STRATEGIES

Unit - 3
Corporate Level Strategy
Corporate-Level Strategy should allow a company, or
one of its business units, to perform the value-creation
functions at lower cost or in a way that allows for
differentiation and premium price.
Corporate strategy is used to identify:
1. Businesses or industries that the company should
compete in
2. Value creation activities which the company should
perform in those businesses
3. Method to enter or leave businesses or industries
in order to maximize its long-run profitability
Corporate Strategy/Grand Strategy
Corporate Strategy / Grand Strategy provides overall
direction for the firm irrespective size, whether its is
small or large firm. It can be evolved by
 Stability Strategy ( no changes in the company’s
current activities)
 Growth Strategy (Expansion of the firm)
 Retrenchment Strategy (reduce the level of company’s
activities)
 Directional/Corporate Strategies
Growth
Concentration
Vertical Growth
Horizontal Growth
Diversification
Concentric
Conglomerate

Stability Retrenchment

Cautiously proceed Turnaround

Maintain Divest/Sale
Profit Liquidation
Stability Strategy
It involves continuing the current activities without any
changes in the organization. It focuses on the
incremental improvement in functional performance.
Some of the types are :
 Pause / proceed with caution strategy
 No change strategy
 The Profit strategy
Growth Strategy - Concentration
 Vertical Integration/Growth

- make new products to serve its own needs

- backward/forward integration
 Horizontal Integration/ Growth

- Same product - more customer group

- merger similar companies
Spartek Ceramics takeover of Neyveli Ceramics
Pros & Cons of Vertical Integration
Pros :
 It helps company to exercise control over critical sources
of supply
 It Limits competition in the concerned industry
 It helps to make investments in specialized assets
( specialized assets are to perform specific task, which
reduce the cost)
Cons :
 Cost disadvantage
 Technology changes
 Vertical integration to be a risk business if unstable
demand exist
Growth Strategy -Diversification
 Concentric diversification / Related Diversification
Marketing & technology related - rain coat manufacturer - rubber
based items - gloves, shoes
Technology related- leasing company - hire purchase
Marketing related - Unrelated technology (cosmetic & sewing
machines - women)
 Conglomerate diversification / Unrelated Diversification
- Unrelated to customer groups, function, technology
ITC - Cigarette & Hotel
TTK group - Chemicals, hosiery, contraceptives
Sony’s Corporate-Level Strategy

9
Retrenchment Strategy-TURNAROUND
STRATEGIES
Reversing a negative trend
Retrenchment - internal/external - improve internal
efficiency - Divestment/liquidation
Danger signs:
Persistent negative cash flows
Negative profits
Declining market share
Deterioration in physical facilities
High turnover, low morale, Mismanagement
Uncompetitive products, sick company
Retrenchment Strategy-Divestment
Divestment
- (divestiture or cutback) - sale of or
liquidation of a portion of business
- SBU or profit center
1. Spinning it off - financially and managerially
independent company with stake
2. Sell a unit outright
Kelvinator India - spin-off - Avanti scooters - high
production cost
Retrenchment Strategy-Liquidation
 Rarely - large companies liquidate
 Buyers rare for purchase of assets
 Court, voluntary, subject to supervision of court
Business Level Strategy
Business-level strategy
A plan of action to use the firm’s resources and
distinctive competencies to gain competitive advantage.
Abell’s “Business Definition” process
Customer needs – product differentiation (what)
Customer groups – market segmentation (who)
Distinctive competencies – competitive actions (how)
Choosing a Generic Business-Level Strategy
Product/Market/Distinctive-Competency Choices and
Generic Competitive Strategies

Cost
Leadership Differentiation Focus
Product Low High Low to high
Differentiation (principally (principally by (price or
by price) uniqueness) uniqueness)

Market Low High Low

Segmentation (mass market) (many market (one or a few
segments) segments)

Distinctive Manufacturing Research and Any kind of

Competency and materials development, sales distinctive
management and marketing competency
Cost Leadership Strategy
Organization which adopt cost leadership strategy, try
to produce goods/services at a lower cost than other
players and try to out perform others
 The Cost leader can charge lower price than
immediate competitors and achieve higher profit and
competitors
 When rivalry increases in the industry at a later stage
with price competition, the cost leader can survive and
withstand the competitive forces and make above
average profits
It focus on :
 Low level product differentiation
 average customers
 ignores market segmentation
 Lower price attracts customers
 Goal is to increase efficiency by developing distinctive
competencies in manufacturing and materials
management
 Low cost strategy for controlling budgets
 R&D for lower cost of manufacturing
Cost advantage arise from different factors
like
 efficient scale economies
 benefits of early entry
 a large market share
 local advantage
 synergy between functions
 experience curve effects
 dropping unprofitable customers
 minimum R&D expenses
 just-in-time inventory
Its Advantages:
 Low Cost
 Arrival of substitute products can be managed
 Rivalry can be avoided
 Best bargaining power
Its disadvantages:
 Competitors imitate the low cost method
 Low cost technology may be a threat
 technological changes make economics of scale
completely obsolete and cost leader’s position is risky
in these circumstances.
Differentiation Strategy
Companies which pursue differentiation strategy create
products which are perceived as unique by customers,
and they charge premium price, which is above industry
average. It focus on,
 High level product differentiation
 Brand Image
 Best quality & Unique Product
 Innovation plays a vital role
 price
 Many market segments for different group of peoples
Its Advantages:
 Differentiation develops Brand Loyalty
 Unique Product
 Company’s long term ability to sustain perceived
differences
 Competitive advantage
Focus Strategy
It is pursued to serve the needs of a limited customer
group or segment. It pay attention to serve a particular
market niche, which may be defined geographically, by
type of customers, or by segment of product line.
Its Advantages:
 It safe guards from the competitors
 It allows the company to stay close to the customers
 Customer loyalty is developed in the market niche
 It lessens the threat from substitutes
 Similar product can’t get from any where
Its Disadvantages:
 A focuser produces in small volume so production
cost often exceeds that of low cost producer
 Powerful supplier are threat to a focused company
Choosing an investment Strategy at
business Level
While choosing a business level strategy in terms of
products/market/distinctive competency, the choice of
investment strategy to support the chosen business
level strategy in order to gain a competitive advantage.
In investment strategy ,the company has to pay more
attention on the following :
 The Strength of a company’s position in the industry
relative to competitor
 The stage of the industry life cycle in which the
company is a part
Competitive position :
 The strength of the company is assessed on the basis of
market share and its development, which are unique and
inimitable. The companies with strong market share with
unique distinctive competencies are in strong position.
 The companies with meager market share and little
capacity of developing distinctive capabilities are in a
weak position. They are less attractive for investment.
Life cycle effect:
Different stages of industry life cycle are embryonic
stage, growth stage, shakeout stage, maturity stage and
declining stage. each stage is characterized by a
particular industry environment with opportunities, risk,
threats and implications for resources.
Choosing an investment strategy at a
business level
Stages of Strong Weak Competitive
Industry Life Competitive position
cycle position
Embryonic Share Building Share Building
Growth Growth Market Concentration
Shakeout Share Increasing Market
concentration/harvest/
Liquidation
Maturity Hold and maintain Harvest/liquidation/
Profit divestiture
Decline Market Turn around, liquidation
concentration, or divestiture
Harvest or asset
reduction
Competitive Tactics
A “Tactic” is a specific operating plan that contributes
to strategy implementation in terms of when and
where it should be put into action. It is consider as a
link between strategy formulation and
implementation. It is consider as crucial because many
companies fails due to poor tactics.
It’s Types:
 Timing Tactics
 Market location tactics
 Defensive tactics
 Timing Tactics – When to complete
 Market Tactics – Where to complete
Some of the major offensive tactics are
o Frontal attack
o Flanking maneuver
o Bypass attack
o Encirclement and
o Guerilla warfare
 Defensive Tactics-To reduce the probability of attack
o Raising Structural Barriers
* Offer full line of products for every profitable market
* Increase of scale of economics to reduce cost of
production
* Control over technologies through patents and
license
* Tie up with suppliers
* working with government
o Increasing Expected Retaliation
o Lowering the Inducement for attack