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DEVELOPING AND EVALUATING

STRATEGIC OPTIONS:
PART 1 – THE GRAND STRATEGIES

Grand Strategies
• Corporate level strategies are basically related to the allocation of
resources among the different businesses of the firm, as well as
managing and nurturing the firm’s portfolio of businesses.

• Corporate Level Strategy typically fits within three main

categories referred to as the Grand Strategies. These are:
– Stability, Growth, and Retrenchment strategies
– These strategies can also be used in different combinations

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1. Stability Strategy
• This strategy is adopted by a firm which seeks to hold on to its current
position in the market.
• It also aims at incremental improvement of its performance by
marginally changing one or more of its businesses in terms of their
respective customer group, customer function and technologies either
individually or collectively.
• This does not mean that the firm doesn’t want to have any growth. Its
goal is modest growth in the same business line.
– For example a company may offer a special service to institutional
buyers to increase its sales by encouraging bulk purchasing. This
enables the company to maintain stability by improving market efficiency.

2. Growth Strategy
• Also known as expansion strategy, where a firm seeks to achieve substantial growth.
• This strategy is pursued when a firm sets higher performance goals/targets than before
• To achieve higher targets compared to the past the firm may introduce new product lines,
or enter into additional market segments.
• It involves more risk and effort as compared to stability strategy. The growth strategy is
divided into two parts namely
i) Internal growth strategy and
ii) External growth strategy.
• Internal growth strategy mainly consists of diversification strategies and intensification
strategy.
• External growth strategy consists of merger, takeover, foreign collaboration and joint
venture.

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Intensification Strategy
In intensification strategy, the business tries to grow within the existing
businesses through market penetration, market development and product
development.
• Market penetration means increasing current market’s sales by undertaking
aggressive efforts like high advertising, price cutting and sales promotion etc.
• Market development means entering into new markets along with the current
markets. Here, business units undertake market research, effective pricing
policies, effective promotion mix and distribution chain.
• Product development means introducing improved or substitute products. It
may be in the same market or new market.

INTENSIFICATION GROWTH STRATEGY SELECTION TOOL:

IGOR ANSOFFS MATRIX

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History – Ansoff’s Product/Market Growth Matrix

• Igor Ansoff created the Product / Market diagram in 1957 as a method

to classify options for growth (business expansion).
• The simplicity of this model is that the four strategic options defined
can be generically applied to any industry.
• This well known tool was first published in the Harvard Business
Review (1957) in an article called 'Strategies for Diversification'.

About the Ansoff Matrix

It is used by firms with objectives for growth. Igor Ansoff's matrix

offers strategic choices to achieve the objectives.
There are four main categories for selection.
– Market Penetration
– Market Development
– Product Development
– Business Diversification

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Igor Ansoff’s Product-Market Growth Matrix

Products
Existing Products New Products
Markets

Existing Market
Product
Markets Penetration Development

New Market
Diversification
Markets Development

Market Penetration Strategy

• Market Penetration (existing product, existing markets)
– The firm seeks to achieve growth with existing products in
their current market segments, aiming to increase its market
share
– This is done by:
 Promoting the product,
 Repositioning the brand
 Lowering the prices to increase sales
– The product is not altered and the firm does not seek any new
customers.

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Market Development Strategy

• Market Development (new markets, existing products)
– The firm seeks growth by targeting its existing products to new
market segments.
There are many possible ways of approaching this strategy, including:
– New geographical markets - locally or globally
– New distribution channels
– Different pricing policies to attract different customers or create
new market segments

Product Development Strategy

• Product Development (existing markets, new products)
• The firm develops new products targeted to its existing market
segments.
• Firms develop and innovate new product offerings to replace
existing ones.
• Such products are then marketed to the existing customers.

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Diversification Strategy
• Diversification (new markets, new products):
• Diversification is a form of growth strategy.
• The firm grows by diversifying into new businesses by developing
new products for new markets.
• Diversification strategies are used to expand firms operation by
adding markets, products, services, or stages of production to the
existing business. Its purpose is to allow the company to enter
lines of business that are different from current operations.

Types of Diversification
There are four major types of diversification knows as:
I. VERTICAL DIVERSIFICATION: - Vertical diversification is the extension
of current business activities. Such extension is of two types known as
a) Backward diversification:- It is a diversification where a company
moves one step back from the current line of business for example a
cupboard manufacturing unit enters into raw material supply.
b) Forward diversification: - In this case a company enters into an
activity which is an extension of its current business for example a
cloth manufacturer enters into garment manufacturing.

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Vertical /Horizontal Diversification Strategies

Textile producer Textile producer

Shirt manufacturer Shirt manufacturer

Clothing store Clothing store

Acquisitions or mergers of suppliers or customer
businesses are vertical integrations/diversifications

Acquisitions or mergers of competing businesses

are horizontal integrations/diversifications

Types of Diversification…..cont’d
II. HORIZONTAL DIVERSIFICATION: - In this case the company enters into a
new business which is very closely related with its existing line of business
and it is with the help of the same technology and market. For example gent’s
garments manufacturer entering into ladies garments manufacturing.
III. CONCENTRIC DIVERSIFICATION: - Here a company’s new business is
linked to the existing business indirectly. For example a car seller may start a
finance company to increase car sales.
IV. CONGLOMERATE DIVERSIFICATION: - In this type of diversification, the
company diversifies into a totally new product of market. There is a no linkage
between the old and new businesses. For example Transport operator
entered into furniture manufacturing.

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Turnaround Strategy
• Turnaround strategy means converting a loss making unit into a profitable one.
• It is possible when a company restructures its business operations. It is broad in
nature and sometimes includes use of divestment strategy (where a business gets
out of certain activities or sells off certain units or divisions)
• Its aim is to improve the declining sales, market share and profit because of high cost
of materials, lower price utility for goods and services or increased competition,
recession, managerial inefficiency, etc.
• The turnaround strategy is needed when the following situations arise in business:-
i. Liquidity problems
ii. Fall in market share
iii. Reduction in profit
iv. Under-utilization of plant capacity
v. High inventory

Divestment Strategy
• Divestment involves the sale or liquidation of a portion of a business or major
division or SBU. It is adopted when a turnaround has been attempted but has proven
to be unsuccessful.

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Liquidation Strategy
• This is an extreme case of divestment strategy and is undertaken in the situation
when all the efforts of reviving the company have come to an end. There is no
possibility that the business can make profits.
• In such a situation the company takes the decision to sell its entire business and the
amount realized from it can be invested in another business. When this is done it is
known is liquidation. This is generally done by small businesses.
• The relief gained on the part of liquidation to the company is
i. It gives relief to financial institutions as they are able to get their funds back.
ii. It enables the firm to enter into new business.
iii. It enables to the acquirer to consolidate its market.
iv. The shareholders of the liquidating company may get shares or compensation from the new
company or acquirer.
v. The employees may not lose their jobs as the new management can retain them in
vi. new business.

Modernization Strategy
• Modernization is the improvement/up-gradation of existing physical
facilities (plant, machinery, process etc) which is done to have improved
quality of products and to offer greater customer value.
• It is also undertaken to face competition on proactive basis and generate
competitive advantage.
• Modernization incurs high costs, so before introducing it the firm must
carry out a cost analysis and establish its impact in the long term or short
term, and then take the decision.

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Bankruptcy Strategy
• Two main approaches:
– Liquidation - Involves complete distribution of a firm’s assets to creditors,
most of whom receive a small fraction of amount owed
– Reorganization - Involves creditors temporarily freezing their claims while
a firm reorganizes and rebuilds its operations more profitably
• Advantage of a reorganization bankruptcy
– Proactive option offering maximum repayment of a firm’s debt in the future
if a recovery strategy is successful

Corporate Combination Strategies

• Merger
– This is the combination of two or more companies where one company survives
and another company ceases to exist. The merger takes place for consideration.
Here the acquiring company pays the acquired firm either in cash or shares.
• Joint venture
– Involves establishing a third company (child), operated for the benefit of the co-
owners (parents)
• Strategic alliance
– Involves creating a partnership between two or more companies that contribute
skills and expertise to a cooperative project
• Exists for a defined period
• Does not involve the exchange of equity
• Consortia, Keiretsus, and Chaebols
– Defined as large interlocking relationships between businesses of an industry

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Thank you

www.daystar.ac.ke

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