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Corp Strategy

Corp Strategy

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UNIT 2 INTRODUCTION TO CORPORATE STRATEGY

Objectives After reading this unit, you should be able to:
! ! ! ! ! !

explain the concept and nature of corporate management; acquaint yourself with the components and functions of corporate strategy; distinguish different levels of corporate strategy; identify various kinds of corporate strategies; discuss various schools of thought on corporate strategy formation; and underline significance and limitations of corporate strategy.

Structure 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Introduction Concept and Nature of Corporate Strategy Components of Corporate Strategy Functions of Corporate Strategy Levels of Corporate Strategy Kinds of Corporate Strategy Schools of Thought on Corporate Strategy formation Significance of Corporate Strategy Limitations of Corporate Strategy

2.10 Summary 2.11 Key Words 2.12 Self Assessment Questions 2.13 Further Readings

2.1

INTRODUCTION

The twenty fifth National Business Conference sponsored by the Harvard Business School Association in 1955 made one of the earliest attempts to discuss the concept of strategy. In 1965, Ansoff published a book “Corporate Strategy” which was based on his experiences at the Lock heed Aircraft corporation. Chandler’s historical study of the development of some of the American enterprises proposed strategy as one of the most important variables in the study of organizations. From the literature on strategic management, it is evident that strategic planning refers to the management processes in organizations through which the future impact of change is determined and current decisions are made to reach a designed future.

2.2
18

CONCEPT AND NATURE OF CORPORATE STRATEGY

The word strategy is derived from the Greek word “strategtia” which was used first around 400 B.C. This connotes the art and science of directing military forces. In

This definition has changed drastically what Ansoff had said earlier in 1965. “The pattern of objectives. The definition makes a distinction between intended strategies and emergent strategies. that defines the essential nature of business that the organization was or planned to be in future”. The definition stressed on the commonality of approach that exists in diverse organizational activities. At operational level. Corporate strategy is being formulated at the higher level of management. It is related to persue those activities which move an organization from its current position to a desired future state. globalization and liberalization. A few aspects regarding the nature of strategy are as follows: ! ! ! Corporate strategy is related mostly to external environment. It is derived from its policies. comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment and is designed to ensure that basic objectives of the enterprise are achieved through implementation process” The definition lays stress on the following: ! ! ! Introduction to Corporate Strategy It is a unified. The term “Corporate Strategy” is gaining importance in the era of privatization. A few definitions stated below may clarify the concept of corporate strategy: KENNETH ANDREWS(1955). William Glueck defines the term strategy as “the unified. It is concerned with the requisite resources to implement a plan. …………. purpose. goals and the major policies and plans for achieving these goals stated in such a way so as to define what business the company is in or is to be and the kind of company it is or is to be” This definition refers to the business definition. we may identify the following elements: ! ! ! ! It is a plan or course of action or a set of decision rules. Corporate strategy integrates three distinct and closely related activities in 19 . ANSOFF (1984) “Basically a strategy is a set of decision making rules for the guidance of organizational behavior. activities and product markets. IGOR ANSOFF(1965) explained the concept of strategy as “the common thread among the organizations. objectives and goals. HENRY MINTZBERG (1987) explains that “strategies are not always the outcome of rational planning. comprehensive and integrated plan Challenges of the environment are seen in the context of strategic advantage Strategy ensures achievement of basic objectives through proper implementation process From the definitions discussed above. there is no definite meaning assigned to strategy. operational strategies are also formulated.business parlance.a pattern in a stream of decisions and actions.

synergy. Ansoff has used the term “common thread” for the purpose. the series of decisions will be to enhance salesman’s commission. It requires systems and norms for its efficient adoption in any organization. vector. the business domain is defined specifically in terms of a product class. customer group. introduce total quality management and introduce new product range. If an organization has the objective to maximize sales. Corporate strategy provides an integrated approach for the organization and aids in meeting the challenges posed by environment. competitors may be ignored. Vector Corporate strategy has one more important component i. The steps to be taken must be competitively superior.e. It provides overall framework for guiding enterprise thinking and action. While making plans.Issues in Corporate Management strategy making. strategic implementation and strategic evaluation and control. 20 .3 COMPONENTS OF CORPORATE STRATEGY The major components of corporate strategy are purpose and objectives. Objectives are open-ended attributes denoting a future state. In this section. personal values and aspirations and social obligations. A few specific aspects about objectives are as follows: The objectives should ! ! ! ! ! have time frame be attainable be challenging be understandable be measurable and controllable For having clarity in objectives. the management should isolate unique features of the organization. release nationwide advertisement. 2. the different components of corporate strategy are discussed. Vector gives the directions within an industry and across industry boundaries which the firm proposes to pursue. Objectives translate the purpose into goals. The activities are strategic planning. Objectives Corporate objectives should be stated in such a way so that they may provide a clear idea about the scope of the enterprise’s business. Objectives give the direction for which action plan is formulated. Competitive Advantage Corporate strategy is relative by nature. Vector signifies that a series of decisions are taken in the same direction to accomplish the objectives. In the formulation of corporate strategy. It is concerned with a unified direction and efficient allocation of organization resources. market need or some other combination. According to him. the common thread is a statement of relationship between present and future product market postures. technology. competitive advantage. ! ! ! ! ! Corporate strategy is related to long term. Vector.

..................... It focuses attention upon changes in the organizational set up.... Synergy Synergy means measurement of the firm’s capability to take advantage of a new product market move... it exploits the most effective means to overcome difficulties and face competition................................................... it assists in the deployment of scarce resources among critical activities..... ................... Introduction to Corporate Strategy 2........................................ If decisions are made in the same direction to accomplish the objectives there will be synergic impacts........................................................................................................... ................................................ The corporate strategy will give the synergy benefit................................................................... respond and influence to look at changes................. Activity 1 1) As a layman.............. social................................................................................................................................................. we cannot ignore competitors.............. .....................................................................................4 i) FUNCTIONS OF CORPORATE STRATEGY It provides a dual approach to problem solving................................................. iv) It furnishes the management with a perspective whereby.......... the latter gives equal importance to present and future opportunities......... v) It provides the management with a mechanism to cope with highly complex environment characterized by diversity of cultural.......................................... 2) Distinguish between vector and synergy as components of corporate strategy............ ........However......................................... Corporate strategy performs the following functions: ii) iii) It offers a technique to manage changes..................................................................... ..... 3) State three functions of corporate strategy.. what do you understand by the concept of corporate strategy? .............................................................. ......... Secondly... .............. ................................ when we formulate corporate strategies........................ This aspect builds internal strength of the organization and enhance the quality of corporate strategy...................... ............... Firstly................................. .................................................................................................................................................................................. The management is totally prepared to anticipate...................... political and competitive forces......................... it cannot survive in a dynamic environment........................................................ If an organization does not look at competitive advantage........................................... It also offers a different way of thinking....................... ...... 21 .................................................................................................................................. administration of organizational process affecting behaviour and the development of effective leadership......

Figure 2. structural redesigning. takeovers. In this section. advertising. a brief description of these three levels of strategy is given: Corporate Level Strategy:. The example of first category can be that of Reliance Industries Ltd. diversification.Strategic business unit (SBU) managers are involved at this level in taking strategic decisions. Profit Potential 6. It is also known as functional level strategy. corporate level strategies are futuristic. market segmentation etc. acquisitions. Corporate planners and consultants may also be involved. sales promotion. It relates mainly with “how” aspect. At the corporate level. Levels of Decision Making Corporate Long Philosphical High Significant High High Poor Innovative Highest Levels Business Operating Functional Medium Short Mixed Operational Medium Low Major Insignificant Medium Low Medium Low Medium Significant Mixed Routine Middle Lowest 22 The strategies at different levels are interrelated to each other.1. Business level strategy is more specific and action oriented. Time Horizon 2.This level of strategy is at the operating end of the organization.. Operating Level Strategy:. They deal with a relatively restricted plan providing objectives for specific function. total quality management. liquidations come under corporate level strategies. The interrelationship between corporate strategy and functional strategies is shown in figure 2. They may be at corporate level. . These decisions relate to training. It is a highly integrated company producing textile yarns and a variant of petro chemical products. The corporate level strategy is related to “what” aspect of corporate strategy. mergers. allocation of resources among different operations within the functional area and coordination between them. Innovations 9. The second figure may be related to Ashok Leyland Ltd. Mostly. business level and operating level. Flexibility 7.It is believed that strategic decision making is the responsibility of top management.5 LEVELS OF CORPORATE STRATEGY Corporate strategy may exist at three levels in an organization. At business level. innovative and pervasive in nature. Risk Involved 4. business and functional strategies. This decision is almost tactical. These strategies relate to a unit within an organization. The following table shows distinctive characteristics of the three levels of strategy: Table 1: Statategic decisions at different levels of corporate strategy Dimensions 1. Business Level Strategy:. the objectives are formulated for SBUs and resources are allocated among functional areas. Decision like spreading the range of business interests.Issues in Corporate Management 2.2 shows the relationship between corporate. Adaptability 8. the board of directors and chief executive officers are involved in strategy making. Type of Decision 3. The SBU concept was considered in this case. investment in plant. These strategies operate under the defined scope of corporate level strategy. which is engaged in manufacturing and selling of heavy commercial vehicles. Impact 5.

A brief description about them are as follows: a) Stability Strategy.Introduction to Corporate Strategy C O R P O R AT E S T R AT E G Y C O R P O R AT E M A N A G E M E N T F U N C T IO N A L S T R AT E G IE S M ID D L E M A N A G E M E N T O P E R AT IO N S S T R AT E G Y M A R K E T IN G S T R AT E G IE S F IN A N C IA L S T R AT E G IE S PE RSO N N EL S T R AT E G IE S Figure 2. They operate through 23 . expansion. These strategic alternatives are also called as grand strategies.6 KINDS OF CORPORATE STRATEGY There are four grand strategic alternatives.It is followed when an organization aims at high growth.1: Corporate and Functional Strategies in Single SBU Firms C O R P O R AT E S T R AT E G Y CORPORATE MANAGEMENT MIDDLE MANAGEMENT SBU 1 S T R AT E G Y SBU 2 S T R AT E G Y SBU 3 S T R AT E G Y F U N C T IO N A L S T R AT E G IE S O P E R AT IO N S S T R AT E G Y M A R K E T IN G S T R AT E G IE S F IN A N C IA L S T R AT E G IE S PERSONNEL S T R AT E G IE S Figure 2. retrenchment and any combination of these three.2: Corporate SBU and Functional Stratgies in Multiple SBU firms 2. They are further classified as follows: i) ii) No change strategy Profit strategy iii) Pause/Proceed with caution strategy b) Expansion Strategy:. They are stability.It is adopted by an organization when it attempts to improve functional performance.

............................... Business strategies are of three types: Cost leadership (lower cost/ broad target)........................ c) Retrenchment Strategy:.... 24 ............ It is done through turnaround.. ....................... divestment and liquidation in either of the following three modes: i) ii) Compulsory winding up Voluntary winding up iii) Winding up under supervision of the court d) Combination Strategies:.........................................Issues in Corporate Management i) ii) Concentration Integration iii) Diversification iv) Cooperation v) Internationalization Mergers.... Activity 2 1) Identify at least four decision areas for each of the three levels of corporate strategy... International strategies are further classified into global strategy....................................... iii) TTK Ltd............. ............ transnational strategy................................................... The well known companies of the TTK group. ....................................................... TT industries & Textiles Ltd............................... differentiation (differentiation / broad target) and focus (lower cost or differentiation / narrow target)............ ...................... expansion and retrenchment either at the same time in different businesses or at different times in the same business....... adopted a restructuring plan in the late 1980s involving following strategies............................................................................................................... diversified into the field of non stick cooking utensils...... 2) Discuss the process of integrating corporate level strategy with business level strategy.... ........................................................ international strategy and multidomestic strategy........ .......... based in Southern India................................................It is followed when an organization aims at a contraction of its activities.......................... Planned for expansion through joint venture..............They are followed when an organization adopts a combination of stability...... Joint ventures and strategic alliances come under expansion through cooperation..................................... iv) TTK maps & publications expanded into the general publishing business after a turnaround...................................................................................... ......................... i) ii) Merger of TTK chemicals with TTK pharma....... takeovers.....................................................................................................

..........................(Ansoff) – Under this school..... ii) iii) Learning School (Weick........................ Quinn............ Senge and Lindblom) – This school perceives strategy formation as an emergent process........................................................ Introduction to Corporate Strategy 2................................................................................. 25 .......... The process is informal and messy and the lead role is played by the learner............................................................................................................. The lead role in strategy formation is played by the planners............................... ..... ................ a) ii) iii) The positioning school:............... b) The Descriptive Schools:......... six schools of thought are existing.............. three variations are found.....In this category...................................... Strategy is seen as the outcome of a personal and unique perspective often aimed at the creation of a niche... Cognitive School (Simon and March):– This school perceives strategy formation as a mental process.... several strands of thinking are emerging.............................. The process of strategy formation is based on judgment and thinking............ visionary and largely deliberate...... The brief description about them are as follows: i) The design school:................... Under this school.......................................................(Schendel-Hatten & Porter) – The process of strategy formation is analytical..... They can be classified under the following groups: ! ! ! The Prescriptive Schools The Descriptive Schools The Integrative Schools The prescriptive schools:......... ..............7 SCHOOLS OF THOUGHT ON CORPORATE STRATEGY FORMATION The subject of strategic management is in the midst of an evolutionary process.................... In this regard............ Their brief description is as follows: i) Entrepreneurial School (Schumpeter & Cole):–The process of strategy formation is intuitive........ 3) Give one example each of the three growth strategies in the Indian context........................................ .......................................... The lead role is played by the thinker philosopher...........................(Selzniek and Andrews) – Strategy is seen as something unique................................. strategy is seen as a set of planned generic positions chosen by a firm on the basis of an analysis of the competition and the industry in which they operate...... . .................. systematic and deliberate.............................. the strategy is seen as a plan divided into sub-strategies and programmes........................................ The planning school:...................................Under this category...............

episodic and sequential. constrained and deliberate. The process of stategy formation is messy. vi) Environmental School (Hanan. c) The Integrative School:– The major contributions to the configuration school are by Chandler. cumbersome and complicated. . Miles and Snow. the need for corporate strategic framework is more specific. The strategy formation process is integrative. money and effort. vii) Corporate strategy encourages the management to choose the best course of action to realize the objectives. strategy is seen as a collective perspective. The process of forming corporate strategy is complex. strategy is seen as political and cooperative process or pattern.8 SIGNIFICANCE OF CORPORATE STRATEGY In the present day competitive environment. no business organization can dream of survival without formulating appropriate corporate strategy. strategy is viewed in relation to a specific context and thus could be in a form that corresponds to any process visualized by above nine schools. vi) Corporate strategy improves the capability of management in coping with the volatile external environmental forces. This school perceives strategy formation as a negotiation process. Freeman and Pugh):– The lead role in strategy formation is played by the environment as an entity. Under this school. Developing appropriate corporate strategy is not a simple and economical proposition. viii) Strategy planning system provides an objective basis for measuring performance. 2. Corporate strategy motivates employees examples to shape their work in the context of shared corporate goals. v) Corporate strategy is a powerful tool to management to deal with the future which is uncertain and hazy in all respects. 2. They are not effective to overcome current exigencies. emergent and deliberate. The corporate strategy has the following specific limitations: 26 iii) The corporate strategy formulation process calls for considerable time.Issues in Corporate Management iv) Power School (Allison & Astley):– Under this school. As the environment is continuously changing. The following areas clearly show the importance of corporate strategy: i) ii) Corporate strategy rationalises allocation of scarce resources. For financially weak companies. iv) Organizational effectiveness is ensured through implementing and evaluating the strategy. iii) Strategy assists management to meet unanticipated future changes. This reactive process of strategy formation is passive and imposed and hence emergent. Corporate strategies are useful for long range problems. v) Cultural School (Rhenman and Normann):– Under this school.9 i) ii) LIMITATIONS OF CORPORATE STRATEGY The process of strategy formulation is not an easy one. The process of strategy formation is ideological. cost becomes a great hindrance.

........................ We also see upon the compendium of various perspectives to strategy formation that have evolved over a period of time............. Strategy is perceived as the unified................................................................................... retrenchment and combination of these three................................................................. ..................... Strategic business unit managers are involved for business level strategies.......................................................................... iii) Competitive Advantage......................................... The gap between formulation and implementation of corporate strategy does not give desired results to the organization..................................... the strategic planning system based on hazy and uncertain estimates is not exact................................................. Corporate strategy may exist at three levels in an organization................................................ ..... 2................................. integration................... These strategies are more specific and action oriented...................................... It is a long term overall framework for guiding enterprise thinking and action............................ v) Implementation of corporate strategy is influenced by organizational factors........... and iv) Synergy............................................................... Operating level strategies are formulated at the functional level..... Strategy is primarily related to external environment.............................10 SUMMARY The word strategy is derived from the Greek word “strategtia”............................... .............................................................................. ..................................... Introduction to Corporate Strategy Activity 3 1) Explain briefly the design schools and the entrepreneurial schools of thought on strategy formation............. Retrenchment strategy is carried out through turnaround... There are four grand strategic alternatives.................. corporation and internationalization........ ................. Expansion strategies operate through concentration.................... the descriptive school and the 27 ... ............................ diversification...iv) As future is uncertain and cannot be predicted accurately.............................. This integrated approach is developed by top management...................................................................................................... innovative and pervasive in nature................................ They are: stability............. The components of corporate strategy are – i) Objectives.................................. ..................... The 10 schools of thought on strategy formation have been grouped into the prescriptive school................................................................ ........................................................... ii)Vector............................................................................ Corporate level strategies are futuristic.. 2) State any four areas of significance to corporate strategy..................................................... .. divestment and liquidation................. .. .............. comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment....... It relates mainly with routines......... expansion................................................ .... 3) State any three limitations of corporate strategy......................................... behaviorial factors and motivational factors..................

What are the various levels at which a strategy may exist? Distinguish between corporate level strategy and business level strategy. Explain the significance and limitations of corporate strategy. Grand Strategies : Stability. State various schools of thought regarding strategy formation. coordination. 10) Name three companies and illustrate their corporate level strategies. This is related to ‘what’ aspect of corporate strategy. They are more specific and action oriented. Write notes on the following: a) b) c) 9) 28 Vector Synergy Business Level Strategy “Corporate level strategies are important for business level strategies” comment. 2. control and direction.Issues in Corporate Management integrative school. Name at least four Indian Companies under each of the grand strategies. expansion. Corporate Level Strategy : The top management involves themselves in futuristic. We should also not forget that corporate strategy formulation process is not only a different exercise but also it is a costly proposition and has only long term utility. Vector : It is the direction in which the firm will move regarding the product market complex. Corporate strategy has an important role to play in coping with environment. comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment. innovative and pervasive decisions. Explain the nature and components of strategy. Business Level Strategy : It relates mainly to ‘how’ aspect of corporate strategy.11 KEY WORDS Corporate Strategy : A unified. Synergy : It is the measurement of the firms capability to take advantage of a new product market move.12 SELF-ASSESSMENT QUESTIONS 1) 2) 3) 4) 5) 6) 7) 8) Discuss the concept of strategy. retrenchment and combination are the strategic alternatives and are named as grand strategies. It has great utility in planning. 2. .

A. New Delhi Kazmi. Tata Mcgraw Hill Publishing Co. (1997). New Delhi. and G. Management Policy and Strategic Management.. Ghosh. Subba. Meerut. “ Strategic Management” Mcgraw hill. “Business Policy and Strategic Management” Mc graw Hill. Den (1996). (2002).2.“Strategic Management: Awareness and Change”. P..B. Azhar. “Business Policy and Strategic Management”. . Himalaya Publishing House. (1996).L. Introduction to Corporate Strategy 29 .F and L. Pragati Prakashan. (2002).M. Business Planning and Policy.R. Sultan Chand & Sons. Iavch.13 FURHTER READINGS Shrivastava. Sultan Chand & Sons. L. Rao. R. J. New Delhi Miller. New York Thompson. New York. Glueck W. Prasad.K. 2001. R. Mamoria C. “Business Policy: Strategic Management”. G.. Himalaya Publishing House. London. Bombay. P.M. Mamoria Satish. (1984). Ltd.(1999). Shrivastava.. “ Business Policy Strategic planning and Management ”. International Thompson Business Press. Bombay. “ Corporate Strategic Management”. (1995).M.

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