STRATEGIC MANAGEMENT

A
CONCEPT ON STRATEGIC THINKING
AND MODUS OPERANDI FOR SURVIVAL
IN 21st CENTURY
By
Dr. JANAK V. SHELAT

1
 WHY STRATEGIC THINKING?
 Companies are operating in age of discontinuing change - an age of creative & constructive
destruction.
 Business, technology and product life is shrinking.
 Demographic shift in terms of consumer preference and requirements.
 A direct promotion from Agricultural economy to service or Hi-tech economy in the new growth
economy.
 A concept from liberalization, privatization & Globalization (LPG) to regionalization.
 Shift from controlled economy to market driven economy.
 Rich countries adopt deindustrialization.
 Emergence of new Global Socio – economic system and world orders.
 Self-leadership is in, command and control out
 Networks are replacing hierarchies
 Wanted - employees with Emotional Intelligence.
 Forcing company transformation
 Market access & branding changing – disintermediation of traditional distribution channels
 Balance of power shift to consumer
 Competition changing
 Pace of business increasing
 Internet purchasing beyond traditional boundaries
 Knowledge key asset – source of competitive advantage. It is replacing Infrastructure

 Other Current Trends –

 Increasing environmental awareness
 Growing health consciousness
 Expanding seniors market
 Impact of the Generation Y boom let
 Declining mass market
 Changing pace and location of life
 Changing household composition
 Increasing diversity of workforce & market
2
 BASIC CONCEPTS
 STRATEGY: It is Unified, Comprehensive, and Integrated
long term plan that relates to the strategic advantages of
the firm to the challenges of the environment.
 STRATEGIC MANAGEMENT: It is a stream of decisions
and actions which leads to the development of an
effective strategy to help achieve the corporate
objective. It is a continuous, iterative, & Cross functional
process of matching firm with its environment.
 COMPETITIVE ADVANTAGE: is delivering superior
value advantage to your target customers relative to
your competitors. Or delivering equivalent customer
value to your target customers relative to your
competitors , but at a lower cost.

3
Strategic Competitiveness
Achieved when a firm successfully formulates
and implements a value-creating strategy

Sustained Competitive Advantage

Occurs when a firm develops a strategy that
competitors are not simultaneously implementing
Provides benefits which current and potential
competitors are unable to duplicate

Above-Average Returns
Returns in excess of what an investor expects to
earn from other investments with similar risk
4
 WHAT IS BUSINESS?

PRODUCT

MARKET FUNCTION

What Business the Firm is in?

Why the Firm is in the Business?
What should be Firm’s Business?

5
 GAP OUT PUT

VISION VALUE SYSTEM

FIRM/BUSINESS
MISSION
OBJECTIVES

PURPOSE

BASIC INFRASTRUCTURE AND FRAME WORK OF A FIRM

6
 MISSION & GOALS OF A COMPANY
 VISION: It is a vividly descriptive image of what you
what to be or what you want to be known for. Vision is
an art for seeing invisibles.
 MISSION : It a statement of intent of “what a firm wants to
create and through which line of Business”. It is a process of
legitimization of corporate existence of business. It defines
the culture, philosophy and grand design of the firm. To
pursue the Creation of Value to all Stakeholders in the
Business. It is an answer to question – “What business are
we in?”
 GOALS / OBJECTIVES : End to be achieved. It is
 To make Profit for today and forever
 To satisfy Customers today and forever
 To satisfy Employees today and forever
7
Strategic
Planning

8
Challenge of Strategic Management

Only 16 of the 100 largest U.S. companies at

the start of the 20th century are still
identifiable today!

In a recent year, 44,367 businesses filed for

bankruptcy and many more U.S. businesses failed

Competitive success is transient...unless care is

taken to preserve competitive position 9
 Three Big Strategic
Questions
 Where Are We Now?

 Where Do we Want
to Go?

 How Will We Get

There?

10
 Crafting a Strategy
 HOW to out compete rivals and win a
competitive advantage.
 HOW to respond to changing industry
and competitive conditions
 HOW to defend against threats to the
company’s well-being
 HOW to pursue attractive opportunities

11
What is a Strategic Plan?
 A strategic plan
specifies where a
company is
headed and HOW
management
intends to achieve
the targeted
levels of
performance.

12
 Characteristics of Strategic Management
Decisions

.
Greater risk,cost,
and profit potential

Corporate-level Greater need for

decisions flexibility

Longer time horizons

13
 Characteristics of Strategic
Management Decisions (contd.)

.
Implement overall strategy

Involve action-oriented
Functional-
Functional- operational issues
level
level
decisions
decisions Are relatively short range
and low risk

Incur only modest costs

14
 Characteristics of Strategic
Management
Decisions (contd.)
Bridge decisions at
. corporate and functional
levels

Are less costly, risky, and

Business-level potentially profitable than
decisions corporate-level decisions

Are more costly, risky, and

potentially profitable than
functional-level decisions

15
 Strategic Management Basic model
Options on
Learning
Competitive
points from
Positioning
deviations
Four Basic Elements

Strategic management is the process of moving where you are

to where you want to be in future – through
sustainable competitive advantages
16
 VISION GAP
VALUE
STRATEGIC
IMPLEMEMTATION
BASIC
MISSION FIRM STRATEGIES
GOAL ORGANISATION
DESIGN
MACRO ENVIRO STRATEGIC
APPRAISAL ALTERNATIVES
FUNCTIONALLEVEL
STRATEGIES &
RESOURCES
MICRO ENVIRO ALLOCATION
APPRAISAL OF BUSINESS LEVEL
INDUSTRIES STRATEGIES
DEVELOPMENT
OF
MICRO ENVIRO CONTROL
APPRAISAL OF STRATEGIC
FIRM SELECTION
Is
Strategy
Working?

STRATEGIC PLANNING DESIGN AND IMPLEMENTATION PROCESS 17

 The Five Task of Strategic
Planning
 Developing a Vision and a Mission
 Setting Objectives
 Crafting a Strategy
 Implementing and Executing Strategy
 Evaluating Performance, Reviewing the
Situation and Initiating Corrective Action

18
 Characteristic of the
Strategic Management
Process
 An ongoing exercise
 Boundaries among the tasks are blurry rather than
clear-cut
 Doing the 5 task is not isolated from other managerial
responsibilities and activities.
 The time required to do the tasks of strategic
management comes in lumps and spurts rather than
being constant and regular.
 Involves pushing to get the best strategy supportive
performance from each employee, perfecting the
current strategy.

19
 ENVIRONMENTAL APPRAISAL

ENVIRONMENTAL ENVIRONMENTA
ANALYSIS L DIAGNOSIS
O S

T W
ETOP
SAP
OFPP

VALUATION PROCESS OF SWOT ANALYSI

20
Components of the General Environment
Economic

Demographic Sociocultural

Industry
Environment
Competitive
Environment
Political/ Global
Legal

Technological
21
 ENVIRONMENTAL FACTORS

GOVERNMENTAL
ECONOMICAL

POLITICAL /LEGAL
TECHNOLOGICAL

FIRM/BUSINESS
GLOBAL
DEMOGRAPHIC

SOCIOCULTURAL

22
Components of the General Environment

23
Variables in Societal Environment

24
International Societal Environments

25
Industry Analysis

26
 Porter’s Approach to Industry Analysis

Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders

Rivalry Among Firm in an Industry

27
 DETERMINENT OF BUYER’S
POWER
 Bargaining Leverage
(a) Buyer’s Concentration
(b) Buyer’s Volume
(c) Buyer’s Switching Cost
 Price Sensitivity

(a) Price / Total Purchase

(b) Impact on Quantity/ Performance
(c) Buyer’s Profit.
28
 Porter’s Approach to Industry Analysis

Threat of New Entrants –

Economies of scale
Proprietary Product differentiation

Capital requirements

Switching costs

Access to distribution channels

Cost disadvantages

Government policy

Proprietary Low Cost Design

Stage in Learning/ Experience Curve

29
 Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms –

Number of competitors
Rate of industry growth (Slow)

Product or service characteristics

Amount of fixed costs

Lack of differentiation or Switching Cost

Capacity augmentation in large

increament
Height of exit barriers

Diversity of rivals

High strategic Stakes

30
 Porter’s Approach to Industry Analysis

Threat of Substitute Products or Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

Relative Power of Other Stakeholders

31
 Porter’s Approach to Industry Analysis

Threat of New Entrants –

Economies of scale

Proprietary Product differentiation

Capital requirements

Switching costs

Access to distribution channels

Cost disadvantages

Government policy and Regulations

Stage in Learning Curve

32
 Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms –

Number of competitors
Rate of industry growth

Product or service characteristics

Amount of fixed costs

Capacity

Height of exit barriers

Diversity of rivals

33
 Pressure from Substitute
Products
The threat from substitute products is high
when:
 The price-performance tradeoff offered by
the substitute product is attracive.
 The switching costs for prospective buyers
are minimal.
 The substitute products are being produced
by industries earning superior profits.

34
 Bargaining Power Buyers

The bargaining power of a buyer group

is high when:
 Its purchases are large relative to the

sales of the seller .

 Its switching costs are low.

 It poses a strong threat of backward

integration.

35
 Bargaining Power Suppliers
Suppliers have strong bargaining power when :
 Few suppliers dominate and the supplier group is

more concentrated than the buyer group.

 There are hardly any viable substitutes for the

products supplied.
 The switching costs for buyers are high.

 Suppliers do present a real threat forward

integration.

36
PORTFOLIO
ANALYSIS

37
 Corporate Strategy

Portfolio Analysis --

Resource commitment on best

products to ensure continued success

Resource commitment on new costly

products high risk

38
Stages of the Industry Life Cycle

39
40
 PRODUCT LIFE CYCLE
 Most product sales observed over long periods can be portrayed
as bell shaped curves – Product life cycle curves which can be
typically divided into four stages: Introduction, Growth, Maturity
and Decline.
 Product Life Cycle asserts four things.
 1. Products have limited life.
 2. Product Sales pass through distinct stages, each posing
different challenges, opportunities and problems to the seller.
 3. Profits rise and fall through different stages of the life cycle.
 4. Products require different marketing, financial, manufacturing,
purchasing and H.R. strategies in each life cycle stage.
 Growth-Slump-Maturity pattern (small kitchen appliances)
 Cycle Recycle Pattern
 Scalloped Pattern (succession of PLC’s; eg: Nylon)

41
 INTRODUCTION - STRATEGIES
•Sales growth tends to be slow - Delays in production capacity
expansion /technical problems; Distribution/retail chains being put up;
sales expensive as conversion rates are lower (innovators).
•Promotion at the highest ratio to sales – inform customers, induce
trial and secure distribution in retail outlets.
•Prices tend to be high as costs are higher.

Hi
SLOW RAPID
SKIMMING SKIMMING
PRICE

SLOW RAPID
PENETRATION PENETRATION
Lo Hi
PROMOTION 42
 PLC - GROWTH STAGE
 Introduction is followed by a stage marked by rapid climb in
sales. Companies starts to eye for market share.
 Growth is a period of rapid market acceptance & substantial
profit improvement.
 Innovators, early adaptors like the product and continue to
buy the product while middle majority starts trying.
 New competition as sales and profits are growing. The stage
where we see entry of competition in large numbers.
 Prices remain where they are or fall slightly to allow better
penetration or for entry into other segments.
 Time noted for the introduction of variants/ brand extensions.
 Companies maintain promotion at same or higher level.
Profits increase even with higher promotion costs as it gets
spread over higher sales volume.
4343
 PLC - GROWTH STAGE
 MARKETING STRATEGIES
 Firm improves product quality and adds new features and
models.
 Enters new market segments.
 Enters new distribution channel.
 Advertising focus shifts from awareness / knowledge to
Interest/desire/conviction.
 Prices should be reduced (or low priced variants launched)
at the right time to attract the next level of price sensitive
customers.
 Faces tradeoff between high market share to high current
profit.
 Firm that pursues market expansion strategy will improve its
competitive position.
44
44
 PLC - MATURITY STAGE
 Many products which we see around us are in the maturity
stage of PLC.
 A stage characterized by the slow down in the growth rate.
 Most of practical Marketing management deals with a
mature product. Hence the most important phase in PLC.
 Three Phases
 1. Growth Maturity: Sales growth starts to fall due to
distribution saturation. Growth predominantly due to trial by
laggards.
 2. Stable Maturity: Most potential customers have tried the
product. Future sales governed by population growth and
replacement demand.
 3. Decaying Maturity: Absolute level of sales decline.
 Slow down in sales growth causes over-capacity -----
Intensified competition ----- price wars ---- profit Erosion----
weak exit. 45
 MATURITY STAGE STRATEGIES
 R&D spends are increased to find better versions.
 Increased advertising spends.
 More Consumer / Dealer cuts.
 Three types of interventions are taken up by Marketers.
 1. Market Modification:
 Company should not try to conserve but should try &
expand market for its Brand.
 Sales vol. = No. of users X usage rate.
 Try expand the no. of Brand Users by:
 Convert non users: Attempts to convert non coffee drinkers
to try coffee.
 Enter new market segments: Johnson & Johnson baby
shampoo for adults, Cerelac adapted for the senile.
 Win competitors customers: Pepsi/Coke, NIIT/Apple.
46
 MATURITY STAGE STRATEGIES
 Volume can also be increased by focusing on the Current
Users – convincing them to use more.
 More frequent use: Biscuits an all time snack, Coke instead
of coffee/tea, clinic shampoo, variety of SKU, vending
machines.
 More usage per Occasion: Shampoo giving better results in
two rinsing, more SKU’s.
 New more varied uses: Recipe route tried out by microwave
oven manufacturers, Sachets by shampoo manufacturers
for travelers, Arm & Hammer Baking soda as a refrigerator
deodorant.
 2. PRODUCT MODIFICATION
 Stimulate sales by modifying the product’s characteristics
by improvements in quality, feature and style.
47
 STRATEGIES FOR MATURE STAGE
 2. PRODUCT MODIFICATION
 Quality Improvement:
 Functional performance improved- for cars, TV, white
goods - New Improved eg: Santro Xing, Indica V2.
 Plus launch - from FMCG manufacturers --------- stronger,
bigger, better,– Lifebuoy Plus.
 Aimed at triggering Brand switching
 Style Improvement:
 Aimed at increasing aesthetic appeal.
 Periodic intro of color variants by auto manufacturers.
 Consumer/packaged food bringing packaging /color
variants.
 Advantages: Unique identity / can secure loyal customers.
 Major disadvantage arises from the fact that it is difficult to
judge customer preferences --- risk of losing those who
liked earlier version
48
 STRATEGIES FOR MATURE STAGE (contd.)
 Advantages of feature improvements
 Build progressive and leadership image for co. (Maruti)
 New features can be made optional (adapted or dropped
easily).
 Helps to win loyalty of some segments.
 Cost effective publicity.
 Can generate enthusiasm for sales force and dealers.
 Main disadvantage is that many of these can be easily
imitated.
 3. Marketing Mix Modifications:
 Product Manager should also try to stimulate sales by
modifying Mktg. Mix.
 Price: Decision whether a price cut will attract new
customers.
 Trying price specials, early bird discounts, easier credit
terms to retain loyal customers..
49
 MATURITY STAGE STRATEGIES
 3. Marketing Mix Modifications:
 Advertising: Change message- copy, media- vehicle mix,
timing/frequency, to target new audience.
 Build new brand identity / image.
 Direct comparison Ads about competition.
 Sales Promotion: Step up trade discount
 Price offs, Rebates, warranties, festival offers, gifts etc.
 Personal selling: should the quality of sales people or their
area of specialization need to be changed.
 Questions on territory revisions; incentive plans; planning of
sales call etc.
 Services: can the company speed up delivery. Extending
technical services.
 Disadvantages: can be easily copied. Mass distribution and
penetration efforts may not help – can lead to profit erosion.
50
 STRATEGIES FOR DECLINE STAGE
 Sales of most products/brands eventually decline –.
 1. Technological advancements in the product category.
 2. Consumer shifts in taste & perception.
 3. Increased domestic & foreign competition------
 price cutting/ over capacity/ profit erosion.

 Sales may plunge to zero or gradually fall for a long period.

 As sales decline, profits fall. Some of the weaker firms
withdraw.
 Those remaining drop smaller market segments & marginal
trade channels to conserve profits.
 They may cut their promotion budgets and may reduce prices
further.
 Unless strong reasons for retention exist, carrying a weak
product is very costly to the firm.
 It can delay aggressive search for alternatives/replacement.
51
 STRATEGIES FOR DECLINE STAGE
 MARKETING STRATEGIES:
 1. Increase firms investment (Dominate the market or to
strengthen its competitive position)
 2. Hold investment level until uncertainties about the
industry are resolved.
 3. Decreasing investment selectively. (Unprofitable target
groups/ markets/ products will have to be identified and
instead look for strong niche’s.)
 4. Harvesting: milking to recover cash quickly (Brands with
high loyalty can continue longer without any investments).
 5. Divest the business quickly by disposing off its assets
as advantageously as possible.
 Drop Decision:
 Sell/transfer to someone
 Should drop slowly or fast.
 Inventory/service level to be maintained.
52
 P.L.C WEAKNESSES
 No Uniform Shape:
 An ‘S’ shaped curve describes only shape of PLC while most
of them vary or are unique.
 Unpredictable Turning Points:
 While most products do peak and then fall there is no
specific turning point.
 Difficult to Decide the Stages:
 A dormant sales (flat) pattern may denote the product has
reached maturity while it may be just that the product has
touched a plateau before another growth period.
 Tendency to drop a product due to such readings can turn
out to be fatal due to the risks involved in new product
development.
53
 P.L.C WEAKNESSES
 Unclear Implications:
Growth phase may or may not be associated with
high profit margin.
 Rapid growth can be associated with low profits and
decline can be very profitable.

 Product Oriented:
 Fails to understand the changes in the requirement
of customers / strategies of competitors,
attractiveness of new market to competitors/
Emergence of technologies etc.
 Technologies, needs/ demands, product categories
have different driving forces.
54
 P.L.C WEAKNESSES
 No Uniform Shape: An s shaped curve describes only shape
of PLC while most of them vary or are unique.
 Unpredictable Turning Points: While most products do peak
and then fall there is no specific turning point.
 Difficult to Decide the Stages : A dormant sales (flat)
pattern may denote the product has reached maturity while
it may be just that the product has touched a plateau before
another growth period. Tendency to drop a product due to
such readings can turn out to be fatal due to the risks
involved in new product development
 Unclear Implications: Growth phase may or may not be
associated with high profit margin. Say rapid growth can be
associated with low profits and decline can be very
profitable.
 Product Oriented: Fails to understand the changing
requirement of customers / strategies of competitors,
attractiveness of new market to competitor-ors /
Emergence of technologies etc.
 Technologies, needs/ demands, product categories have
different driving forces.

55
 Boston Consulting Group
(BCG) Matrix
 When a firm’s divisions compete in different
industries, a separate strategy often must be
developed for each business.
 To enhance and formulate strategies.
 To manage its portfolio of businesses
 Focuses on relative market share position and
the industry growth rate.

56
 BCG Matrix
Relative Market Share Position
High Medium Low
1.0
High
Industry Sales Growth Rate

Stars Question Marks

IV III

Med

Cash Cows Dogs

I II
Low

57
 BCG Matrix
 Pie Chart corresponds to corporate
revenue generated by that business unit.
 The pie slice indicates the proportion of
division’s profit.
 Divisions located
 Quadrant I is called Cash Cows,
 Quadrant II is called Dogs.
 Quadrant III is called Question Marks,
 Quadrant IV is called Stars,

58
 BCG Portfolio Matrix
MARKET SHARE DOMINANCE
HIGH LOW
MARKET GROWTH RATE

High growth High growth

HIGH

Market leaders Low market share

Require cash Need cash
Large profits Poor profit margins

$$
LOW

Low growth Low growth

High market share Low market share
High cash flow Minimal cash flow

59
Cash Cows
 High relative market share but compete in a
low-growth industry
 Generate cash in excess of their needs
 Milked i.e. cash for other purposes
 Manages to maintain strong position as long
as possible
 Product development
 Concentric diversification
 Retrenchment or divestiture if the division
becomes weak

60
Dogs
 Low relative market share and
compete in a slow- or no-growth
industry
 Weak internal and external position
 Liquidation
 Divestiture
 Retrenchment

61
Question Marks
 Low relative market share—compete
in a high growth industry
 Cash needs are high
 Cash generation is low
 Decision: strengthen by pursuing an
intensive strategy, e.g. to sell them.

62
Stars
 High relative market share and a high
industry growth rate
 Represent the organization’s best
long-run opportunities for growth and
profitability.
 Substantial investment to maintain or
strengthen their dominant position.
 Integration strategies
 Intensive strategies
 Joint ventures
63
BCG Matrix

64
 BCG Portfolio Matrix
Example
MARKET SHARE DOMINANCE

HIGH LOW

Sub-Notebooks Integrated
MARKET GROWTH RATE

and Hand-Held phone/Palm

Computer devices
HIGH

PROBLEM
STAR CHILD

Laptop and Mainframe

Personal Computer
Computers
LOW

CASH
COW DOG

65
 BCG Matrix & Benefit
 Setting the path for growth
 Knowing dead investments
 Draws attention to the cash flow,
 Investment characteristics
 Needs of an organization’s various
divisions.
 To achieve a portfolio of divisions
that are Stars.

66
 BCG Matrix Limitations
 Viewing every business as a star, cash cow,
dog, or question mark is overly simplistic.
 Middle of the BCG matrix is not easily classified.
 The BCG matrix does not reflect whether or not
various divisions or their industries are growing
over time.
 Other variables besides relative market share
position and industry growth rate in sales are
important in making strategic decisions about
various divisions.

67
G.E Strategic Planning Model
Business Strength
Strong Average Weak

Industry Attractiveness
High

Medium

Low

Business Strength Index Industry Attractiveness Index

* Market Share * Market size
* Price Competitiveness * Market Growth
* Product Quality * Industry Profit Margin
* Customer Knowledge * Amount of Competition
* Sales Force and Effectiveness * Seasonality
* Geographic Advantage * Cost Structure
68
* Others * Etc.
 GE Business Screen (Portfolio Analysis)

C
Winners Winners
A Question
High B Marks

Winners
Industry Attractiveness

E Average
Businesses
F
Medium
Losers

H
Losers
G

Low
Profit
Producers Losers

Strong Average Weak

Business Strength/Competitive Position

69
70
71
 Leader - major resources are focused upon the
SBU.
 Try harder - could be vulnerable over a longer
period of time, but fine for now.
 Double or quit - gamble on potential major SBU's
for the future.
 Growth - grow the market by focusing just enough
resources here.
 Custodial - just like a cash cow, milk it and do not
commit any more resources.
 Cash Generator - Even more like a cash cow, milk
here for expansion elsewhere.
 Phased withdrawal - move cash to SBU's with
greater potential.
 Divest - liquidate or move these assets on a fast as
you can.

72
 McKinsey’s 7 S Model

Strategy

Structure Systems
Super
Ordinate
Goals-
Shared
Values
Style Skills

Staff 73
74
Constructing Corporate Scenarios

75
 IFAS

76
EFAS

77
SFAS Matrix

78
 SWOT analysis of strengths,
weaknesses, opportunities,and threats.

79
TOWS Matrix

80
CREATING STRATEGIC
MIND SET

81
 Corporate Strategy

Three Key Issues:

 Firm’s directional (CORPORATE)
strategy
 Firm’s portfolio (BUSINESS LEVEL)
strategy
 Firm’s parenting (FUNCTIONAL LEVEL)
strategy

82
 Initiation of Strategy

•New CEO

•External intervention Stimulus

for change
Triggering •Threat of change in
ownership
in
event
strategy
•Performance gap

•Strategic inflection point

83
 Corporate Strategy

Directional Strategy –

Orientation toward growth

Expansion, contraction, status quo
Concentration or diversification
Internal development or acquisitions,

mergers, or alliances
3 Grand Strategies
Growth strategies
Stability strategies
Retrenchment strategies

84
Corporate Directional Strategies

COMBINATION STRATEGIES

DERIVED STRATEGIES
85
 STRATEGIC VARIATIONS -
EXPANSION
 INTERNAL: Add new product, product line, market,
functions, redefine/ reposition of product – market.
 EXTERNAL : Take over, acquisition, merger.
 RELATED : Synergic diversification.
 UNRELATED: Non – synergic diversification.
 HORIZONTAL: Supplementary/ Complementary
Expansion.
 VERTICAL: Integration.
 ACTIVE: R & D, Entrepreneurial development.
 PASSIVE: Imitation, adoption & adaptation.

86
 IGOR ANSOFF’S BUSINESS GROWTH MODEL
New products /New Markets
CO Unrelated
NEW CUSTOMERS BU RP
FOR EXISTING LINES SIN ORA Businesses
ES T
OF PRODUCTS S D E PL
NEW

E A
Related VELO NNI
MARKETS / CUSTOMERS

N
MARKET DEVELOPMENT Businesses – PME G
NT

EXISTING PRODUCTS NEW PRODUCTS FOR

IN EXISTING MARKETS EXISTING CUSTOMERS
EXISTING

Increase
Market Share NEW PRODUCT
Existing
SALES DEVELOPMENT, UPGRADES
Share of Business
MGMT.
EXISTING NEW
Products
PRODUCTS
* Corporate Strategy, I. Ansoff, Jan 1965, McGraw Hill, USA
87
 Corporate Strategy

Growth Strategies --

External mechanisms

Mergers

Acquisitions

Strategic alliances

88
 EXTERNAL GROWTH
STRATEGIES

 TAKE OVER, AQUISION &

MERGER
BUYING FIRM SELLING FIRM

•Acquire Controlling interest} •TAKE OVER

•Acquire Assets and liabilities}
of selling Firm} •ACQUISION
•Acquire & merge of Assets }
liabilities of both the firms.} •MERGER

89
 WHY THE FIRM PURSURE EXTERNAL
EXPANSION
 To increase the firm’s stock..
 To increase the growth rate of the firm.
 To make good investments.
 To improve the firm’s earnings & stability.
 To balance or fill out the product line.
 To diversified the product line in mature state.
 To reduce the competition.
 To acquire the needed resources.
 For Tax purpose.
 To increase the efficiency and profitability.
 To diversify the owner’s holding.
 To deal with top management problems.

90
 CRITICAL ISSUES RELATED TO M & A
 STRATEGIC ISSUES:
It relates to the commonality of strategic interest. Strength of one
firm may be weakness of the other firm and vice versa. The firms
can create Synergy and complementing business situation.
 FINANCIAL ISSUES:
These are related to (a) Valuation of selling firms based on assets,
market standing, share prices, earning potential etc. (b) Sources of
financing for merger.
 MANAGERIAL ISSUES:
It relates to professional compatibility and acceptance of
managerial system of selling company.
 LEGAL ISSUES:
It is related to various issues of legal provisions such as Chapter V
of the Companies Act, the MRTP Act, and section 72A (I) of the
Income Tax Act OR Anti Trust Act, Sherman’s Act.
 CULTURAL ISSUES:
 It relates to the cultural compatibility of the organization, society,
market etc.
 LABOUR ISSUES: It relates to continuation of old staff and
subsequent relations.
 SOCIETAL ISSUES: It relates to the benefits of society and Social
compatibility.
 OTHER ISSUES: It relates to Political, Economic, Environmental
factors.

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 REASONS FOR FAILUR OF
EXTERNAL GROWTH
 Paying too much for the acquired firm.
 Assuming that a growing market or
product will be out standing in market.
 Leaping into merger without carefully
studying the consequences.
 Diversifying in to areas in which the firm
had too little knowledge.
 Buying too large a firm and thus incurring
an excessively large debt.
 Trying to merge disparate corporate
cultures.
 Counting on key personnel staying after
the merger.
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 Corporate Strategy

Growth Strategies - Related

2 Basic forms

Concentration

Diversification

93
 Corporate Strategy

Basic Concentration Strategies --

Vertical growth

Horizontal growth

94
 Corporate Strategy

Vertical Growth --
Vertical integration
Fullintegration
Taper integration
Quasi-integration
Long-term contract

Backward integration

Forward integration

95
 Corporate Strategy

Concentration --

Horizontal Growth
Horizontal integration

96
 Corporate Strategy

Basic Diversification Strategies --

Concentric Diversification

Conglomerate Diversification

97
 Corporate Strategy

Concentric Diversification --

Growth into related industry

Search for synergies

98
 Corporate Strategy

Conglomerate diversification --

Growth into unrelated industry

Concern with financial considerations

99
 DERIVED BUSINESS STRATEGIES

OFFENSIVE DEFFENSIVE CO-OPERATIVE

•RAISE STRUCTURAL •SYNDICATING (COLLUSION

•FRONTAL ASSAULT
BARRIER •STRATEGIC ALLIANCES
•FLANKING MANEUVER
•INCREASE EXPECTED •MUTUAL CONSORTIA
•BYPASS ATTACK
RETALIATION •JOINT VENTURE
•ENCIRCLEMENT
•LOWER INDUCEMENT FOR
•LICENSING ARRANGEMENT
•GUERRILLA WARFARE
ATTACK •VALUE CHAIN PARTNERSH

100
STRATEGIC ALLIANCE
(Partnering):
 It is a partnership of two or more corporations or business units to
achieve strategically significant objectives which can be mutually
beneficial. Some alliance are short term till the product is
established, while the others are longer lasting, resulting in merger.
The reasons for alliance are:

(a) To obtain technological, management and/or manufacturing capabilities.

(b) To enter into specific markets.
(c) To reduce financial risk.
(d) To reduce political and economic risk.
(e) To achieve or ensure competitive advantages in new businesses or markets
(f) It plays vital role in today’s market condition and environment to solve some
complicated issues.
(g) It provides vital role in providing the firms synergic strength.
(h) It helps to develop product, process, market & share the investment outlay
jointly.
(i) It facilitates the development of unique technological capabilities to meet the
challenges of technological revolution.
(j) It create a compulsion for alliance to enter in the local market through JV.
(k) Building brand image in local market is mostly possible through alliance.

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SPECIFIC ALLIANCE
 Production Alliance: Two or more companies share the
common manufacturing facilities, existing or new facilities.
 Marketing Alliance: Two or more companies share
marketing services expertise and facilities.
 Financial Alliance: Companies joint together in order to
reduce financial risks associated with the activities & share
the profit in proportion to financial contribution.
 Research & Development Alliances: Fast changing
technology, high cost of R & D and need of being ahead of
changes, force companies to form alliance in R & D area.
 Human Resources Alliance: Alliance for outsourcing

102
BREAK – UP OF ALLIANCE:
 Incompatibility between/among partners
in management style, financial position,
culture, business interest.
 Access to information.
 Distribution of Income.
 Change in business environment.
 Acquiring the strength of partner: The
companies over a period of alliance,
acquire the strengths of the partner and
starts new operations in competitions.

103
 Corporate Strategy

Stability Strategies --

Pause/proceed with caution

No change

Profit strategies

104
 Corporate Strategy

Retrenchment Strategies --

Turnaround
Captive Company Strategy
Selling out
Bankruptcy
Liquidation

105
STRATEGIC JOINT VENTURE
 Joint ventures (JV) are partnership in which two or
more firms carry out a specific project or business in a
selected area of industry in a form of new venture.
Ownership of the original firms remains unchanged.
Actually, corporate partnership are formed with
specific and time bound objectives which, once
achieved, leaves little reasons for the alliance to
continue. Joint venture can be temporary or it can be
long term. JV that last longer do so because their
objectives have been redesigned.
Every JV:
1. Has a scheduled life – cycle, which will end sooner or later (5 to 10
years)
2. Has to be dissolved when it has outlived its life – cycle.
3. Change in environment forces joint venture to be redesigned
regularly
4. Translations seek to absorb their partner’s competencies.
5. It is a contractual obligation on fragile platform.
106
Strategic reasons for
Formation of JV
1. Foreign firms are allowed to operate only if they enter
into a JV with local partner.
2. Size of the project may be very large and one company
accomplish it.
3. Some projects require multidimensional technology
that no one firm possesses. Firm with different, but
compatible technology may join together.
4. One firm with technology competence and another with
managerial competence join together.
5. A foreign firm with technology competence joins with a
domestic firm with marketing competence.
6. While setting up of an organization requires
surmounting hurdles such as import quota, tariffs,
nationalistic political interest and cultural road block,
Government’s support for the JV.
7. JV are undertaken for a variety of reasons like political,
economic or technological

TYPES OF JV:
(A) SPIDER WEB
(B) GO-TOGATHER & SPLIT
(C) SUCCESSIVE INTEGRATION
107
RETRENCHMENT STRATEGY
Common Retrenchment Strategies: Turnaround, restructuring,
Divesting, Bankruptcy, Liquidation
WHY FIRM GO FOR RETRENCHMENT:
 Prevalence of poor economic conditions.
 Competitive pressure may also cause firms to curtail their
operations.
 The comp. is not doing well or perceive itself as doing poorly.
 The comp. has not met its objectives and there is pressure
from shareholders, customers, or others to improve
performance.
 The external environment poses threats and internal strengths
are insufficient to face the threats.
 Better opportunities in the environments are perceived else
where were firms strength can be utilized.
 Inability to implement latest technology cause by tech.
revolution.
108