STRATEGIC PLANNING

Corporate strategy is the game plan that actually steers the firm towards success. Formulation of corporate
strategy forms the crux of the strategic planning process. Corporate strategy is basically the growth design of
the firm, the growth objective of the firm. It also spells out the strategy for achieving the growth. Corporate
strategy is basically concerned with the choice of business, products and markets.
Features of Corporate strategy:
1. It can also be viewed as the objective strategy design of the firm.
2. It is the design for filling the firms strategic planning gap.
3. It is concerned with the choice of the firms products and markets.
4. It ensures that the right fit is achieved between the firm and its environment.
5. It helps build the relevant competitive advantages of the firm.
6. Corporate objectives and corporate strategy together describe the firms concept of business.
Success of Corporate strategy
In the first place it ensures the growth of the firm, and also ensures the correct alignment of the firm
with its environment.
It is the design for filing the strategic planning gap.
It also helps build the relevant competitive advantage.
The purpose of corporate strategy is to harness the opportunities available in the environment,
countering the threats in the environment.
It is to match unique capabilities of the firm with the promises and threats of the environment that it
achieves the task.
The responding to environment is part and parcel of the firms existence. Strategy is the opposite of ad hoc
responses to the changes in the environment. Strategy is partly proactive and partly reactive. Strategy is a
blend of proactive actions on the part of managers to improve the companys market position and financial
performance, and as needed reactions to unanticipated developments and fresh market conditions.
Dealing with strategic uncertainty
The external analysis will emerge with dozens of strategic uncertainties. Sometimes the strategic uncertainty is
represented by a future trend or event that has inherent unpredictability. Information gathering and analyzing
the information will not be useful. In such a situation scenario analysis can be employed. Scenario analysis
accepts the uncertainty as given and uses it to derive a description of two or more scenarios. Strategies are
developed for each scenario.

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Impact of strategic Uncertainty

Each strategic uncertainty involves potential trends or event that could have an impact on present, proposed
or even potential strategic business units (SBUs).
Corporate strategy formulation implementation process is a five- stage process:
Stage I: Developing a strategic vision
The company must determine what directional path the company should take and what changes in the
companys product should be made so that the current market position would improve. Top managements
views and conclusions about the companys direction and the product customer market technology constitute
a strategic vision of the company. Managers need to be clear about what they see as the role of their
organization, and this is expressed in terms of a statement of mission or strategic intent. The managers of the
subsidiary also need to be clear where they fit into the corporate as a whole. The importance of strategic
intent can help galvanize motivation. If strategic intent is absent, different levels of management pull the
organization in different directions.
Stage II: Setting objectives
Corporate objectives flow from the mission and growth ambition of the corporation. Basically, corporate
objectives represent the quantum of the growth of the firm seeks to achieve in a given time frame. The
purpose of strategic planning is to convert the strategic vision into specific targets. Managers have to use the
objective- setting exercise as a tool for achieving the objectives. While setting up the objectives the balance
scorecard approach should be adopted. This requires setting both financial and strategic objectives and
tracing their achievements. When the company is in a sound financial position, the managers should put more
efforts on emphasizing strategic objectives than on achieving financial objectives. Better financial results from
operations are possible when competitiveness and market strength are increased.There is a need for both long
term objectives and short term objectives. The long term objectives are established in the following 7 areas:

Profitability

Productivity

Competitive position

Employee development

Employee relations

Technological relations

Public responsibility

Long term objectives represent the results expected from pursuing certain strategies. Strategies represent
the actions to be taken to accomplish long- term objectives. The time frame is normally 2- 5 years.

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Characteristics of long term objectives

1. Acceptable
2. Flexible
3. Measurable
4. Motivating
5. Suitable
6. Understandable
7. Achievable
The objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical,
obtainable and congruent among organizational units. Clearly established objectives offer many
advantages. They provide direction, allow synergy, aid in evaluation, establish priorities, reduce
uncertainty, minimize conflicts, stimulate exertion, and aid in both allocation of resources and the design
of jobs. Objectives are normally stated in the form of:
Growth in assets
Degree and nature of diversification
Growth in sales
Degree and nature of vertical integration
Profitability
Earnings per share
Market share
Social responsibility
Short range objectives can be identical to long- range objectives. Short range objectives serve as stair steps
or milestones.
Strategic Intent: a company exhibits strategic intent when it relentlessly pursues ambitious strategic
objectives and concentrates its full resources and competitive actions on achieving those objectives. The
objectives should be set up for all levels of the management. It is a team effort to achieve the objectives.
Stage III: Crafting a strategy to achieve the objectives and vision
The companys strategies will be at full strength only when all the plans are capable of being executed.
Plans should be made by those persons who have understood the organizations requirements in full.

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Mid- level and front line managers cannot achieve good strategy- making without understanding the
companys long term directions and higher- level strategies. However, the frontline managers will be able
to provide new ideas for the growth of the organization.
The strategic plans should be made after taking into account the following:
1. Organizational strength and weakness( internal factors)
2. Competitors strength and weakness
3. Market needs, customer needs and product requirement
Stage IV: Implementing and executing the strategy
The entire policy should be converted into performance action by carrying out the required procedures.
The following aspect should be considered for converting the policies into performance actions:

Staffing the organization with the needed skills and expertise

Developing a budget to allocate the resources

Making out a list of all the available resources and providing optimum utilization

Proper motivation to employees

Proper operating environment

Performance based incentives

Good company culture and work climate.

Stage V: Monitoring developments, evaluating performance and making corrective adjustments.

The set of policies have to be monitored on a regular basis to find out the deficiency or loopholes in the
system. Sometimes, the policy may require some corrective actions due to developments and unforeseen
circumstances. The fine- tuning in the plans will provide the required outcome for the policy.
MICHAEL PORTERS GENERIC STRATEGY
According to Porter, Strategies allow organizations to gain competitive advantage from three different bases,
viz. cost leadership, differentiation and focus.
Cost leadership emphasizes producing standardized products at a very low cost per unit for the consumers
who are price- sensitive.
Differentiation is a strategy aimed at producing the products and services considered unique industry- wide
and directed at consumers who are relatively price- insensitive.

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Focus means producing the products and services that fulfill the needs of small group of consumers.
Porters strategy implies the need for different organizational arrangements, control procedures and incentive
systems. Larger firms compete on a cost leadership and / or differentiation basis, whereas smaller firms focus
on a competence basis.
Porter stresses on the need for strategies to perform cost- benefit analysis to evaluate sharing opportunities;
sharing activities and resources enhance competitive advantage by lowering the cost and raising
differentiation. He also insists on the firms to transfer skills and expertise among autonomous business units
effectively in order to gain competitive advantage. Depending upon factors such as type of industry, size of
firm and nature of competition, various strategies could yield advantages in cost leadership, differentiation
and focus.
Cost leadership strategies
These strategies should be in such a manner that the cost of production is reduced and the organization is able
to provide the product at a lesser selling price. A number of cost elements should be looked into which may
include the skills and resources required.
If the market is composed of price-sensitive buyers, the product should be manufactured at low cost, taking
into account the following plans:

Capital investment

Process engineering skills

Proper supervision of labour

Low- cost distribution system

Easy way of manufacturing the products.

Differentiation strategies
These offer different degrees of differentiation, but do not guarantee competitive advantage. Successful
differentiation can mean greater product flexibility, greater compatibility, lower costs, improved services, less
maintenance, greater conveniences, more features, etc. Product development is an example of a strategy
which offers the advantage of differentiation.This should be pursued only after careful study of buyers needs
and preferences. A successful differentiation strategy allows a firm to charge a higher price for its products and
to gain customer loyalty because customers may become strongly attached to the differentiation features.
Special features may include:

Superior service

Availability of spare parts

Engineering design

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Product performance

Useful life

Ease of use.

Focus strategy
This is the combination of above two strategies to cater to the need of a particular group of people who are
able to appreciate the brand name and also the organization. Strategies such as market penetration and
market development offer substantial focusing advantages. Focus strategies are most effective when
consumers have distinctive preferences or requirements and when rival firms are not attempting to specialize
in the same target segment. The risk is that the competitors may follow the same strategy and consumers may
shift to another brand of the same product.
The comparative skills and resource requirements for different strategies:
Generic Strategy

Commonly required skills and resources

Organizational requirements

Overall cost leadership strategy

Sustained capital investment and access to

capital., Process engineering skills, Intense
supervision of labour, Products designed for
ease in manufacture, Low-cost distribution
system

Tight cost control, Frequent, detailed control

reports, Structured organization and
responsibilities, Incentive based on meeting
strict quantitative targets.

Differentiation Strategy

Strong marketing abilities.

Strong coordination among functions in R&D,

product development, and marketing.

Product engineering
Creative fair, Strong capability in basic
research, Corporate reputation for quality or
technological leadership.

Subjective measurement and incentives

instead of quantitative measures.
Amenities to attract highly skilled labor,
scientists or creative people.

Long tradition in the industry or unique

combinations or skills drawn from other
business
Strong cooperation from channels.
Focus

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Combination of the above policies directed at

the particular strategic target.

Combination of the above policies directed at

the particular strategic target.

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Best- cost provider Strategy

This is a new model strategy which is a development over Michael Porters Generic strategy. In this strategy,
cost is reduced to the extent possible without deteriorating the quality of the product, keeping in mind
customers requirement. When the products are offered at a low price it is easy to capture the market to
increase the market share.
Strategy Alternatives
Stability strategy: The firm stays with its current businesses and product markets, maintains existing level of
effort and it is satisfied with incremental growth.
A firm opting for stability strategy stays with the same business, same market position, and functions
maintaining the same level of efforts as at present.
The effort is to enhance the functional efficiencies in an incremental way, through better deployment
and utilization of resources.
The assessment is that the desired income and profits would be forthcoming through such incremental
improvements in functional efficiencies.
Stability strategy doesnt involve redefinition of the business of the corporation. It is basically a safetyoriented and status quo strategy. It doesnt require fresh investments.
The risk is also less; so it is frequently- employed strategy. With the stability strategy, the firm has the
benefit of concentrating its resources and attention on the existing businesses/ products and markets.

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This strategy doesnt permit fresh investments and new products and markets of the firm.

Stability strategy is adopted because: It is less risky, involves less changes and people feel comfortable
as they are.
The environment faced is relatively stable
Expansion may be perceived as being threatening
Consolidation is sought through stabilizing after a period of rapid expansion.
Expansion Strategy: The firm seeks significant growth in the current business; entering into new businesses
that are related to existing business or sometimes entering into new businesses which are unrelated to existing
business.
This is the opposite of stability strategy. The rewards are limited in stability strategy, but they are high
in expansion strategy; even in risk factors they are opposite to each other.
This is the most frequently employed generic strategy, as a true growth strategy.
It involves a redefinition of the business of the corporation. It is a renewal of the firm through fresh
investments and new businesses. It is a highly versatile strategy.
It offers several permutations and combinations for growth.
Two types of strategy routes are intensification and diversification.
In Intensification, the firm pursues its growth by working with its current businesses. Intensification
has 3 alternative approaches viz. market penetration, market development and product development.
Expansion is adopted because: It may become imperative when environment demands increase in the
pace of activity
Psychologically, strategists may feel more satisfied with the prospects of growth from expansion, and
chief executives may take pride in presiding over organizations perceived to be growth- oriented.
Increasing size may lead to more control over the market vis-a-vis competitors.
Advantages from the experience curve and scale of operations may accrue.
Diversification Strategy: involves expansion into new businesses which are outside the current businesses and
markets. This can be related or unrelated to existing business. There are four broad types of diversification, as
follows:
1. Vertically/Horizontally Integrated diversification
Vertical Integrated diversification: In the, the firms opt to engage in businesses which are related to
the existing business of the firm. The firm remains vertically within the same process sequence, it

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moves either forward or backward, in the chain, and enters specific product/ process steps with the
intention of improving the business.
Horizontally Integrated diversification: through the acquisition of one or more similar business
operating at the same stage of production; for e.g. a marketing chain which is going into
complementary products, by- products or taking over the competition products.
2. Concentric diversification This amounts to related diversification. The new business is linked to the
existing businesses through process, technology or marketing.
3. Conglomerate diversification- This amounts to related diversification. The new business is linked to the
existing businesses through process, technology or marketing.
Retrenchment: The firm retrenches some of the activities in a given business or drops the business as such
through sell-out or liquidation.
Retrenchment is adopted because:
1. The management no longer wishes to remain in business either partly or wholly due to
continuous losses or non- viability.
2. The environment faced is threatening. Stability can be ensured by reallocation of resources
from unprofitable to profitable business.
Combination: The firm combines the above strategic alternatives in some permutation and combination so as
to suit the specific requirements of the firm.
Combination strategy is adopted because1. The organization is large and faces a complex environment.
2. The organization is composed of different businesses each of which lies in a different industry
requiring different responses.
Divestment strategy: This involves retrenchment of some of the activities in a given business of the firm, or
selling out some of the businesses as such. It is viewed as an integral part of corporate strategy without any
stigma attached.
This strategy is adopted when turnaround strategy is found to be unsuccessful.
Compulsions for Divestment:
1. Business becoming unprofitable
2. High competition
3. Industry over capacity
4. Failure of strategy

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5. Technological up- gradation is required, but organization is unable to invest further capital
6. Continuous cash problems.
Expansion strategy (Growth strategy): This can either be through intensification or diversification. Igor Ansoff
gave a framework, which describes the intensification option available to a firm.
Market penetration- The most common expansion strategy is market penetration/ concentration on the
current business. The firm directs its resources to the profitable growth of a single product, in a single market
with single technology.
Market development- This consists of marketing present products to customers in related market areas by
adding different channels of distribution or by changing the content of advertising or the promotional media.
Product development: this involves substantial modification of existing products or creation of new but related
items that can be marketed to current customers through established channels.

Turnaround Strategy: Retrenchment may be done either internally or externally. When internal efficiency is
improved, it is known as internal retrenchment or turnaround strategy. Sometimes, internal retrenchment is
required if the organization has to survive.
The danger signs which require retrenchment strategies are:

Persistent negative cash flow

Negative profits

Declining market share

Deterioration in physical facilities

Over- manning, high turnover of employees and low morale.

Uncompetitive products or services

Mismanagement

For turnaround strategies to be successful, the focus is required on short- term and long-term financing
needs as well as on strategic issues. The plan which is required for turnaround strategy consists of:
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Clear thinking about the product, production logic, market.

Analysis of the product, market, production processes, competition and market segment positioning.
Implementation of the plans by target setting, feedback and remedial action.
Ten elements which contribute to turnaround are:
1. Changes in top management
2. Building actions
3. Neutralizing external pressures
4. Initial control
5. Identifying quick pay- off activities
6. Quick cost reductions
7. Revenue generation
8. Asset liquidation for generating cash
9. Better internal coordination
10. Mobilization of the organizations.
Liquidation Strategy: This is one of the retrenchment strategies and it is unattractive because it involves
closing down of the business units. This is considered as a last resort action. Many small units like partnership
firms liquidate very frequently, but large size companies may not prefer to go for liquidation.
Creditors, shareholders, banks, trade unions and employees may not be interested in going for liquidation. The
liquidation process is also difficult because buyers may not be available to take over the company. Under the
Companies Act, 1956, winding up may be up the Court, voluntary, or subject to the supervision of the court.

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