Unit III

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UNIT 3

Levels at which Strategy


Operates
Levels at which Strategy Operates
Corporate Level Strategies
Stability Strategy
Stability Strategy

Stability strategy in strategic management means an organization will


retain its current strategy, and it will continue focusing on its current
products and markets.

Stability strategy in strategic management does not focus on policies


like, investing in new projects (new factories) purchasing capital assets,
gain market share etc.

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

Modest Growth Strategy


In this type of stability strategy in strategic management
company do not want to make growth plans, the company
puts the same goal or target from last year.
Let’s say, the company has a 15% growth in the last
quarter, so now they adopt for the same growth this year.
This is the easiest strategy to opt for as it does not requires
investments or resources nor it has huge risk involved.
Stability Strategy

Sustainable Growth Strategy


A sustainable growth strategy is adopted by the company
when the company do not have a comfortable outside
environment.
Like, the company won’t have growth prospects while the
economy is going down or recession.
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

The Expansion Strategy is adopted by an organization when it attempts to


achieve a high growth as compared to its past achievements.

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)

The baby diaper company expands its customer groups by


offering the diaper to old aged persons along with the babies.
The stock broking company offers the personalized services to
the small investors apart from its normal dealings in shares and
debentures with a view to having more business and a diversified
risk.
The banks upgraded their data management system by
recording the information on computers and reduced huge
paperwork. This was done to improve the efficiency of the banks.
Expansion Strategy
Expansion Strategy

The Expansion through Concentration is the first level form of


Expansion Grand strategy that involves the investment of resources in
the product line, catering to the needs of the identified market with the
help of proven and tested technology.

The strategy followed when an organization coincides its resources into


one or more of its businesses in the context of customer needs, functions
and technology alternatives, either individually or collectively, is called
as expansion through concentration.
Expansion Strategy

Market Penetration
Strategy Market Development Product Development
Type of Type of
Concentration Concentration
Expansion Strategy

The Expansion through Integration means combining one or more


present operation of the business with no change in the customer groups.
This combination can be done through a value chain.

The value chain comprises of interlinked activities performed by an


organization right from the procurement of raw materials to the
marketing of finished goods.

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

Vertical integration: The vertical integration is of two types:


forward and backward.
When an organization moves close to the ultimate customers, i.e. facilitate the sale
of the finished goods is said to have made a forward integration.
Example, the manufacturing firm open up its retail outlet.
Whereas, if the organization retreats to the source of raw materials, is said to have
made a backward integration.
Example, the shoe company manufactures its own raw material such as leather
through its subsidiary firm.
Horizontal Integration: A firm is said to have made a horizontal integration when
it takes over the same kind of product with similar marketing and production levels.
Example, the pharmaceutical company takes over its rival pharmaceutical company.
Expansion Strategy

Expansion through Diversification is followed when an organization


aims at changing the business definition, i.e. either developing a new
product or expanding into a new market, either individually or jointly.
A firm adopts the expansion through diversification strategy, to prepare
itself to overcome the economic downturns.
Generally, the diversification is made to set off the losses of one business
with the profits of the other.
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

Expansion through Cooperation


is a strategy followed when an organization enters into a
mutual agreement
with the competitor
to carry out the business operations
and compete with one another at the same time,
with the objective to expand the market potential.
Expansion Strategy
Expansion Strategy

Expansion through Cooperation


Merger:
The merger is the combination of two or more firms wherein one
acquires the assets and liabilities of the other in the exchange of cash or
shares,
or both the organizations get dissolved, and a new organization came
into the existence.
The firm that acquires another is said to have made an acquisition,
whereas, for the other firm that gets acquired, it is a merger.
Expansion Strategy

Expansion through Cooperation


Takeover:
Takeover strategy is the other method of expansion through
cooperation.
In this, one firm acquires the other in such a way, that it
becomes responsible for all the acquired firm’s operations.
The takeovers can either be friendly or hostile.
In the former, both the companies agree for a takeover and feels
it is beneficial for both.
Expansion Strategy

Expansion through Cooperation


Joint Venture:
Under the joint venture, both the firms agree to combine and carry out
the business operations jointly.
The joint venture is generally done, to capitalize the strengths of both
the firms.
The joint ventures are usually temporary; that lasts till the particular
task is accomplished.
Expansion Strategy

Expansion through Cooperation


Strategic Alliance:
Under this strategy of expansion through cooperation, the firms unite
or combine
to perform a set of business operations,
but function independently and pursue the individualized goals.
Generally, the strategic alliance is formed to capitalize on the expertise
in technology or manpower of either of the firm.
Expansion Strategy

Expansion through Internationalization


is the strategy followed by an organization
when it aims to expand beyond the national market.
The need for the Expansion through Internationalization arises
when an organization has explored all the potential
to expand domestically and
look for the expansion opportunities
beyond the national boundaries.
Expansion Strategy

Expansion through Internationalization


Expansion Strategy

Expansion through Internationalization


International Strategy:
 The firms adopt an international strategy to create value
by offering those products and services to the foreign markets
 where these are not available.
This can be done, by practicing a tight control over the operations
in the overseas and providing the standardized products
with little or no differentiation.
Expansion Strategy

Expansion through Internationalization


Multi domestic Strategy:
Under this strategy, the multi-domestic firms
offer the customized products and services
that match the local conditions
operating in the foreign markets.
Obviously, this could be a costly affair
because the research and development,
production and marketing are to be done
keeping in mind the local conditions prevailing in different countries.
Expansion Strategy

Expansion through Internationalization


Global Strategy:
The global firms rely on low-cost structure
and offer those products and services
to the selected foreign markets
in which they have the expertise.
Thus, a standardized product or service
is offered to the selected countries
around the world.
Expansion Strategy

Expansion through Internationalization


Transnational Strategy:
Under this strategy, the firms adopt the combined approach
of multi-domestic and global strategy.
The firms rely on both the low-cost structure
and the local responsiveness
i.e. according to the local conditions.
Thus, a firm offers its standardized products and services
and at the same time makes sure that
it is in line with the local conditions prevailing in the country, where it
is operating.
Retrenchment 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.

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