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STRATEGIC MANAGEMENTASSIGNMENT – 2

BY:GAUTAM C.N5

SEM ‘C’REG NO:08BMC08141

Grand Strategies

Strategy Formulation is a strategic planning or long range-planning. This processis primarily analytical, not action oriented. This process involves scanningexternal and internal environmental factors, analysis of the strategic factors andgeneration, evaluation and selection of the best alternative strategy appropriateto the analysis.Identification of various alternative strategies is an important aspect of strategic management as it provides the alternatives which can be considered andselected for implementation in order to arrive at certain result. At this stage,the managers are able to complete their environmental analysis and appraisal of their strengths and they are in a position to identify what alternativesstrategies are available for them in the light of their organizational mission.In this there are four main strategies:1) Stability strategy2) Growth/Expansion Strategy3) Retrenchment strategy4) Combination strategy

Stability strategy

The basic approach is ‘maintain present course: steady as it goes.’In an effective stability strategy, companies will concentrate their resourceswhere the company presently has or can rapidly develop a meaningfulcompetitiveadvantage in the narrowest possible product-market scope consistent with thefirm’s resources and market requirement's.

Reasons for adopting Stability Strategies:

Managers of small business desire a satisfactory level of profits rather than increasedprofits.Maintenance of status quo involves less risk than a more growth strategy.Change may upset the smooth operations and result in poor performanceespecially, if the firm considers itself successful with the present level of operations.Changing operations to pursue a more aggressive growth strategyusuallyrequires an increased investment and managerial support. Firms, whichcannotprovide resources, may continue with the stability strategy.Some executives maintain with the stability strategy due to inertia for change.In some cases, firms are forced to adopt stability strategy, if they operatein a low-growth or no-growth industry.

Firms that dominate its industry through their superior size and competitiveadvantage may pursue stability to reduce their chances of being prosecuted for engaging in monopolistic practices.Smaller firms that concentrate on specialized products or services maychoose stability because of their concern that growth will result in reducedquality and customer service.Examples of Stability Strategies adopted by companies:Steel Authority of India has adopted stability strategy because of over capacity in steel sector. Instead it has concentrated on increasing operationalefficiency of its various plants rather than going for expansion. Othersindustries are ‘heavy commercial vehicle’, ‘coal industry.Apart from over capacity, regulatory restrictions in some industries haveforced companies to adopt stability strategy. Cigarette, liquor industries fall inthis category because of strict control over capacity expansion. Both theseindustries require license under the provisions of Industries (Development andregulations) Act, 1951.Many companies in public sector have been forced to adopt stabilitystrategybecause of government’s policy of cutting the role of public sector andbudgetarysupport for expansion of these companies has been withdrawn.

2. Growth/Expansion Strategies

A growth strategy is one that an enterprise pursues when it increases its level of objectives upward in significant increment, much higher than an exploration of itspast achievement level. The most frequent increase indicating a growth strategy isto raise the market share and or sales objectives upward significantly.If we look at the corporate performance in the recent years, we find how thevarious organizations have grown both in terms of sales and profit as well asassets. For example: Reliance Industries Limited, Nirma Limited.Organizations may select a growth strategy to increase their profits, sales and/or market share. They also pursue growth strategy to reduce cost of production per unit. Growth Strategies involve a significant increase in performance objectives.These strategies are adopted when firms remarkably broadens the scope of their customer groups, customer functions and alternative technologies either singly or in combination with each other.

Reasons for adopting Growth Strategies:

Growth Strategy is taken up because of managerial motivation to do so.Managers with high degree of achievement and recognition always prefer to grow.There are certain intangible advantages of growth. These may be in the formof increased prestige of the organization, satisfaction to employees and socialbenefits. Example: Growing companies have high level of prestige in the corporateworld, e.g., Reliance, Infosys, Hindustan Unilever, etc.