Corporate Level Strategies

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Corporate Level Strategy:

Using this strategy, the companies can decide what products and markets they
can make / enter

One of the important feature of this strategy is diversification

Understanding diversification using an example of Virgin group:-

Highly diversified company Started out in music business. Operating

in diverse fields like retail, air travel, rail, etc.

Another example can be Sony Started out by making small radios but now
provides a host of electronic products

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Corporate Level Strategy:

Since this strategy is all about identifying future growth prospects, the
formulation of this strategy involves corporate parent role What is
corporate parent role?

Corporate parent role refers to the levels of management above the

respective business units

Dominant general management logic or dominant logic The ways in

which management of a company shapes its corporate level strategy

Note: Unlike the business-level strategy, this strategy has limited interaction with direct
customers and direct competitors

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Corporate Level Strategy:

The ultimate objective of this strategy is looking for alternative strategic

directions

The above can be understood using Ansoff Matrix which outlines four distinct
directions for any company

Which are the four directions?

1) Market Penetration
2) Product Development
3) Market Development
4) Diversification

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Corporate Level Strategy:

Ansoff Matrix
Products
Existing New

A B

Existing Market Product

Penetration Development

Markets
C D

New Market
Diversification
Development

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Corporate Level Strategy:

Ansoff Matrix:

1) Market Penetration Basically a company begins with this quadrant, that is,
quadrant A

2) Product Development A movement towards the right side that is the

quadrant B can be one level of corporate level strategy

3) Market Development A movement downwards towards the left quadrant

C is undertaken with the objective of identifying new markets

4) Diversification The most radical strategy can be said to be adopted when

a company move towards the quadrant D

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Corporate Level Strategy:

Ansoff Matrix:

1) Market Penetration Basically a company begins with this quadrant, that is,
quadrant A

The most obvious strategy This scenario arises when a company has gained
market share

The growth is propelled using existing capabilities and the company does not
see the objective of entering in an unknown territory

The strategic capabilities are diverted towards penetrating further within a

market - The company can achieve:
a) Economies of Scale
b) Market Power
c) Experience curve benefits 7
Corporate Level Strategy:

Ansoff Matrix:

1) Market Penetration Basically a company begins with this quadrant, that is,
quadrant A

Some risks / constraints associated with this:

Retaliation from Competitors Competitors retaliate to defend their share.

This involves intense rivalry and excessive price wars

With market penetration, the companies will find it difficult to safeguard their
competitive advantage Some companies can then sought to acquiring other
similar companies

Example:- Mittal Steel Company in the 2000s became the largest steel
producer by acquiring struggling steel companies This can also be termed as
consolidation
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Corporate Level Strategy:

Ansoff Matrix:

2) Product Development A movement towards the right side that is the

quadrant B can be one level of corporate level strategy

By being in this quadrant, the company remains in the existing markets but
delivers modified / new products

By following this corporate strategy, the competitive scope of the company

remains limited

The markets are same but the technologies used to make products is radical

Note: Market Penetration to some extent will also involve modifying current offerings.
However, in product development the degree of differentiation is high

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Corporate Level Strategy:

Ansoff Matrix:

2) Product Development A movement towards the right side that is the

quadrant B can be one level of corporate level strategy

Example: In the case of Sony, it can be a movement from Walkman to CDs or

MP3 based systems

Some constraints / risks:

Product development comes at the cost of huge investments which also carry
a fear of failure

Risks linked to delays and escalation of costs because of delay

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Corporate Level Strategy:

Ansoff Matrix:

3) Market Development A movement downwards towards the left quadrant

C is undertaken with the objective of identifying new markets

This is said to be achieved when the companies are offering existing products
to new markets

Just like the Product Development quadrant, the competitive scope is limited

Market Development can involve the following:-

a) New Segments
b) New Users
c) New Geographies

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Corporate Level Strategy:

Ansoff Matrix:

3) Market Development A movement downwards towards the left quadrant

C is undertaken with the objective of identifying new markets

Some risks / constraints can be the following:

The management might not be able to co-ordinate the allocation of resources

to different segments / geographies effectively

The results from Internalisation Strategy is dependent on management efficacy

A bad management can ruin market development completely

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Corporate Level Strategy:

Ansoff Matrix:

4) Diversification The most radical strategy can be said to be adopted when

a company move towards the quadrant D

It is all about new products and new markets

Unlike other three quadrants, the company in question can expand its
competitive scope in an unlimited way

Companies can sought to diversification if the markets in which they currently

operate are in decline

Another reason of diversification can be the tendency to spread risks across

different businesses

Expectations of important / powerful stakeholders can also drive

diversification 13
Corporate Level Strategy:

Ansoff Matrix:

4) Diversification It can be of two types Related and Unrelated

Related Diversification:
When a company diversifies in new markets and new products by using its
existing capabilities / activities

Though the markets and products are new, the experience curve / learning
curve of a company can be modified to the new changes very smoothly

Example: P&G has diversified in different businesses but the new ventures are
in consumer goods P&Gs primary and support activities can work positively
for it

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Corporate Level Strategy:

Ansoff Matrix:

4) Diversification Related diversification includes vertical integration

Vertical Integration Backward or forward integration into adjacent activities

in the value network

Backward Integration A car manufacturing company diversifying into the

business of making car components

Forward Integration A distributor of clothing items diversifying into the

business of retail

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Corporate Level Strategy:

Ansoff Matrix:

4) Diversification Unrelated diversification

This arises when a company ventures into new products and new markets that
go beyond its current capabilities and value activities / network

This is also known as conglomerate strategy

Companies having an aim to expand internationally can make use of this

strategy in countries wherein markets are underdeveloped but fertile for
future growth

Note: Both related and unrelated diversification require a huge support in the form of
corporate parenting requirements

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Unsuccessful Diversification Examples:

It is suggested that diversification can allow companies to earn huge returns

But there are some examples of companies that did not have a good
experience of diversifying?

Example: EBay case Acquisition of Skype by EBay Entry into the domain of
online communication

The aim was to create synergies between two different business

models

The aim remained unfulfilled The diversification cannot prove

successful for EBay and the company decided to sell Skype

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Unsuccessful Diversification Examples:

Another Example of Tata Group:

No doubt the company owns some bright spots within its group The following
are some of these:

Tata Steel Among top 10 steel makers in the world

Tata Motors Among top 5 CV makers in the world

TCS A renowned IT company in the world

Tata Global Beverages Second largest tea company in the world

A failed diversification: The company was manufacturing soap TOMCO (Tata Oil Mills
Company)
Their brand was Hamam which was later sold off to Hindustan Unilever
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BCG (Boston Consulting Group) Matrix:

Using this matrix, companies can formulate their corporate level strategies
aimed at different business units

It is about portfolio management Adding or subtracting business units

The balancing within a portfolio can be understood using BCG matrix

How to assess a portfolio:

a) How attractive a business is?
b) How fit a business is can synergies be realised?
c) How balance a portfolio is?

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BCG (Boston Consulting Group) Matrix:

BCG assesses business portfolios using mainly two variables these are
market share and market growth

There can be four kinds of businesses These businesses can be placed in

different quadrants using growth / share parameters

High market share and high market growth are appealing but at the same time
this kind of business can have sustainability issues

Note: A balance in portfolio is thereby recommendable

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BCG (Boston Consulting Group) Matrix:

Market Share
High Low

High
Stars Question Marks

Market
growth

Cash Cows Dogs

Low

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Stars:

High market growth and high market share

The business units characterised as Stars create a huge proportion of wealth /

cash for the unit

The resources of the business are diverted towards this unit

In the context of the future, the unit exhibits a picture that is positive and
bright

Note:These kind of business units also use a large chunk of wealth / cash

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Cash Cows:

Low market growth and high market share

Just like the stars, the cash generated is high but because of low market growth,
the requirement for resources (cash) is less

The future of the business unit will not be as bright as the Stars Having said
that, the unit will be useful in setting up a foundation for new projects / initiatives

This business depicts a picture of a mature market

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Dogs:

Low market growth and low market share

Not a desirable position to be for any business unit

In all likelihood, the unit gets subjected to closing down / a turnaround (if
possible)

It is a scenario of cash drain in a declining market

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Question Marks:

High market growth but low market share

The unit because of low market share cannot generate enough amount of cash
needed for opportunities to have high market growth

Converting Question Marks into Stars will involve a huge investment

It is advisable to have more of business units that can be tagged as Question

Marks The reason is that there is still scope for further growth

Note: Stars have all chances to become Cash Cows and then Dogs

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Critique of BCG:

Definitional Vagueness What can be high and low market share or market
growth. There is no clarity about this

Motivational Problems Managers working in the units classified as Cash

Cows or Dogs can see no point in working hard to turnaround a business

No Scope for Improvement BCG matrix sees limited scope for

improvements for business units engaging in mature or declining markets

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