies of scale, larger market share, social benefits, etc.
Expansion Strategy (Example)
Market Penetration
Strategy Market Development Product Development
Type of Type of
Concentration Concentration
Expansion Strategy
Thus, a firm may move up or down the value chain to focus more
comprehensively on the needs of the existing customers.
Expansion Strategy
Expansion Strategy
Concentric Diversification:
When an organization acquires or develops a new product or service that are closely
related to the organization’s existing range of products and services is called as a
concentric diversification.
For example, the shoe manufacturing company may acquire the leather
manufacturing company with a view to entering into the new consumer markets and
escalate sales.
Conglomerate Diversification:
When an organization expands itself into different areas, whether related or
unrelated to its core business is called as a conglomerate diversification.
Simply, conglomerate diversification is when the firm acquires or develops the
product and services that may or may not be related to the existing range of product
and services.
Expansion Strategy
Retrenchment Strategy
is adopted when an organization aims at reducing
its one or more business operations
with the view
to cut expenses and reach to a more stable financial position.
When a firm decides to eliminate its activities
through a considerable reduction in its business operations,
in the perspective of customer groups,
customer functions and technology alternatives,
either individually or collectively is called as Retrenchment Strategy.
Retrenchment Strategy
Retrenchment Strategy (Example)
The book publication house may pull out of the customer sales through market
intermediaries and may focus on the direct institutional sales. This may be done to
slash the sales force and increase the marketing efficiency.
The hotel may focus on the room facilities which is more profitable and may shut
down the less profitable services given in the banquet halls during occasions.
The institute may offer a distance learning programme for a particular subject,
despite teaching the students in the classrooms. This may be done to cut the
expenses or to use the facility more efficiently, for some other purpose.
Retrenchment Strategy
Turnaround Strategy
is a retrenchment strategy
followed by an organization
when it feels that the decision made earlier is wrong
and needs to be undone
before it damages
the profitability of the company.
Retrenchment Strategy
Turnaround Strategy
Following are certain indicators which make it mandatory for a firm to adopt this
strategy for its survival. These are:
Continuous losses
Poor management
Wrong corporate strategies
Persistent negative cash flows
High employee attrition rate
Poor quality of functional management
Declining market share
Uncompetitive products and services
Retrenchment Strategy
Turnaround Strategy
Dell is the best example of a turnaround strategy.
In 2006. Dell announced the cost-cutting measures and to do so; it started selling
its products directly,
but unfortunately, it suffered huge losses.
Then in 2007, Dell withdrew its direct selling strategy and started selling its
computers through the retail outlets and
today it is the second largest computer retailer in the world.
Retrenchment Strategy
Divestment Strategy
is 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 a business
or one or more of its strategic business units
or a major division,
with the objective to revive its financial position.
Retrenchment Strategy
Divestment Strategy
The divestment is the opposite of investment;
wherein the firm sells the portion of the business
to realize cash and pay off its debt.
Also, the firms follow the divestment strategy
to shut down its less profitable division and
allocate its resources to a more profitable one.
Retrenchment Strategy
Divestment Strategy
Following are the indicators that mandate the firm to adopt this strategy:
Continuous negative cash flows from a particular division
Unable to meet the competition
Huge divisional losses
Difficulty in integrating the business within the company
Better alternatives of investment
Lack of integration between the divisions
Retrenchment Strategy
Liquidation Strategy
is 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.
Retrenchment Strategy
Liquidation Strategy
Following are the indicators that necessitate a firm to follow this
strategy:
Failure of corporate strategy
Continuous losses
Obsolete technology
Outdated products/processes
Business becoming unprofitable
Poor management
Lack of integration between the divisions
Combination Strategy
Corporate Restructuring
Corporate Restructuring
is the process of making changes
in the composition of a firm’s one or more
business portfolios
in order to have
a more profitable enterprise.
Simply, reorganizing the structure of the organization
to fetch more profits
from its operations or is best suited to the present situation.
Corporate Restructuring
Corporate Restructuring
Financial Restructuring:
The Financial Restructuring may take place due to a drastic fall in the sales
because of the adverse economic conditions.
Here, the firm may change the
equity pattern,
cross-holding pattern,
debt-servicing schedule and
the equity holdings.
All this is done to sustain the profitability of the firm and
sustain in the market.
Corporate Restructuring
Organizational Restructuring:
changing the structure of an organization, such as
reducing the hierarchical levels,
downsizing the employees,
redesigning the job positions and
changing the reporting relationships.
This is done to cut the cost and
pay off the outstanding debt
to continue with the business operations in some manner.
Corporate Restructuring
Business Level Strategy
Business-level strategy
is an integrated and coordinated set
of
commitments and actions
the firm uses
to gain a competitive advantage
by exploiting core competencies
in specific product markets.
Business Level Strategies
Corporate Level Analysis
Corporate Level Analysis
GE Nine Cell Matrix
GE nine-box matrix is a strategy tool
that offers a systematic approach for the multi business
enterprises
to prioritize their investments
among the various business units.
It is a framework that evaluates business portfolio
and provides further strategic implications.
GE Nine Cell Matrix
GE Nine Cell Matrix
The vertical axis denotes:
Industry attractiveness
indicates how hard or easy it will be for a
company to compete in the market and earn
profits.
GE Nine Cell Matrix
When evaluating the industry attractiveness,
analysts should look how an industry will change in the long run rather than in the
near future, in terms of following parameters:
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
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
GE Nine Cell Matrix
Horizontal axis represent:
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.
GE Nine Cell Matrix
Evaluation Process
Total market share
Market share growth compared to rivals
Brand strength (use brand value for this)
Profitability of the company
Customer loyalty
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
GE Nine Cell Matrix
Green zone
Suggests you to ‘go ahead’, to grow and build, pushing you through
expansion strategies. Businesses in the green zone attract major
investment.
Yellow zone
Cautions you to ‘wait and see’ indicating hold and maintain type of
strategies aimed at stability.
Red zone
Indicates that you have to adopt turnover strategies of divestment and
liquidation or rebuilding approach.
GE Nine Cell Matrix
Advantages
· Helps to prioritize the limited resources in order to achieve the best returns.
· The performance of products or business units becomes evident.
· It’s more sophisticated business portfolio framework than the BCG matrix.
· Determines the strategic steps the company needs to adopt to improve the performance
of its business portfolio.
Disadvantages
· Needs a consultant or an expert to determine industry’s attractiveness and business
unit strength as accurately as possible.
· It is expensive to conduct.
· It doesn’t take into account the harmony that could exist between two or more business
units.