October 2021

Corporate Strategy

By Evgeniya Macleod +
Information in the slides
by Ioannis Christodoulou
What we have covered in this module so far and
where we are…
Strategy process:
External Internal
Business level
environment environment
strategy
analysis analysis

Strategy
Corporate International
implementation
level strategy level strategy
and evaluation
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Levels of strategy

Corporate In which business

the organisation
E.g. diversification,
market
level competes development

Business How the firm /

strategic business
E.g. cost
leadership,
level units (SBUs)
compete
differentiation

Functional How departments

E.g. HRM strategy,
marketing strategy,
level function
production strategy

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Difference between corporation and SBU
Three types of corporate strategies

Stability strategies

Growth strategies

Turnaround /
retrenchment
strategies
5
Stability corporate strategies

No-change strategy
• No interest in strategic repositioning

Profit strategy
• Sacrificing future development to immediate profit

Pause strategy
• After M&A, increase inner control and systems, short-term, the goal is to
achieve stability
Caution strategy
• Careful steps due to turbulence in the macro-environment to gain insight and
better information for the direction that should follow

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Growth corporate strategies
Integration
• Vertical integration
• Horizontal integration

Diversification
• Related diversification
• Unrelated diversification

Market penetration

Market development

Product development
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Growth corporate strategies – vertical integration
Backward Forward
integratio integratio
n n
The firm
The firm
takes
takes
ownership
control of
and control
its own
of
customers
producing
or
its own
distributors
inputs;
further
owns a
down the
supplier in
supply
its supply
chain
chain
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Growth corporate strategies – vertical integration

Full Partial
integration integration
Happens between two stages of
production when all of the 1st Happens when stages of
stage’s production is transferred production are not internally
to the 2nd stage with no sales or self-sufficient
purchases from 3rd parties

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Growth corporate strategies – vertical integration
Advantages of vertical integration
Strengthen the competitive position of firm’s main
business
Quality protection
Cost saving on expensive distributors / suppliers
Investment in specialised resources, e.g.
technological innovation
Building high barriers to entry – e.g. control of raw
material flow
Stability of production – economies of scale
Disadvantages of vertical integration
High cost
Failure to achieve synergies – differences in culture,
strategy, bureaucracy, personal interests
Lock the firm deeper into the industry – problem in
case of a negative movement of the demand
Less flexibility – difficulty in changing suppliers
Limit innovation

Unless operating across more stages in the industry’s value chain builds competitive advantage, vertical
integration is a questionable strategic move.
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Growth corporate strategies – horizontal integration
Development of a firm through acquisition or creation of competitive companies at the same level of
production. They may be in the same or different industries.

Advantages of horizontal integration Disadvantages of horizonal integration

Create competitiveness
Monopolize a certain market
Economies of scale in the production
Lock the firm deeper into the industry – problem in case
of a negative movement of the demand
Failure to achieve synergies – differences in culture,
strategy, bureaucracy, personal interests
High costs

Acquire competitors that deal with financial Legislation problems

problems and turn around the situation

Poll everywhere – questions

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Growth corporate strategies – Ansoff Matrix

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Growth corporate strategies – Market Penetration
Investment of resources in the most profitable product, market or a technology.

The Goals in this situation are:

1. Increase product usage by the present customers e.g. reduce the rate of product disposal
period, advertise new uses of the product, incentives to customer to buy more units.

2. Attract the competitor’s customers e.g. repositioning, promotion efforts, lower prices
3. Attract non users e.g. test trial through samples

It is recommended when: the present markets are not saturated, there’s space for usage
increase by the present customers, the market shares are decreasing but the market
increases, economies of scales, the industry is not dependent upon technological innovations,
Growth corporate strategies – Market Development
The company is trying to promote the present products to new markets.

It can be done by:

1. Expansion to a new geographical area, locally or globally
2. Attracting customers by other market segments (e.g. industrial customers)
3. Entering new distribution channels

The particular strategy is recommended when:

4. There are new, not expensive but reliable distribution channels
5. There are unexploited or not saturated markets
6. Sometimes firms have to follow this strategy due to surplus production capacity that
has to be channelled somewhere else.

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Growth corporate strategies – Product Development
New products are developed in present markets or significant
reengineering is being done to the same products.

The firm has three options here:

1.Developing new features of the products – e.g. shape, colour, increases the
product – in general tries to add value
2. Developing new types of the product in terms of quality
3. Developing new products, sizes and models – product proliferation

The particular strategy is recommended when the company has

successful products that are in the maturity stage.

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Growth corporate strategies – Diversification
• When the businesses that the firm deals with
are connected –
Concentric or • Example: offers products that have similarities
Related in their technology, methods of production or
Diversification the methods of promotion, e.g. Starbucks
bought La Boulange bakery and Evolution
Harvest granola bars
• When the businesses of the firm are connected
with each other
Unrelated or • Example: Huyndai Corporation: Cars,
Conglomerate Electronics, Telecommunications,
Diversification Petrochemics, Ship Constructing &
Constructions, Metals & Iron, Financial
Services, Medical Machinery
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Growth corporate strategies – Diversification
Strong
When does competitive
Strong
diversification start competitive
position,
position,
to make sense? Slow market
rapid market
growth –
growth –
Diversification is
NOT a good time
top priority
to diversify
consideration

Weak competitive
Weak competitive
position,
position,
slow market
rapid market
growth –
growth –
Diversification
NOT a good
merits
time to diversify
consideration
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Growth corporate strategies – Diversification
When to diversify?
1. Diminishing growth prospects in present business
2. Opportunities to add value for customers or gain competitive
advantage by broadening present business to include
complementary products
3. Attractive opportunities to transfer existing competencies to
new businesses
4. Potential cost-saving opportunities to be realised by entering
related businesses
5. Availability of adequate financial and organisational resources
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Growth corporate strategies – Diversification
More specifically related diversification should be used in these cases:
1. Acquiring Information e.g. about new technological advances, competition,
trends in the market
2. Cost reduction – e.g. the complete production of steel reduces the cost re-
heating & transportation
3. Possible Profits
4. Spread of the Danger e.g. by been locked in the market with 1 product or
seasonality or the sales
5. High level of resources usage
6. Increased power in the market
7. Empire Building
8. Motivation of Top Management
Growth corporate strategies – Diversification

More specifically unrelated diversification should be used in these cases:

1. Need of investment of surplus capital
2. Firm is competing in an industry of negative development &
profits
3. Spread of Danger
4. A great opportunity to acquire an unrelated business
5. Financial synergies between the two firms
6. Monopolistic legislation forbids related expansion
7. Aspirations of Top Management and Motivation
8. Surplus Resources & Management in the firm to compete in another industry
Growth corporate strategies – Diversification
Diversification decision should take into consideration:

1. The bureaucratic cost

2. The limits of diversification
3. The number of businesses
4. The coordination of business – control
5. The calculation of profit margin in order to effectively manage resources.

Empirical Research has shown that:

Related Diversification leads to greater profit usually.

Whereas Unrelated Diversification leads to greater development.

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Growth corporate strategies – Diversification

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Turnaround corporate strategies
Joint-Ventures (not always a turnaround strategy)

Retrenchment (e.g. bankruptcy)

Divesture (e.g. selling a department)

Liquidation

Rectification (downsizing – stabilisation - rebuilding)

Captivity
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Turnaround corporate strategies - Rectification
Sometimes things go wrong!

• Bad adoption to the environment

• Lack of Inner Control
• Too much risk taking, unnecessarily in certain occasions
• Uncontrollable factors such as governmental policies, technological
advances, natural disasters.
• A combination of the above!

A very popular strategy in such situations is

Rectification that takes place in three stages:

Downsizing – Stabilization –
24 Rebuilding
Turnaround corporate strategies - Divesture

Selling or closing a company’s assets,

business or department or more, When…
• Rectification Strategy Failed
• A department’s expenses are more than the firm is able
to handle
• A firm decides to sell a department because it is not
profitable or even doesn’t abide by the company’s long term
mission/vision
• A company due to legislation decides to sacrifice part of its
power

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Turnaround corporate strategies - Captivity
Captivity: When a company is dependent on another due to its decision to
reduce the range of its activities
The “prisoner” abides by the rules and will of the “saviour” since most of the
times its survival depends on the 2nd one.

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Turnaround corporate strategies - Liquidation

Liquidation: THE END! – Everything else has failed…

If the Company want to avoid such situations should always:

1. Constantly Control its “Strategic Health” not only by financial terms but
also in terms of competitiveness
2. Seek / foresee trends and position itself in the changing environment
3. Establish the proper business culture to do all the above

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References
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 Bartlett, C., Ghoshal, S. & Beamish, P. (2008). Transnational management: Texts, cases, and readings in cross-border
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 Carpenter, M, Sanders, WG (2007) Strategic Management: A Dynamic Perspective, Harlow: Pearson Prentice Hall
 David, G (2007) Strategic Management, Harlow: FT Prentice Hall
 De Wit, B, Meyer R,(2010) Strategy, 4th Revised Edition, MacMillan, Cengage Learning EMEA
 Friedman, A. L. & Miles, S. (2006). Stakeholders: Theory and practice. Oxford: Oxford University Press.
 Haberberg, A. & Rieple, A. (2008). Strategic management: Theory and application. New York: Oxford University
Press.
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 Hitt, MA, Ireland, R, & Hoskisson, R, (2009) Strategic Management: Competitiveness and Globalization, (9th ed),
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 Johnson, G, Whittington, R, Scholes, K (2010) Exploring Strategy Text & Cases, 9th Edition, Prentice Hall.
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McGrawHill
 Lynch, R (2006), Corporate Strategy, (4th ed), Harlow: FT Prentice Hall
 McGee J., Thomas, H & Wilson, D (2005) Strategy Analysis & Practice, Maidenhead: McGraw-Hill
 Mintzberg, H, Ahlstrand, B, Lampel, J.B., (2008) Strategy Safari: The Complete Guide Through the Wilds of
Strategic Management , 2nd Edition, Prentice Hall

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THANK YOU

westminster.ac.uk