Ba7302 - Strategic Management: Unit - Iii - Strategies

BA7302 – STRATEGIC MANAGEMENT
U N I T – I I I – S T R AT E G I E S
SYLLABUS
The generic strategic alternatives – Stability, Expansion, Retrenchment and
Combination strategies- Business level strategy- Strategy in the Global Environment-
Corporate Strategy- Vertical Integration-Diversification and Strategic Alliances-
Building and Restructuring the corporation- Strategic analysis and choice -
Environmental Threat and Opportunity Profile (ETOP) - Organizational Capability
Profile - Strategic Advantage Profile - Corporate Portfolio Analysis - SWOT
Analysis - GAP Analysis Mc Kinsey's 7s Framework - GE 9 Cell Model– Distinctive
competitiveness- Selection of matrix - Balance Score Card-case study.
Ms. Jebakerupa Roslin Amirtharajan, AP,
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Contents
INTRODUCTION 3
CORPORATE STRATEGY 3
C HARACTERISTICS OF C ORPORATE S TRATEGY 3

C LASSIFICATION OF C ORPORATE S TRATEGY 4
CORPORATE RESTRUCTURING 28
M EANING & N EED FOR C ORPORATE R ESTRUCTURING 29

P URPOSE OF C ORPORATE R ESTRUCTURING 30
C HARACTERISTICS OF C ORPORATE R ESTRUCTURING - 31
C ATEGORY OF CORPORATE RESTRUCTURING 31
C ORPORATE R ESTRUCTURING A CTIVITIES 35
STRATEGIC ANALYSIS AND CHOICE 45
F OCUSING ON S TRATEGIC A LTERNATIVES 45

C ONSIDERING D ECISION F ACTORS 46
E VALUATING S TRATEGIC A LTERNATIVES 48
S TRATEGIC C HOICE 48
ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE (ETOP) 49
STRATEGIC ADVANTAGE PROFILE 49
ORGANIZATIONAL CAPABILITY PROFILE (OCP) 50
MC KINSEY'S 7S FRAMEWORK 51
T HE S EVEN E LEMENTS 51
CORPORATE PORTFOLIO ANALYSIS 53
T HE AIM OF PORTFOLIO ANALYSIS IS 54

B ALANCING THE PORTFOLIO – 54
BCG M ATRIX 54
BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

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GE 9 C ELL M ODEL 55
BALANCED SCORECARD 58
Ms. Jebakerupa Roslin Amirtharajan, AP, St. Joseph’s College of Engineering, Chennai
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BA7302 – Strategic Management

U N I T – I I I – S T R AT E G I E S
Introduction
Strategies for an organization may be categorized by the level of the organization
addressed by the strategy. Corporate-level strategies involve top management and address
issues of concern to the entire organization. Business-level strategies deal with major
business units or divisions of the corporate portfolio. Business -level strategies are
generally developed by upper and middle-level managers and are intended to help the
organization achieve its corporate strategies. Functional strategies address problems
commonly faced by lower level managers and deal with strategies for the major
organizational functions (e.g., marketing, finance, and production) considered
relevant for achieving the business strategies and supporting the corporate-level
strategy.
Corporate Strategy
Corporate-level strategies address the entire strategic scope of the enterprise. This is the
“big picture” view of the organization and includes deciding in which product or
service markets to compete and in which geographic regions to operate. For multi -
business firms, the resource allocation process—how cash, staffing, equipment and
other resources are distributed—is typically established at the corporate level.
Corporate level strategy, also known as grand strategy or root strategy,

means the strategy that top management formulates for the overall
company.
CHARACTERISTICS OF CORPORATE STRATEGY

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In general, a corporate strategy has the following characteristics:
 It is generally long range in nature, though it is valid for short-range situations.

 It is action oriented and is more specific than objectives.
 It is multi-dimensional and integrated.
 It is formulated at the top management level, though middle and lower level
managers are associated in their formulation and in designing sub -strategies.
 It is generally meant to cope with a competitive and complex environment.
 It flows out of the goals and objectives of the enterprise and is meant to translate
them into realities.
 It is concerned with perceiving opportunities and threats and seizing initiatives
to cope with them.
 It is concerned with the deployment of limited organizational resources in the
best possible manner.
 It provides unified criteria to managers in the function of decision making.
 It is intended to handle complexity and reduce uncertainty of the environment.
 It is meant to fill in the need of organizations for a sense of dynamic direction,
focus and cohesiveness.
 It is formulated at the corporate, divisional and functional level.
 It includes the determination of business lines, expansion and growth, vertical
and horizontal integration, diversification, takeovers and mergers, new
investment and divestment areas, R&D projects, and so on.
CLASSIFICATION OF CORPORATE STRATEGY

The orientation towards growth can be decided by asking three basic questions.
 Should we continue the same business with similar efforts?

 Should we expand into new business area by adding new functions, products and
markets?
 Should we get out of this business or a part of the business?
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Based on the above three questions the corporate level strategies can be classified as
shown in the following figure:
STABILITY STRATEGY
Stability strategy implies continuing the current activities of the firm without any
significant change in direction. If the environment is unstable and the firm is doing
well, then it may believe that it is better to make no changes. A firm is said to be
following a stability strategy if it is satisfied with the same consumer groups and
maintaining the same market share, satisfied with incremental improvements of
functional performance and the management does not want to take any risks that might
be associated with expansion or growth.

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A stability strategy refers to a strategy by a company w here the company

stops the expenditure on expansion, in other words it refers to situation
where company do not venture into new markets or introduce new products.
Stability strategy is most likely to be pursued by small businesses or firms in a mature

stage of development. Stability strategies are implemented by ‘steady as it goes’
approaches to decisions. No major functional changes are made in the product line,
markets or functions.
However, stability strategy is not a ‘do nothing’ approach nor does it mean that goals
such as profit growth are abandoned. The stability strategy can be designed to increase
profits through such approaches as improving efficiency in current operations.
Nature of Stability Strategy

A firm following stability strategy maintains its current business and product
portfolios; maintains the existing level of effort; and is satisfied with incremental
growth. It focuses on fine-tuning its business operations and improving functional
efficiencies through better deployment of resources. In other words, a firm is said to
follow stability/ consolidation strategy if:
 It decides to serve the same markets with the same products;

 It continues to pursue the same objectives with a strategic thrust on incremental
improvement of functional performances; and
 It concentrates its resources in a narrow product -market sphere for developing a
meaningful competitive advantage.
Adopting a stability strategy does not mean that a firm lacks concern for business
growth. It only means that their growth targets are modest and that they wish to
maintain a status quo. Since products, markets and functions remain unchanged,
stability strategy is basically a defensive strategy. A stability strategy is ideal in stable
business environments where an organization can de vote its efforts to improving its
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efficiency while not being threatened with external change. In some cases,
organizations are constrained by regulations or the expectations of key stakeholders and
hence they have no option except to follow stability strat egy.
Generally large firms with a sizeable portfolio of businesses do not usually depend on
the stability strategy as a main route, though they may use it under certain special
circumstances. They normally use it in combination with the other generic strat egies,
adopting stability for some businesses while pursuing expansion for the others.
However, small firms find this a very useful approach since they can reduce their risk
and defend their positions by adopting this strategy. Niche players also prefer t his
strategy for the same reasons.
Conditions Favoring Stability Strategy

Stability strategy does entail changing the way the business is run, however, the range
of products offered and the markets served remain unchanged or narrowly focused.
Hence, the stability strategy is perceived as a non-growth strategy. As a matter of fact,
stability strategy does provide room for growth, though to a limited extent, in the
existing product-market area to achieve current business objectives. Implementing
stability strategy does not imply stagnation since the basic thrust is on maintaining
the current level of performance with incremental growth in ensuing periods. An
organization’s strategists might choose stability when:
 The industry or the economy is in turmoil or the environment is volatile.

Uncertain conditions might convince strategists to be conservative until they
became more certain.
 Environmental turbulence is minimal and the firm does not foresee any major
threat to itself and the industry concerned as a whole .
 The organization just finished a period of rapid growth and needs to consolidate
its gains before pursuing more growth.
 The firm’s growth ambitions are very modest and it is content with incremental
growth.
 The industry is in a mature stage with few or no growth prospects and the firm
is currently in a comfortable position in the industry.

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Rationale for Using Stability Strategy

There are a number of circumstances in which the most appropriate growth stance for
a company is stability rather than growth. Stability strategy is normally followed for
a brief period to consolidate the gains of its expansion and needs a breathing spell
before embarking on the next round of expansion. Organizations need to ‘cool off’ for
a while after an aggressive phase of expansion and must stabilize for a while or they
will become inefficient and unmanageable.
Managers pursue stability strategy when they feel that the enterprise has been
performing well and wish to maintain the same trend in subsequent years. They would
prefer to adopt the existing product-market posture and avoid departing from it.
Sometimes, the management is content with the status quo because the company enjoys
a distinct competitive advantage and hence does not perceive an immediate threat.
Stability strategy is also adopted in a number of organizations because the management

is not interested in taking risks by venturing into unknown terrain. In fact they do not
consider any other option as long as the pursuit of existing business activity produces
the desired results. Conservative managers believe product development, market
development or new ways of doing business entail great risk and therefore, avoid taking
decisions, which can endanger the company. A number of managers also pursue
consolidation strategy involuntarily. In fact, they do not react to environmental
changes and avoid drastic changes in the current strategy unless warranted by
extraordinary circumstances.
Sometimes environmental forces compel an organization to follow the strategy of status

quo. This is particularly true for bigger organizations, which have acquired dominant
market share. Such organizations are usually not permitted by the government to
expand because it may lead to monopolistic and restrictive trade practices detrimental
to public interest.
Types of Stability Strategies
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Pause/Process with caution strategy – Some organizations pursue stability

strategy for a temporary period of time until the particular environmental situation
changes, especially if they have been growing too fast in the previous period. Stability
strategies enable a company to consolidate its resources after prolonged rapid growth.
Sometimes, firms that wish to test the ground before moving ahead with a full -fledged
grand strategy employ stability strategy first.
No change strategy – No change strategy is a decision to do nothing new i.e

continue current operations and policies for the foreseeable future. If there are no
significant opportunities or threats operating in the environment, or if there are no
major new strengths and weaknesses within the organization or if there are no new
competitors or threat of substitutes, the firm may decide not to do anything new.
Profit strategy – Profit strategy is an attempt to artificially maintain profits by

reducing investments and short-term expenditures. Rather than announcing the
company’s poor position to shareholders and other investors at large, top management
may be tempted to follow this strategy. Obviously, the profit strategy is useful to get
over a temporary difficulty, but if continued for long, it will lead to a serious
deterioration in the company’s position. The profit strategy is thus usually the top
management’s short term and often self-serving response to the situation.
In general, stability strategies can be very useful in the short run, but they can be
dangerous if followed for too long.
Some organizations successfully employ stability strategy, but most do not get the press
that companies using other strategies get. One reason might be that no change m eans no
news. Another might be that the company itself wants to keep a low profile; stakeholders
may consider the status quo to be inappropriate, or the strategy may be indication of
rigidity of the planning process.
Approaches to Stability Strategy

There are various approaches to developing strategies for stability. The Management
has to select the one that best suits the corporate objective. Some of these approaches are

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discussed below. In all these approaches, the fundamental course of action remains t he
same, but the circumstances in which the firms choose various options differ.
Holding Strategy: This alternative may be appropriate in two situations: (a) the
need for an opportunity to rest, digest, and consolidate after growth or some turbulent
events – before continuing a growth strategy, or (b) an uncertain or hostile environment
in which it is prudent to stay in a “holding pattern” until there is change in or more
clarity about the future in the environment. With a holding strategy the company
continues at its present rate of development. The aim is to retain current market share.
Although growth is not pursued as such, this will occur if the size of the market grows.
The current level of resource input and managerial effort will not be increased, which
means that the functional strategies will continue at previous levels. This approach
suits a firm, which does not have requisite resources to pursue increased growth for a
longer period of time. At times, environmental changes prohibit a continuatio n in
growth.
Stable Growth: This alternative essentially involves avoiding change, representing

indecision or timidity in making a choice for change. Alternatively, it may be a
comfortable, even long-term strategy in a mature, rather stable environment, e.g., a
small business in a small town with few competitors. It simply means that the firm ’s
strategy does not include any bold initiatives. It will just seek to do what it already does,
but a little better. In this approach, the firm concentrates on one p roduct or service line.
It grows slowly but surely, increasingly its market penetration by steadily adding new
products or services and carefully expanding its market.
Harvesting Strategy: Where a firm has the dominant market share it, may seek
to take advantage of this position and generate cash for future business expansion.
This is termed a harvesting strategy and is usually associated, with cost cutting and
price increases to generate extra profits. This approach is most suitable to a firm whose
main objective is to generate cash. Even market share may be sacrificed to earn profits
and generate funds. A number of ways can be used to accomplish the objective of
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making profits and generating funds. Some of these are selective price increases and
reducing costs without reducing price. In this approach, selected products are milked
rather than nourished and defended. It yielded large profits under careful
management
Profit or Endgame Strategy: A profit strategy is one that capitalizes on a

situation in which old and obsolete product or technology is being replaced by a new one.
This type of strategy does not require new investment, so it is not a growth strategy.
Firms adopting this strategy decide to follow the same technology, at least partially,
while transiting into new technological domains. Strategists in these firms reason that
the huge number of product based on older technologies on the market would create an
aftermarket for spare parts that would last for years. As with most business decisions,
timing is critical. All competitors eventually must shelve the old assets at some point of
time and move to the new product or technology. The critical question is, “Can we make
more money by using these assets or by selling them? ” The answer to that question
changes as time passes.
EXPANSION STRATEGIES
Every enterprise seeks growth as its long-term goal to avoid annihilation in a relentless
and ruthless competitive environment. Growth offers ample opportunities to everyone
in the organization and is crucial for the survival of the enterprise. However, this is
possible only when fundamental conditions of expansion have been met. Expansion
strategies are designed to allow enterprises to maintain their competitive position in
rapidly growing national and international markets. Hence to successfully compete,
survive and flourish, an enterprise has to pursue an expansion strategy. Expansion
strategy is an important strategic option, which enterprises follow to fulfil their long -
term growth objectives. They pursue it to gain significant growth as opposed to
incremental growth envisaged in stability strategy.

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Expansion strategy is adopted to accelerate the rate of growth of sales,

profits and market share faster by entering new markets, acquiring new
resources, developing new technologies and creating new managerial
capabilities.
Expansion strategy provides a blueprint for business enterprises to achieve their long-
term growth objectives. It allows them to maintain their competitive advantage even in
the advanced stages of product and market evolution. Growth offers economies of scale
and scope to an organization, which reduce operating costs and improve earnings. Apart
from these advantages the organization gains a greater control over the immediate
environment because of its size. This influence is crucial for survival in mature
markets where competitors aggressively defend their market shares.
Conditions for Opting for Expansion Strategy

The process of renewal of the firm through fresh investments and new business/
products/ markets is facilitated only by expansion strategy. Expansion strategy is a
highly versatile strategy; it offers several permutations and combinations for growth.
A firm can generate many alternatives within the strategy by altering its propositi ons
regarding products, markets and functions and pick the one that suits it most. Firms
opt for expansion strategy under the following circumstances:
 When the firm has lofty growth objectives and desires fast and continuous
growth in assets, income and profits. Expansion through diversification would
be especially useful to firms that are eager to achieve large and rapid growth
since it involves exploiting new opportunities outside the domain of current
operations.
 When enormous new opportunities are emerging in the environment and the
firm is ready and willing to expand its business scope.
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 Firms find expansion irresistible since sheer size translates into superior clout.
When a firm is a leader in its industry and wants to protect its dominant
position.
 Expansion strategy is opted in volatile situations. Substantive growth would act
as a cushion in such conditions.
 When the firm has surplus resources, it may find it sensible to grow by levering
on its strengths and resources.
 When the environment, especially the regulatory scenario, blocks the growth of the
firm in its existing businesses, it may resort to diversification to meets its
growth objectives.
 When the firm enjoys synergy that ensues by tapping certain opportunities in
the environment, it opts for expansion strategies. Economies of scale and scope
and competitive advantage may accrue through such synergistic operations. Over
the last decade, in response to economic liberalization, some companies in India
expanded the scale of existing businesses as well as diversified into many new
businesses.
TYPES OF EXPANSION STRATEGIES

Growth of a business enterprise entails realignment of its strategies in product -market
environment. This is achieved through the basic growth approaches of intensive
expansion, integration (horizontal and vertical integration), diversification and
international operations. Firms following intensification strategy concentrate on
their primary line of business and look for ways to meet their growth objectives by
increasing their size of operations in this primary business. A company may expand
externally by integrating with other companies. An organization expands its operations
by moving into a different industry by pursuing diversification strategies. An
organization can grow by “going international”, i.e., by crossing domestic borders by
employing any of the expansion strategies discussed so far.
EXPANSION THROUGH INTENSIFICATION

Intensification involves expansion within the existing line of business. Intensive
expansion strategy involves safeguarding the present position and expanding in the

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current product-market space to achieve growth targets. Such an approach is very useful
for enterprises that have not fully exploited the opportunities existing in their current
products-market domain. A firm selecting an intensification strategy, concentrates on
its primary line of business and looks for ways to meet its growth objectives by
increasing its size of operations in its primary business. Intensive expansion of a firm
can be accomplished in three ways, namely, market penetration, market development and
product development first suggested in Ansoff’s model. Intensification strategy is
followed when adequate growth opportunities exist in the firm ’s current products-
market space. However, while going in for internal expansion, the management should
consider the following factors.
 While there are a number of expansion options, the one with the highest net
present value should be the first choice.
 Competitive behaviour should be predicted in order to determine how and when
the competitors would respond to the firm’s actions. The firm must also assess its
strengths and weaknesses against its competitors to ascertain its competitive
advantages.
 The conditions prevailing in the environment shou ld be carefully examined to
determine the demand for the product and the price customers are willing to pay.
 The firm must have adequate financial, technological and managerial
capabilities to expand the way it chooses.
 Technological, social and demographic trends should be carefully monitored
before implementing product or market development strategies. This is very
crucial, especially, in a volatile business environment.
Ansoff’s Product-Market Expansion Grid

The product/market grid first presented by Igor Ansoff (1968), shown in the following
figure, has proven to be very useful in discovering growth opportunities. This grid best
illustrates the various intensification options available to a firm. The product/market
grid has two dimensions, namely, products and markets. Combinations of these two
dimensions result in four growth strategies. According to Ansoff ’s Grid, three distinct
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strategies are possible for achieving growth through the intensification route. These
are:
M ARKET P ENETRATION : The firm seeks to achieve growth with existing products in their
current market segments, aiming to increase its markets share. When a firm believes that
there exist ample opportunities by aggressively exploiting its current products and
current markets, it pursues market penetration approach. Market penetration involves
achieving growth through existing products in existing markets and a firm can achieve
this by:
 Motivating the existing customers to buy its product more frequently and in
larger quantities.
 Increasing its efforts to attract its competitors’ customers.
 Targeting new customers in its current markets.
In a growing market, simply maintaining market share will result in growth, and there
may exist opportunities to increase market share if competitors reach ca pacity limits.
While following market penetration strategy, the firm continues to operate in the same
markets offering the same products. Growth is achieved by increasing its market share
with existing products. However, market penetration has limits, and once the market
approaches saturation another strategy must be pursued if the firm is to continue to
grow. Unless there is an intrinsic growth in its current market, this strategy necessarily
entails snatching business away from competitors. The market pen etration strategy is
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the least risky since it leverages many of the firm’s existing resources and capabilities.
Another advantage of this strategy is that it does not require additional investment for
developing new products.
M ARKET D EVELOPMENT : The firm seeks growth by targeting its existing products to new
market segments. Market Development strategy tries to achieve growth by introducing
existing products in new markets. Market development options include the pursuit of
additional market segments or geographical regions. The development of new markets
for the product may be a good strategy if the firm’s core competencies are related more
to the specific product than to its experience with a specific market segment or when
new markets offer better growth prospects compared to the existing ones. Because the
firm is expanding into a new market, a market development strategy typically has more
risk than a market penetration strategy. This is because managers do not normally
possess sound knowledge of new markets, which may result in inaccurate market
assessment and wrong marketing decisions.
In market development approach, a firm seeks to increase its sales by taking its product
into new markets. The two possible methods of implementing market development
strategy are,
a) The firm can move its present product into new geographical areas. This is done
by increasing its sales force, appointing new channel partners, sales agents or
manufacturing representatives and by franchising its operation; or
b) The firm can expand sales by attracting new market segments. Making minor
modifications in the existing products that appeal to new segments can do the
trick.
P RODUCT D EVELOPMENT : The firm develops new products targeted to its existing market
segments. Expansion through product development involves development of new or
improved products for its current markets. The firm remains in its present markets
but develops new products for these markets. Growth will accrue if the new products
yield additional sales and market share. This strategy is likely to succeed for products
that have low brand loyalty and/or short product life cycles. A Product development
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strategy may also be appropriate if the firm’s strengths are related to its specific
customers rather than to the specific product itself. In this situation, it can leverage
its strengths by developing a new product targeted to its existing customers. Although
the firm operates in familiar markets, product development strategy carries more risk
than simply attempting to increase market share since there are inherent risks normally
associated with new product development. The three possible ways of implementing the
product development strategy are:
a) The company can expand sales through developing new products.

b) The company can create different or improved versions of the current products.
c) The company can make necessary changes in its existing products to suit the
different likes and dislikes of the customers.
D IVERSIFICATION : The firm grows by diversifying into new businesses by deve loping
new products for new markets. Diversification is a corporate strategy to enter into a
new market or industry which the business is not currently in, whilst also creating a
new product for that new market.
EXPANSION THROUGH DIVERSIFICATION

In the current conditions of dynamic markets and strong competition, a successful
instrument of risk management is to avoid focusing on a single product, service and/or
their distribution to a single limited market. When implemented wisely it contributes
to keeping the company stable even in hard times since the economic downturn usually
occurs simultaneously in all sectors and all markets. Diversification of business
activities brings competitive advantages allowing companies to reduce business risks.
Diversification is a business development strategy allowing a company to

enter additional lines of business that are different from the current
products, services and markets.
That is why it is a great tool for business development. However, its successful
implementation requires profound knowledge and thorough preliminary assessment of

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the company and its environment. And, although sometimes diversification is difficult
for the small companies, it can prove to be inevitable when their original markets become
unviable.
Reason for Diversification

Diversification, being a strategic approach, is the subject of extensive research aiming
to examine its relation to the financial results of the companies. In the majority of
studies a comparison is done between results of related and unrelated diversification,
although the distinctive line between them is still not clear.
For a long time related diversification has been considered financially more beneficial.
However, recently, big multinational companies have challenged this stat ement with
substantial profits that they achieved by diversifying in unrelated industries, like
Canon which diversified from cameras to a wide range of office equipment. Walt
Disney started as a movie company but later diversified to building entertainment
parks, etc.
Types of Diversification
Diversification is a strategic approach adopting different forms. Depending on the
applied criteria, there are different classifications. Depending on the direction of
company diversification, the different types are:
H ORIZONTAL D IVERSIFICATION : Acquiring or developing new products or offering

new services that could appeal to the company´s current customer groups. In this case
the company relies on sales and technological relations to the existing product lines. For
example a dairy, producing cheese adds a new type of cheese to its products.
V ERTICAL D IVERSIFICATION : This type of diversification occurs when the company
goes back to previous stages of its production cycle or moves forward to subsequent stages
of the same cycle - production of raw materials or distribution of the final product.
For example, if you have a company that does reconstruction of houses and offices and
you start selling paints and other construction materials for use in this business. This
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kind of diversification may also guarantee a regular supply of materials with better
quality and lower prices.
C ONCENTRIC D IVERSIFICATION : Enlarging the production portfolio by adding new
products with the aim of fully utilizing the potential of the existing technologies and
marketing system. The concentric diversification can be a lot more financially
efficient as a strategy, since the business may benefit from some synergies in this
diversification model. It may enforce some investments related to modernizing o r
upgrading the existing processes or systems. This type of diversification is often used
by small producers of consumer goods, e.g. a bakery starts producing pastries or dough
products.
H ETEROGENEOUS ( CONGLOMERATE ) DIVERSIFICATION : This is moving to new products
or services that have no technological or commercial relation with current products,
equipment, distribution channels, but which may appeal to new groups of customers.
The major motive behind this kind of diversification is the high return on inves tments
in the new industry. Furthermore, the decision to go for this kind of diversification
can lead to additional opportunities indirectly related to further developing the main
company business - access to new technologies, opportunities for strategic p artnerships,
etc.
C ORPORATE D IVERSIFICATION : This involves production of unrelated but definitely
profitable goods. It is often tied to large investments where there may also be high
returns.
RETRENCHMENT STRATEGIES
Retrenchment is a short-run renewal strategy designed to overcome organizational
weaknesses that are contributing to deteriorating performance. It is meant to replenish
and revitalize the organizational resources and capabilities so that the organization
can regain its competitiveness. Retrenchment may be thought as a minor surgery to
correct a problem. Managers often try a minimal treatment first -cost cutting or a small
layoff-hoping that nothing more painful will be needed to turn the firm around. When
performance measures reveal a more serious situation, more drastic action must be
taken to restore performance. Retrenchment strategies call for two primary actions:

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1. Cost cutting and

2. Restructuring.
One or both of these tools will be employed more extensively in turnaround situations,
because the problems are deeper there than in retrenchment situations. A cost cutting
program should be preceded by careful thought and analysis. Rarely is it wise to use a
simplistic “across-the-board” cost cutting program. Some departments or projects may
need additional funding, while others need modest cuts, and still others need drastic
cuts or need to be eliminated altogether. If cost cutting is a part of the strategy
implementation, then the plan of implementation should clearly specify how it will be
applied across the organization and why is it being proposed.
Types of Retrenchment Strategies

Retrenchment can be divided into the following categories:
Turnaround Strategies
Turnaround strategy means backing out, withdrawing or retreating from a decision
wrongly taken earlier in order to reverse the process of decline. There are certain
conditions or indicators which point out that a turnaround is needed if the
organization has to survive. These danger signs are as follows:
 Persistent negative cash flow

 Continuous losses
 Declining market share
 Deterioration in physical facilities
 Over-manpower, high turnover of employees, and low morale
 Uncompetitive products or services
 Mismanagement
Divestment Strategies
Divestment strategy involves the sale or liquidation of a por tion of business, or a major
division, profit center or SBU. Divestment is usually a restructuring plan and is
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adopted when a turnaround has been attempted but has proved to be unsuccessful or it
was ignored. A divestment strategy may be adopted due to the following reasons:
 A business cannot be integrated within the company.

 Persistent negative cash flows from a particular business create financial
problems for the whole company.
 Firm is unable to face competition
 Technological up gradation is required if the business is to survive which
company cannot afford.
 A better alternative may be available for investment
Liquidation Strategies
Liquidation strategy means closing down the entire firm and selling its assets. It is
considered the most extreme and the last resort because it leads to serious consequences
such as loss of employment for employees, termination of opportunities where a firm
could pursue any future activities, and the stigma of failure.
Generally it is seen that small-scale units, proprietorship firms, and partnership,

liquidate frequently but companies rarely liquidate. The company management,
government, banks and financial institutions, trade unions, suppliers and creditors,
and other agencies do not generally prefer liquidation.
Liquidation strategy may be unpleasant as a strategic alternative but when a “dead

business is worth more than alive”, it is a good proposition. For instance, the real estate
owned by a firm may fetch it more money than the actual returns of doing business.
Liquidation strategy may be difficult as buyers for the business may be difficult to
find. Moreover, the firm cannot expect adequate compensation as most assets, being
unusable, are considered as scrap. Reasons for Liquidation include:
 Business becoming unprofitable

 Obsolescence of product/process
 High competition
 Industry overcapacity
 Failure of strategy
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C OMBINATION STRATEGY
The grand strategies discussed above used singly and much more often in combinations
represent the traditional alternatives used by firms in th e U.S. Recently, three new
grand types have gained in popularity; all fit under the broad category of corporate
combinations. These three newly popularized grand strategies are joint ventures,
strategic alliances, and consortia.
Joint Ventures
A joint venture represents the optimism of two firms that they can unite to achieve
marketplace goals that neither could achieve alone. Some joint ventures work, some do
not. Joint ventures (JVs) can be a rapid and very effective mechanism for strategic
growth. Such unions can enable fast access to new skills and technologies. Beyond that,
joint venture can secure production capacity and lower cost production; offer access to
both local and distant markets; and offer ways of creating economies of scale and
market power.
Yet, such corporate linkages, regrettably, often come down to agreements on the duration
of the joint venture and how costs and profits will be handled. That is, the joint venture
becomes limited and limiting. There are other important strategic factors that should
be considered in a joint venture, such as the term of arrangement, its workability,
protection of know-how, benefits and progress towards strategic goals. These represent
a more relevant perspective of partnerships, even though it needs more th an common
sense and financial modelling to deliver a working union of interests.
Strategic Alliances
Strategic Alliances are agreements among firms in which each commits resources to
achieve a common set of objectives. Companies may form Strategic Allianc es with a
wide variety of players: customers, suppliers, competitors, universities or divisions of
government. Through Strategic Alliances, companies can improve competitive
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positioning, gain entry to new markets, supplement critical skills and share the r isk or
cost of major development projects.
According to Parkhe strategic alliances are ‘relatively enduring, inter

firm, cooperative arrangements, involving flows and linkages that use
resources and/or governance structures from autonomous organizations,
for the joint accomplishment of individual goals linked to the corporate
mission of each sponsoring firm.’
Strategic alliances can range from equity to non-equity alliances that involve two or
more partners. Alliances provide firms with access to specialize d assets and
competencies within a relatively short period of time as compared to developing them
internally or acquiring them through the market. The costs associated with internal
development and acquisition would be much more than the alliance arrangeme nt, which
makes it a much more viable option in competitive and mature markets.
Strategic alliances developed and propagated as formalized inter organizational

relationships, particularly among companies in international business systems. These
cooperative arrangements seek to achieve organizational objectives better through
collaboration than through competition, but alliances also generate problems at several
levels of analysis. Strategic alliances are critical to organizations for a number of key
reasons:
 Organic growth alone is insufficient for meeting most organizations ’ required

rate of growth.
 Speed to market is essential, and partnerships greatly improve it.
 Complexity is increasing, and no single organization has the required total
expertise to best serve the customer.
 Partnerships can defray rising research and development costs.
 Alliances facilitate access to global markets.
Strategic alliances are becoming an important form of business activity in many

industries, particularly in view of the realization that companies are competing on a
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global field. Strategic alliances are not a panacea for every company and every
situation. However, through strategic alliances, companies can improve their
competitive positioning, gain entry to new markets, supple ment critical skills, and
share the risk and cost of major development projects.
The five criteria of a “strategic” alliance

What is it that makes an alliance truly strategic to a particular company? Is it possible
for an alliance to be strategic to only one of the parties in a relationship? Many
alliances default to some form of revenue generation —which is certainly important—
but revenue alone may not be truly strategic to the objectives of the business. There are
five general criteria that differentiate strategic alliances from conventional alliances.
An alliance meeting any one of these criteria is strategic and should be managed
accordingly.
 Critical to the success of a core business goal or objective.

 Critical to the development or maintenance of a cor e competency or other source
of competitive advantage.
 Blocks a competitive threat.
 Creates or maintains strategic choices for the firm.
 Mitigates a significant risk to the business.
The essential issue when developing a strategic alliance is to understand which of these
criteria the other party views as strategic. If either partner misunderstands the other ’s
expectation of the alliance, it is likely to fall apart. For example, if one partner believes
the other is looking for revenue generation to achieve a core business goal, when in
reality the objective is to keep a strategic option open, the alliance is not likely to survive.
Types of Strategic Alliances

There are a lot of types of strategic alliances, which are listed below:
1. Joint Ventures. A joint venture is an agreement by two or more parties to form a
single entity to undertake a certain project. Each of the businesses has an equity
stake in the individual business and share revenues, expenses and profits. Joint
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ventures between small firms are very rare, primarily because of the required
commitment and costs involved.
2. Outsourcing. The 1980s was the decade where outsourcing really rose to prominence,
and this trend continued throughout the 1990s to today, although to a slightly lesser
extent.
3. Affiliate Marketing. Affiliate Marketing has exploded over recent years, with
the most successful online retailers using it to great effect. The nature of the
internet means that referrals can be accurately tracked right through the order
process. Amazon was the pioneer of affiliate marketing, and now has tens of
thousands of websites promoting its products on a performance -based basis.
4. Technology Licensing. This is a contractual arrangement whereby trademarks,
intellectual property and trade secrets are licensed to an external firm. It is used
mainly as a low cost way to enter foreign markets. The main downside of licensing
is the loss of control over the technology – as soon as it enters other hands the
possibility of exploitation arises.
5. Product Licensing. This is similar to technology licensing except that the license
provided is only to manufacture and sell a certain product. Usually each licensee
will be given an exclusive geographic area to which they can sell to. It is a lower-risk
way of expanding the reach of your product compared to building your
manufacturing base and distribution reach.
6. Franchising. Franchising is an excellent way of quickly rolling out a successful
concept nationwide. Franchisees pay a set-up fee and agree to ongoing payments so
the process is financially risk-free for the company. However, downsides do exist,
particularly with the loss of control over how franchisees run their franchise.
7. R&D. Strategic alliances based around R&D tend to fall into the joint venture
category, where two or more businesses decide to embark on a research venture through
forming a new entity.
8. Distributors. One of the best ways to market the product is to recruit distributors,
where each one has its own geographical area or type of product. This ensures that
each distributor’s success can be easily measured against other distributors.

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9. Distribution Relationships. This is perhaps the most common form of alliance.

Strategic alliances are usually formed because the businesses involved want more
customers. The result is that cross-promotion agreements are established.
Stages of Alliance Formation

A typical strategic alliance formation process involves these steps:
Strategic Development
Partner Assessment
Contract Negotiation
Alliance Operation
Alliance Termination
Strategy Development: Strategy development involves studying the alliance ’s

feasibility, objectives and rationale, focusing on the major issues and challenges and
development of resource strategies for production, technology, and people. It requires
aligning alliance objectives with the overall corporate strategy.
Partner Assessment: Partner assessment involves analyzing a potential partner’s

strengths and weaknesses, creating strategies for accommodating all partners ’
management styles, preparing appropriate partner selection criteria, understanding a
partner’s motives for joining the alliance and addressing resource capability gaps that
may exist for a partner.
Contract Negotiation: Contract negotiations involves determining whether all

parties have realistic objectives, forming high caliber negotiating teams, defining each
partner’s contributions and rewards as well as protect any proprietary information,
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addressing termination clauses, penalties for poor performance, and highlighting the
degree to which arbitration procedures are clearly stated and understood.
Alliance Operation: Alliance operation involves addressing senior management’s

commitment, finding the caliber of resources devoted to the alliance, linking of budgets
and resources with strategic priorities, measuring and rewarding alliance
performance, and assessing the performance and results of the alliance.
Alliance Termination: Alliance termination involves winding down the alliance,

for instance when its objectives have been met or cannot be met, or when a partner
adjusts priorities or re-allocated resources elsewhere.
The advantages of strategic alliance includes

 Allowing each partner to concentrate on activities that best match their
capabilities,
 Learning from partners & developing competences that may be more widely
exploited elsewhere,
 Adequacy and suitability of the resources & competencies o f an organization for
it to survive.
Difference between Joint Venture and Strategic Alliance

Joint venture and Strategic Alliance differ from each other financially and legally
too. There is difference between them in their definitions too.
A JOINT VENTURE is indeed a contractual agreement between two or more companies

that come together in business in terms of the performance of a business task. A
STRATEGIC ALLIANCE on the other hand is a formal relationship between two or more
companies in pursuit of common goal in their business even while remaining as
independent organizations. This is the main difference between the two terms joint
venture and strategic alliance.
In other words it can be said the two or more companies that JOIN TOGETHER in a joint
venture do not remain as independent companies in a joint venture. On the other hand

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the two or more companies that join together in a STRATEGIC ALLIANCE will remain
as independent organizations in a strategic alliance.
There has been a lot of debate on the issue whether joint venture is better than strategic
alliance. It is generally felt that joint venture is better than strategic alliance for some
interesting reasons. A JOINT VENTURE is legally binding in a better way than a
STRATEGIC ALLIANCE .
When it comes to tax purposes STRATEGIC ALLIANCE is a bit disadvantageous when

compared to JOINT VENTURE . On the other hand you will find strategic alliance more
flexible when compared to joint venture. Alliance can also be broken by the help of less
number of lawyers. A joint venture on the other hand is not easily broken for that
matter. This is because of the fact that it is more legally binding in nature.
Things would work better in STRATEGIC ALLIANCE due to the fact that it is
characterized by a wonderful combination of resources or information. On the other
hand lot of hard work has to be put into JOINT VENTURE in order to taste success.
Consortia, Keiretsus, and Chaebols

CONSORTIA are defined as large interlocking relationships between businesses of an
industry. A Japanese KEIRETSU is an undertaking involving up to 50 different firms
which are joined around a large trading company or bank and coordinated through
interlocking directorates and stock exchanges. A South Korean CHAEBOLS resembles a
consortia of keiretsu except that they are typically financed through government
banking groups and are largely run by professional managers trained by participating
firms expressly for the job. Exhibit 6-13 elaborates on the keiretsu concept.
Corporate Restructuring
BUILDING AND RESTRUCTURING THE CORPORATION
Corporate restructuring is one of the most complex and fundamental phenomena that
management confronts. Each company has two opposite strategies from which to choose:
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to diversify or to refocus on its core business. While diversifying represents the
expansion of corporate activities, refocus characterizes a concentration on its core
business. From this perspective, corporate restructuring is reduction in diversification.
Corporate restructuring is an episodic exercise, not related to investments in new plant
and machinery which involve a significant change in one or more of the following
 Pattern of ownership and control
 Composition of liability
 Asset mix of the firm.
It is a comprehensive process by which a co. can consolidat e its business operations and
strengthen its position for achieving the desired objectives:
a) Synergetic
b) Competitive
c) Successful
It involves significant re-orientation, re-organization or realignment of assets and
liabilities of the organization through conscious management action to improve future
cash flow stream and to make more profitable and efficient.
MEANING & NEED FOR CORPORATE RESTRUCTURING

Corporate restructuring is the process of redesigning one or more aspects of a company. The
process of reorganizing a company may be implemented due to a number of different
factors, such as
 Positioning the company to be more competitive,

 Survive a currently adverse economic climate, or
 Poise the corporation to move in an entirely new direction.
Corporate restructuring refers to the changes in ownership, business mix,

assets mix and alliances with a view to enhance the shareholder value.
Hence, corporate restructuring may involve ownership restructuring, business

restructuring and assets restructuring. In general, the idea of corporate restructuring
is to allow the company to continue functioning in some manner. Even when corporate
30
raiders break up the company and leave behind a shell of the original structure, there
is still usually a hope, what remains can function well enough for a new buyer to
purchase the diminished corporation and return it to profitability.
Restructuring a corporate entity is often a necessity when the company has grown to
the point that the original structure can no longer efficiently manage the output and
general interests of the company. For example, a corporate restructuring may call for
spinning off some departments into subsidiaries as a means of creating a more
effective management model as well as taking advantage of tax breaks that would allow
the corporation to divert more revenue to the production process. In this scenario, the
restructuring is seen as a positive sign of growth of the company and is often welcome
by those who wish to see the corporation gain a larger market share.
Corporate restructuring may also take place as a result of the acquisition of the
company by new owners. The acquisition may be in the form of a leveraged buyout, a
hostile takeover, or a merger of some type that keeps the company intact as a subsidiary
of the controlling corporation. When the restructuring is due to a hostile takeover,
corporate raiders often implement a dismantling of the company, selling off
properties and other assets in order to make a profit from the buyout. What remains
after this restructuring maybe a smaller entity that can continue to function, albeit
not at the level possible before the takeover took place.
In general, the idea of corporate restructuring is to allow the company to continue

functioning in some manner. Even when corporate raiders break up the company and
leave behind a shell of the original structure, there is still usually a hope, what remains
can function well enough for a new buyer to purchase the diminished corporation and
return it to profitability.
PURPOSE OF CORPORATE RESTRUCTURING

 To enhance the shareholder value, the company should continuously evaluate its:
 Portfolio of businesses,
 Capital mix,
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 Ownership &
 Asset arrangements to find opportunities to increase the shareholder ’s
value.
 To focus on asset utilization and profitable investment opportunities.
 To reorganize or divest less profitable or loss making businesses/products.
 The company can also enhance value through capital Restructuring, it can
innovate securities that help to reduce cost of capital.
CHARACTERISTICS OF CORPORATE RESTRUCTURING -

1. To improve the company’s Balance sheet, (by selling unprofitable division from
its core business).
2. To accomplish staff reduction (by selling/closing of unprofitable portion).
3. Changes in corporate management.
4. Sale of underutilized assets, such as patents/brands.
5. Outsourcing of operations such as payroll and technical support to a more
efficient third party.
6. Moving of operations such as manufacturing to lower -cost locations.
7. Reorganization of functions such as sales, marke ting, & distribution.
8. Renegotiation of labor contracts to reduce overhead.
9. Refinancing of corporate debt to reduce interest payments.
10. A major public relations campaign to reposition the co., with consumers.
CATEGORY OF CORPORATE RESTRUCTURING

Corporate Restructuring entails a range of activities including financial
restructuring and organization restructuring.
FINANCIAL RESTRUCTURING
Financial restructuring is the reorganization of the financial assets and liabilities of a
corporation in order to create the most beneficial financial environment for the company.
The process of financial restructuring is often associated with corporate restructuring,
in that restructuring the general function and composition of the company is likely to
impact the financial health of the corporation. When completed, this reordering of
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corporate assets and liabilities can help the company to remain competitive, even in a
depressed economy.
Just about every business goes through a phase of financial restructuring at one time
or another. In some cases, the process of restructuring takes place as a means of
allocating resources for a new marketing campaign or the launch of a new product line.
When this happens, the restructure is often viewed as a sign that the company is
financially stable and has set goals for future growth and expansion.
Need for Financial Restructuring

The process of financial restructuring may be undertaken as a means of eliminating
waste from the operations of the company.
For example, the restructuring effort may find that two divisions or departments of
the company perform related functions and in some cases duplicate efforts. Rather
than continue to use financial resources to fund the operation of both departments,
their efforts are combined. This helps to reduce costs without impairing the ability of
the company to still achieve the same ends in a timely manner
In some cases, financial restructuring is a strategy that must take place in order for
the company to continue operations. This is especially true when sales decline and the
corporation no longer generates a consistent net profit. A financial restructuring may
include a review of the costs associated with each sector of the business and identify
ways to cut costs and increase the net profit. The restruc turing may also call for the
reduction or suspension of production facilities that are obsolete or currently produce
goods that are not selling well and are scheduled to be phased out.
Financial restructuring also take place in response to a drop in sales, due to a sluggish
economy or temporary concerns about the economy in general. When this happens, the
corporation may need to reorder finances as a means of keeping the company
operational through this rough time. Costs may be cut by combining divisions o r
departments, reassigning responsibilities and eliminating personnel, or scaling back
33
production at various facilities owned by the company. With this type of corporate
restructuring, the focus is on survival in a difficult market rather than on expanding
the company to meet growing consumer demand.
All businesses must pay attention to matters of finance in order to remain operational
and to also hopefully grow over time. From this perspective, financial restructuring
can be seen as a tool that can ensure the corporation is making the most efficient use
of available resources and thus generating the highest amount of net profit possible
within the current set economic environment.
ORGANIZATIONAL RESTRUCTURING
In organizational restructuring, the focus is on management and internal corporate
governance structures. Organizational restructuring has become a very common practice
amongst the firms in order to match the growing competition of the market. This makes
the firms to change the organizational structure of the company for the betterment of
the business.
Need for Organization Restructuring

 New skills and capabilities are needed to meet current or expe cted operational
requirements.
 Accountability for results are not clearly communicated and measurable
resulting in subjective and biased performance appraisals.
 Parts of the organization are significantly over or under staffed.
 Organizational communications are inconsistent, fragmented, and inefficient.
 Technology and/or innovation are creating changes in workflow and production
processes.
 Significant staffing increases or decreases are contemplated.
 Personnel retention and turnover is a significant problem.
 Workforce productivity is stagnant or deteriorating.
 Morale is deteriorating.

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Some of the most common features of organizational restructures are:

Regrouping of business
This involves the firms regrouping their existing business into fewer business units.
The management then handles theses lesser number of compact and strategic business
units in an easier and better way that ensures the business to earn profit.
Downsizing
Often companies may need to retrench the surplus manpower of the business. For that
purpose offering voluntary retirement schemes (VRS) is the most useful tool taken by
the firms for downsizing the business's workforce.
Decentralization
In order to enhance the organizational response to the developments in dynamic
environment, the firms go for decentralization. This involves reducing the layers of
management in the business so that the people at lower hierarchy are benefited.
Outsourcing
Outsourcing is another measure of organizational restructuring that reduces the
manpower and transfers the fixed costs of the company to variable costs.
Enterprise Resource Planning

Enterprise resource planning is an integrated management information system that
is enterprise-wide and computer-base. This management system enables the business
management to understand any situation in faster and better way. The advancement
of the information technology enhances the planning of a business.
Business Process Engineering

It involves redesigning the business process so that the business maximizes the operation
and value added content of the business while minimizing everything else.
Total Quality Management

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The businesses now have started to realize that an outside certification for the quality
of the product helps to get a good will in the market. Quality improvement is also
necessary to improve the customer service and reduce the cost of the business.
The perspective of organizational restructuring may be different for the employees.

When a company goes for the organizational restructuring, it often leads to reducing
the manpower and hence meaning that people are losing their jobs. This may decrease
the morale of employee in a large manner. Hence many firms provide strategies on
career transitioning and outplacement support to their existing employees for an easy
transition to their next job.
CORPORATE RESTRUCTURING ACTIVITIES

Corporate restructuring may take place as a result of the acquisition of the company by
new owners. The acquisition may be in the form of a leveraged buyout, a hostile takeover,
or a merger of some type that keeps the company intact as a subsidiary of the controlling
corporation.
M ERGERS & ACQUISITION

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A merger occurs when two companies combine to form a single company. A merger is very
similar to an acquisition or takeover, except that in the case of a merger existing
stockholders of both companies involved retain a shared interest in the new corporation.
By contrast, in an acquisition one company purchases a bulk of a second company's
stock, creating an uneven balance of ownership in the new combined company.
A merger may be sought for a number of reasons , some of which are beneficial
to the shareholders, some of which are not. One use of the merger, for example, is to
combine a very profitable company with a losing company in order to use the losses as
a tax write-off to offset the profits, while expanding the corporation as a whole.
Increasing one's market share is another major use of the merger, particularly amongst
large corporations. By merging with major competitors, a company can come to
dominate the market they compete in, giving them a freer hand with regard to pricing
and buyer incentives. This form of merger may cause problems when two dominating
companies merge, as it may trigger litigation regarding monopoly laws.
Another type of popular merger brings together two companies that make different,
but complementary, products. This may also involve purchasing a company which
controls an asset your company utilizes somewhere in its supply chain. Major
manufacturers buying out a warehousing chain in order to save on warehousing costs,
as well as making a profit directly from the purchased business, is a good example of
this. PayPal's merger with eBay is another good example, as it allowed eBay to avoid
fees they had been paying, while tying two complementary products together.
Mergers and acquisitions are means by which corporation s combine with each other.
Mergers occur when two or more corporations become one. To protect shareholders, state
law provides procedures for the merger. A vote of the board of directors and then a vote
of the shareholders of both corporations is usually r equired. Following a merger, the
two corporations cease to exist as separate entities. In the classic merger, the assets and
liabilities of one corporation are automatically transferred to the other. Shareholders
37
of the disappearing company become shareholders in the surviving company or receive
compensation for their shares.
Mergers may come as the result of a negotiation between two corporations interested in
combining, or when one or more corporations "target" another for acquisition.
Combinations that occur with the approval and encouragement of the target company's
management are called "friendly" mergers; combinations that occur despite opposition from
the target company are called "hostile" mergers or takeovers. In either case, these
consolidations can bring together corporations of roughly the same size and market
power, or corporations of vastly different sizes and market power.
The term "acquisition" is typically used when one company takes control of another. This can
occur through a merger or a number of other methods, such as purchasing the majority
of a company's stock or all of its assets. In a purchase of assets, the transaction is one
that must be negotiated with the management of the target company. Compared to a
merger, an acquisition is treated differently for tax purposes, and the acquiring
company does not necessarily assume the liabilities of the target company.
Often, a successful tender offer is followed by a "cash-out merger." The target company
(now controlled by the acquiring company) is merged into the acquiring company, and
the remaining shareholders of the target company have their shares transformed into
a right to receive a certain amount of cash.
Another common merger variation is the "triangular" merger, in which a subsidiary of

the surviving company is created and then merged with the target. This protects the
surviving company from the liabilities of the target by keeping them within the
subsidiary rather than the parent. A "reverse triangular merger" has the acquiring
company create a subsidiary, which is then merged into the target company. This form
preserves the target company as an ongoing legal entity, though its control has passed
into the hands of the acquirer.
Benefits of Mergers and Acquisitions

Benefits of mergers and acquisitions are quite a handful.

38
Mergers and acquisitions generally succeed in generating cost efficiency through the
implementation of economies of scale. It may also lead to tax gains and can even lead
to a revenue enhancement through market share gai n.
Mergers and acquisitions often lead to an increased value generation for the company.
It is expected that the shareholder value of a firm after mergers or acquisitions would
be greater than the sum of the shareholder values of the parent companies.
An increase in cost efficiency is affected through the procedure of mergers and

acquisitions. This is because mergers and acquisitions lead to economies of scale. This
in turn promotes cost efficiency. As the parent firms amalgamate to form a bigger
new firm the scale of operations of the new firm increases. As output production rises
there are chances that the cost per unit of production will come down.
TENDER O FFER
A "tender offer" is a popular way to purchase a majority of shares in another company.
The acquiring company makes a public offer to purchase shares from the target
company's shareholders, thus by passing the target company's management. In order to
induce the shareholders to sell, or "tender,” their shares, the acquiring company typically
offers a purchase price higher than market value, often substantially higher. Certain
conditions are often placed on a tender offer, such as requiring the number of shares
tendered be sufficient for the acquiring company to gain control of the target. If the
tender offer is successful and a sufficient percentage of shares are acquired, control
of the target company through the normal methods of shareholder democracy can be
taken and thereafter the target company's management replaced. The acquiring
company can also use their control of the target company to bring about a merger of
the two companies.
J OINT VENTURE
Joint ventures are new enterprises owned by two or more participants. They are typically
formed for special purposes for a limited duration. It is a combi nation of subsets of
39
assets contributed by two (or more) business entities for a specific business purpose and
a limited duration. Each of the venture partners continues to exist as a separate firm,
and the joint venture represents a new business enterpris e. It is a contract to work
together for a period of time each participant expects to gain from the activity but also
must make a contribution.
For Example: GM-Toyota JV: GM hoped to gain new experience in the management
techniques of the Japanese in building high-quality, low-cost compact & subcompact
cars. Whereas, Toyota was seeking to learn from the management traditions that had
made GE the no. 1 auto producer in the world and In addition to learn how to operate
an auto company in the environment under the conditions in the US, dealing with
contractors, suppliers, and workers.
Reasons for Forming a Joint Venture

 Build on company's strengths
 Spreading costs and risks
 Improving access to financial resources
 Economies of scale and advantages of size
 Access to new technologies and customers
 Access to innovative managerial practices
Rational For Joint Ventures

 To augment insufficient financial or technical ability to enter a particular line
or business.
 To share technology & generic management skills in organ ization, planning &
control.
 To diversify risk
 To obtain distribution channels or raw materials supply
 To achieve economies of scale
 To extend activities with smaller investment than if done independently
 To take advantage of favorable tax treatment or political incentives (particularly
in foreign ventures).

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Tax aspects of joint venture.

If a corporation contributes a patent technology to a Join t Venture, the tax consequences
may be less than on royalties earned though a licensing arrangements.
Example - One partner contributes the technology, while another contributes depreciable
facilities. The depreciation offsets the revenues accruing to the technology. The J.V.
may be taxed at a lower rate than any of its partner & the partners pay a later capital
gain tax on the returns realized by the J.V. if and when it is sold. If the J.V. is
organized as a corporation, only its assets are at risk. The partners are liable only to the
extent of their investment, this is particularly important in hazardous indust ries
where the risk of workers, production, or environmental liabilities is high.
SELL OFF
Selling a part or all of the firm by any one of means: sale, liquidation, spin -off & so
on. PARTIAL SELL-OFF: A partial sell-off/slump sale, involves the sale of a business
unit or plant of one firm to another. It is the mirror image of a purchase of a business
unit or plant. From the seller’s perspective, it is a form of contraction; from the buyer ’s
point of view it is a form of expansion.
For example: When Coromandal Fertilizers Limited sold its cement division to India
Cement Limited, the size of Coromandal Fertilizers contracted whereas the size of India
Cements Limited expanded.
Motives for sell off

 Raising capital
 Curtailment of losses
 Strategic realignment
 Efficiency gain.
SPIN OFF -
Spinoffs are a way to get rid of underperforming or non -core business divisions that
can drag down profits.
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Process of spin off

1. The company decides to spin off a business division.
2. The parent company files the necessary paperwork with the Securities and
Exchange Board of India (SEBI).
3. The spinoff becomes a company of its own and must also file paperwork with the
SEBI.
4. Shares in the new company are distributed to parent company shareholders.
5. The spinoff company goes public.
Notice that the spinoff shares are distributed to the parent company shareholders. There
are two reasons why this creates value:
 Parent company shareholders rarely want anything to do with the new spinoff.
After all, it's an underperforming division that was cut off to improve the
bottom line. As a result, many new shareholders sell immediately after the new
company goes public.
 Large institutions are often forbidden to hold shares in spinoffs due to the
smaller market capitalization, increased risk, or poor f inancials of the new
company. Therefore, many large institutions automatically sell their shares
immediately after the new company goes public.
Simple supply and demand logic tells us that such large number of shares on the market
will naturally decrease the price, even if it is not fundamentally justified. It is this
temporary mispricing that gives the enterprising investor an opportunity for profit.
There is no money transaction in spin-off. The transaction is treated as stock dividend

& tax free exchange.
SPLIT – OFF & SPLIT-UP-

Split- off is a transaction in which some, but not all, parent company shareholders
receive shares in a subsidiary, in return for relinquishing their parent company ’s
share. In other words some parent company shareholders receive the subsidiary’s shares
in return for which they must give up their parent company shares. Features: A portion

42
of existing shareholders receives stock in a subsidiary in exchange for parent company

stock.
Split-up is a transaction in which a company spins off all of its subsidiaries to its
shareholders & ceases to exist.
 The entire firm is broken up in a series of spin-offs.

 The parent no longer exists and
 Only the new offspring survive.
In a split-up, a company is split up into two or more independent comp anies. As a sequel,
the parent company disappears as a corporate entity and in its place two or more
separate companies emerge.
Squeeze-out: the elimination of minority shareholders by controlling shareholders.

EQUITY CARVE-OUT
A transaction in which a parent firm offers some of a subsidiaries common stock to
the general public, to bring in a cash infusion to the parent without loss of control. In
other words equity carve outs are those in which some of a subsidiaries shares are
offered for a sale to the general public, bringing an infusion of cash to the parent
firm without loss of control. Equity carve out is also a means of reducing their exposure
to a riskier line of business and to boost shareholders value.
Features of equity carve out
 It is the sale of a minority or majority voting control in a subsidiary by its

parents to outsider investors. These are also referred to as “split-off IPO’s”
 A new legal entity is created.
 The equity holders in the new entity need not be the same as the equity holders in
the original seller.
 A new control group is immediately created.
PREMIUM BUY BACK

43
The repurchase of outstanding shares (repurchase) by a company in order to reduce the
number of shares on the market. Companies will buy back shares either to increase the
value of shares still available (reducing supply), or to eliminate any threats by
shareholders who may be looking for a controlling stake. A buyback allows companies to
invest in themselves. By reducing the number of shares outstanding on the market,
buybacks increase the proportion of shares a company owns. Buybacks can be carried
out in two ways:
1. Shareholders may be presented with a tender offer whereby they have the option
to submit (or tender) a portion or all of their shares within a certain time frame
and at a premium to the current market price. This premium compensates
investors for tendering their shares rather than holding on to them.
2. Companies buy back shares on the open market over an extended period of time.
STANDSTILL AGREEMENTS
A contract that stalls or stops the process of a hostile takeover. The target firm either
offers to repurchase the shares held by the hostile bidder, usually at a large premium,
or asks the bidder to limit its holdings. This act will stop the current attack and give the
company time to take preventative measures against future takeovers.
ANTI-TAKEOVER
An anti-takeover measure is a precautionary strategy used by companies to avoid being
bought by another company. The most common antitakeover measures are:
Poison Pills: This include acts of target management whose purpose is to make the
target firm less appealing to the acquiring firm.
Golden Parachutes: This refer to the compensation to the top management of the
target firm in the event that the target firm loses control.
Scorched Earth Strategy: The sale of a profitable division or other prized assets in
the target firm in order to make it less appealing to the acquiring firm.

44
Targeted Repurchases or Green Mail: The purchase of the shares of the target
firm from the acquiring firm at a premium price. A condition of the purchase is that
the potential acquirer leave the target firm intact.
Changes in the Corporate Charter or Super Majority Provision: The

corporate charter contains the laws that govern the firm, and includes prov isions that
govern the transfer of control. The corporate charter can be changed so that a large
majority, say 80% of the shareholders must approve the merger. Because it is difficult
for any group to acquire such a large percent of approval, takeovers bec ome less likely
to occur.
Staggered Board: The classification of the board of directors into groups such that
only one group is reelected each year. The acquiring firm can therefore not quickly
control the board of the target even after obtaining a majorit y of the shares.
PROXY CONTESTS
A strategy that may accompany a hostile takeover. A proxy contest occurs when the
acquiring company attempts to convince shareholders to use their proxy votes to install
new management that is open to the takeover. The techn ique allows the acquired to avoid
paying a premium for the target. Also called proxy fight.
CHANGE IN O WNERSHIP
The change in ownership of an international registration may relate to all the
industrial designs covered by the international registration, or to some only of them.
Similarly, the change in ownership may be in respect of all the designated Contracting
Parties or some only of them. The change in ownership may take place in any of the
following ways:
 Exchange Offer
 Share Purchase
 Going Private
45
 Leverage Buyout
Strategic Analysis and Choice

Strategic choice is a part of the strategic process and involves elements like the
identification and evaluation of alternatives which then leads to a choice. After
conducting the external and internal analyses the different alternatives may be
available.
“The process of selecting the best strategy out of the available strategies. ”
- Glueck
Strategic choices also occur at different levels, at the business level, at the corporate and
at the international level. The available options can develop into differen t directions
and different methods can be of relevance when evaluating them. A great challenge is
to get choices on different levels to be consistent with each other.
FOCUSING ON STRATEGIC ALTERNATIVES

46
The aim of focusing on a few alternatives is to narr ow down the choice to a manageable
number of feasible strategies. For deciding on what would be a reasonable number of
alternatives, it is advisable to start with business definition. It could also be done by
visualizing a future state and working backward from it. This is done through gap
analysis.
By analyzing the difference between the projected and desired performance, a gap could
be found. How wide or narrow the gap is, its importance, and possibility of its being
reduced influence the focus on alternatives,
 Where the gap is narrow, stability strategies would seem to be a feasible

alternatives.
 If the gap is large, due to expected environmental opportunities, expansion
strategies are more suitable.
 If it is large due to past and expected bad performance, retrenchment strategies
may be more suitable.
CONSIDERING DECISION FACTORS
47
Narrowing down the strategic choice to a few feasible alternatives have to be subjected
to further analysis. Such an analysis has to rely on certain factors. These factors are
termed as selection factors. The selection factors can be broadly divided into two groups:
the objective and subjective factors.
OBJECTIVE FACTORS
Objective factors are based on analytical techniques and are hard facts or data used to
facilitate a strategic choice. They could also be termed as rational, normative, or
prescriptive factors. Objective factors are grouped into two categories such as
environmental and organizational factors. Environmental factors include volatility
of environment, input supply from environment and powerful stakeholders.
Organizational factors to be considered are organization ’s mission, the strategic intent,
its business definition and its strength and weaknesses.
SUBJECTIVE FACTORS
It is based on one’s personal judgement and collective or descriptive factors. Various
subjective factors may be classified as:
Past strategies: When huge investments have been committed to strategies adopted in
previous period. They prove to be a stumbling block for the organizations to take a new
direction and the strategists become ultimately responsible for the results.
Personal factors: The value system of top management influences the type of
strategy pursued by organization. The personal preferences of decision makers again
influences the choice of strategy.
Attitude to Risk: The attractiveness of a strategy is closely related to the risks

embedded into it. Risk in a strategy is said to be high when the assets to be committed
and the period of time the assets will be locked up for ac hieving the strategy are very
high and lengthy. Firm which are involved in global operations, the risks are very great
due to the variation among countries in terms of customs, regulations and resources. A
wrong decision is likely to kill the company.

48
Pressure from stakeholders: The key stakeholders exert influence on strategic

alternative; Employees pressure for fair wages and job security; creditors require
prompt payment of loans; Government and other interested group expect the firm to
take up social responsibility activities; shareholders want periodical dividends.
EVALUATING STRATEGIC ALTERNATIVES

Assess the pros and cons of various alternatives and their suitability. Popularly used
tool for Evaluating Strategic Alternatives is portfolio analysis. Th e information
collected for SWOT analysis serves as a basis. It is a two dimensional technique. The
purpose is to help top officers of diversified corporations better manage their portfolio
of business. This techniques were popular at 1960s and 1970s. BCG MATRIX and GE
BUSINESS SCREEN MATRIX are studies as illustration of portfolio techniques.
STRATEGIC CHOICE
Strategic choice involves evaluation of the pros and cons of each strategic alternative
and selection of the best alternative. The three technique us ed are:
DEVIL’S ADVOCATE
Devil’s Advocate has got its origin in the medieval Roman Catholic Church practice
which scrutinized imposters so that they will not be canonized as saints. Devil’s Advocate
in strategic decision making is responsible for identifying potential pitfalls and
problems in a proposed strategic alternative by making a formal presentation.
DIALECTICAL ENQUIRY
It involves making two proposals with contrasting assumptions for each strategic
alternative. The merits and demerits of the proposal will be argued by advocates before
the key decision makers. Finally one alternative will emerge viable for implementation.
STRATEGIC SHADOW COMMITTEE
49
The committee consists of members drawn below executive level. They serve the committee
for two years. They inspect all materials and attend all meeting of executive strategy.
The members generate views regarding constraints faced by management. The report is
submitted to Board of Directors.
Environmental Threat and Opportunity

Profile (ETOP)
Environmental Threat and Opportunity Profile (ETOP) is commonly used to report the
external environmental situation. ETOP (Environmental Threat and Opportunity
Profile) is a technique to structure environmental issues. ETOP involves:
 Dividing the environment into different sectors. Each sectors can be subdivided
into sub sectors.
 Analyzing the impact of each sector and subsector on the organization.
 Describe the impact in the form of a statement.
Advantage of ETOP
 It provides a clear of which sector and sub sectors have favourable impact on the
organization. It helps interpret the result of environment analysis.
 The organization can assess its competitive position.
 Appropriate strategies can be formulated to take advantage of opportunities and
counter the threat.
 SWOT analysis (Strategic weakness, opportunities and threats.)
Strategic Advantage Profile

Every firm has strategic advantages and disadvantages. For example, large firms have
financial strength but they tend to move slowly, compared to smaller firms, and often
cannot react to changes quickly. No firm is equally strong in all its functions. In o ther
words, every firm has strengths as well as weaknesses.

50
Strategists must be aware of the strategic advantages or strengths of the firm to be able
to choose the best opportunity for the firm. On the other hand they must regularly
analyse their strategic disadvantages or weaknesses in order to face environmental
threats effectively
Examples: The Strategist should look to see if the firm is stronger in these factors than
its competitors. When a firm is strong in the market, it has a strategic advantage i n
launching new products or services and increasing market share of present products
and services.
Strategic Advantage Profile for a bicycle company
Capability Nature of Competitive strengths or

S.No
Factor Impact weaknesses
1 Finance Down Arrow High cost of capital, reserves

and surplus position
unsatisfactory
2 Marketing Horizontal Fierce competition in

Arrow industry's
3 Information Up Arrow Advanced Management

information system
 Up Arrow() indicates Strength

 Down Arrow() indicates Weaknesses
 Horizontal Arrow() indicates Neutral
ORGANIZATIONAL CAPABILITY PROFILE

(OCP)
The organizational capability profile is drawn in the form of a chart. The strategists
are required to systematically assess the various functional areas and subjectively
51
assign values to the different functional capability factors and sub factors along a
scale ranging from values of -5 to +5.
Capability Factors Weakness (-5) Normal (0) Strength (+5)
Financial -5
Technical 0
Human Resource -5
Marketing 5
R&D 0
Mc Kinsey's 7s Framework
This model is developed in the early 1980s by Tom Peters and Robert Waterman, two
consultants working at the McKinsey & Company consulting firm, the basic premise
of the model is that there are seven internal aspects of an organization that need to be
aligned if it is to be successful. The 7-S model can be used in a wide variety of situations
where an alignment perspective is useful.
THE SEVEN ELEMENTS

The McKinsey 7-S model involves seven interdependent factors which are categorized
as either "hard" or "soft" elements:

52
"HARD" elements are easier to define or identify and management can directly
influence them: These are strategy statements; organization charts and reporting lines;
and formal processes and IT systems.
"S OFT" elements, on the other hand, can be more difficult to describe, and are less
tangible and more influenced by culture. However, these soft elements are as important
as the hard elements if the organization is going to be successful.
The way the model is presented in Figure below depicts the interdependency of the
elements and indicates how a change in one affects all the others.
Let's look at each of the elements specifically:
 Strategy: the plan devised to maintain and build competitive advantage ov er

the competition.
 Structure: the way the organization is structured and who reports to whom.
 Systems: the daily activities and procedures that staff members engage in to
get the job done.
53
 Shared Values: called "superordinate goals" when the model was fir st
developed, these are the core values of the company that are evidenced in the
corporate culture and the general work ethic.
 Style: the style of leadership adopted.
 Staff: the employees and their general capabilities.
 Skills: the actual skills and competencies of the employees working for the
company.
Considering the links between each of the S’s one can identify strengths and weaknesses
of an organization. No S is strength or a weakness in its own right, it is only its degree
of support, or otherwise, for the other S’s which is relevant. Any S’s that harmonizes
with all the other S’s can be thought of as strength and weaknesses
The model highlights how a change made in any one of the S ’s will have an impact on
all the others. Thus if a planned change is to be effective, then changes in one S must
be accompanied by complementary changes in the others.
Corporate Portfolio Analysis

When the company is in more than one business, it can select more than one strategic
alternative depending upon demand of the situation prevailing in the different
portfolios. It is necessary to analyze the position of different business of the business
house which is done by corporate portfolio analysis.
Portfolio analysis is an analytical tool which views a corporation as a basket or

portfolio of products or business units to be managed for the best possible returns.
When an organization has a number of products in its portfolio, it is quite likely that
they will be in different stages of development. Some will be relatively new and som e
much older. Many organizations will not wish to risk having all their products at the
same stage of development. It is useful to have some products with limited growth but
producing profits steadily, and some products with real growth potential but may s till

54
be in the introductory stage. Indeed, the products that are earning steadily may be used
to fund the development of those that will provide the growth and profits in the future.
So the key strategy is to produce a balanced portfolio of products, some with low risk but
dull growth and some with high risk but great potential for growth and profits. This
is what we call as portfolio analysis.
THE AIM OF PORTFOLIO ANALYSIS IS

 To analyze its current business portfolio and decide which businesses should
receive more or less investment
 To develop growth strategies, for adding new businesses to the portfolio
 To decide which business should no longer be retained
BALANCING THE PORTFOLIO –

Balancing the portfolio means that the different products or bus inesses in the portfolio
have to be balanced with respect to four basic aspects –
 Profitability
 Cash flow
 Growth
 Risk
BCG MATRIX
BCG growth matrix is developed by Boston Consulting Group. This has two dimension
namely,
 Market Growth Rate and

 Relative Market Share.
The main objective is to help top management to identify the cash flow requirements
of different business in their portfolio.
STEPS
55
Strategic
Comparing Implications
Defining and Strategic Business
Evaluating Strategic units
Business Units.
Defining and Evaluating Strategic Business Units

Create an SBU for distinct business area. SBUs are defined in terms of product
markets they are competing in. Then SBU is examined in terms of
 Relative Market Share and

 Industry Growth Rate.
GE 9 CELL MODEL
GE and Mckinsey Consulting firm have evolved GE Business Screen Matrix. This is
another popular “Corporate Portfolio Analysis” technique, result of pioneering effort
of General Electric Company along with McKinsey Consultants which is known as the
GE NINE CELL MATRIX.
GE nine-box matrix is a strategy tool that offers a systematic approach

for the multi business enterprises to prioritize their investments am ong
the various business units.
It is a framework that evaluates business portfolio and provides further strategic

implications.
Each business is appraised in terms of two major dimensions – Market Attractiveness

and Business Strength. If one of these factors is missing, then the business will not
produce desired results. Neither a strong company operating in an unattractive market,
nor a weak company operating in an attractive market will do very well.

56
The vertical axis denotes industry attractiveness, which is a weighted composite rating
based on eight different factors. They are:
 Market size and growth rate

 Industry profit margins
 Intensity of Competition
 Seasonality
 Product Life Cycle Changes
 Economies of scale
 Technology
 Social, Environmental, Legal and Human Impacts
The horizontal axis indicates business strength or in other words competitive position,
which is again a weighted composite rating based on seven factors as listed below:
 Relative market share

 Profit margins
 Ability to compete on price and quality
 Knowledge of customer and market
 Competitive strength and weakness
 Technological capability
 Caliber of management
The two composite values for industry attractiveness and competitive position are
plotted for each strategic business unit (SBU) in a COMPANY ’S PORTFOLIO. The
PIE chart (circles) denotes the proportional size of the industry and the dark segments
denote the company’s respective market share.
Step one: The typical factors, which determine industry attractiveness, are selected. For
each product line overall industry attractiveness is assessed and rated in a 5 -point scale.
(Attractive to Unattractive)
Step Two: The typical factors, which characterize business strength for each product
line or business unit are assessed and measured in a 5 -point scale. (Strong to weak)
57
Step Three: Plot each product line’s current position on the matrix.
Step Four: The future portfolio also should be plotted with the assumption that the
business strategies remain constant. Calculate the gap between projected and desired
portfolio and review the corporation’s mission, objectives, strategies and policies.
Predictions:
 The pie charts represent the proportionate size of the industry and the dark
segments represent the company’s market share.
 The individual product line or business units are identified by a letter and
plotted as circles here.
 The nine cells are grouped on the basis of low to high industry attractiveness
and weak to strong business strength.
 Based on the combinations the following strategies are made:
Go ahead - Winner - Expansion
Wait and see - Average - Stability
Stop - Loser - Retrenchment

58
The green zone suggests you to ‘go ahead’, to grow and build, pushing you through
expansion strategies. Businesses in the green zone attract major investment. Yellow
cautions you to ‘wait and see’ indicating hold and maintain type of strategies aimed at
stability. Red indicates that you have to adopt turnover strategies of divestment and
liquidation or rebuilding approach.
Balanced Scorecard
The balance scorecard is used as a strategic planning and a management technique. This
is widely used in many organizations, regardless of their scale, to align the
organization's performance to its vision and objectives. The scorecard is also used as a
tool, which improves the communication and feedback process between the employees and
management and to monitor performance of the organizational objectives. As the name
depicts, the balanced scorecard concept was developed not only to evaluate the financial
performance of a business organization, but also to address customer concerns, business
process optimization, and enhancement of learning tools and mechanisms.
Following is the simplest illustration of the concept of balanced scorecard. The four
boxes represent the MAIN AREAS OF CONSIDERATION UNDER
BALANCED SCORECARD . All four main areas of consideration are bound by
the business organization's vision and strategy.
59
The balanced scorecard is divided into four main areas and a successful organization
is one that finds the right balance between these areas. Each area (perspective) represents
a different aspect of the business organization in order to operate at optimal capacity.
Financial Perspective - This consists of costs or measurement involved, in terms of

rate of return on capital (ROI) employed and operating income of the organization.
Customer Perspective - Measures the level of customer satisfaction, customer

retention and market share held by the organization.
Business Process Perspective - This consists of measures such as cost and quality
related to the business processes.
Learning and Growth Perspective - Consists of measures such as employee

satisfaction, employee retention and knowledge managem ent.
The four perspectives are interrelated. Therefore, they do not function independently.
In real-world situations, organizations need one or more perspectives combined together
to achieve its business objectives. For example, Customer Perspective is nee ded to
determine the Financial Perspective, which in turn can be used to improve the Learning
and Growth Perspective.

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BA7302 – STRATEGIC MANAGEMENT

C HARACTERISTICS OF C ORPORATE S TRATEGY 3

M EANING & N EED FOR C ORPORATE R ESTRUCTURING 29

STRATEGIC ANALYSIS AND CHOICE 45

F OCUSING ON S TRATEGIC A LTERNATIVES 45

ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE (ETOP) 49

STRATEGIC ADVANTAGE PROFILE 49

ORGANIZATIONAL CAPABILITY PROFILE (OCP) 50

CORPORATE PORTFOLIO ANALYSIS 53

T HE AIM OF PORTFOLIO ANALYSIS IS 54

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

BA7302 – Strategic Management

Corporate level strategy, also known as grand strategy or root strategy,

CHARACTERISTICS OF CORPORATE STRATEGY

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

In general, a corporate strategy has the following characteristics:

 It is generally long range in nature, though it is valid for short-range situations.

CLASSIFICATION OF CORPORATE STRATEGY

 Should we continue the same business with similar efforts?

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

A stability strategy refers to a strategy by a company w here the company

Stability strategy is most likely to be pursued by small businesses or firms in a mature

Nature of Stability Strategy

 It decides to serve the same markets with the same products;

Conditions Favoring Stability Strategy

 The industry or the economy is in turmoil or the environment is volatile.

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

Rationale for Using Stability Strategy

Stability strategy is also adopted in a number of organizations because the management

Sometimes environmental forces compel an organization to follow the strategy of status

Types of Stability Strategies

Pause/Process with caution strategy – Some organizations pursue stability

No change strategy – No change strategy is a decision to do nothing new i.e

Profit strategy – Profit strategy is an attempt to artificially maintain profits by

Approaches to Stability Strategy

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

Stable Growth: This alternative essentially involves avoiding change, representing

Profit or Endgame Strategy: A profit strategy is one that capitalizes on a

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

Expansion strategy is adopted to accelerate the rate of growth of sales,

Conditions for Opting for Expansion Strategy

TYPES OF EXPANSION STRATEGIES

EXPANSION THROUGH INTENSIFICATION

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

Ansoff’s Product-Market Expansion Grid

a) The company can expand sales through developing new products.

EXPANSION THROUGH DIVERSIFICATION

Diversification is a business development strategy allowing a company to

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

Reason for Diversification

H ORIZONTAL D IVERSIFICATION : Acquiring or developing new products or offering

BA7302 – STRATEGIC MANAGEMENT | UNIT – III – STRATEGIES

1. Cost cutting and

Types of Retrenchment Strategies

 Persistent negative cash flow

 A business cannot be integrated within the company.

Generally it is seen that small-scale units, proprietorship firms, and partnership,

Liquidation strategy may be unpleasant as a strategic alternative but when a “dead

 Business becoming unprofitable

According to Parkhe strategic alliances are ‘relatively enduring, inter

Strategic alliances developed and propagated as formalized inter organizational

 Organic growth alone is insufficient for meeting most organizations ’ required