Ses 6 - Corporate Level Strategy, Integration & Outsourcing

Corporate Level Strategy , Integration &
Outsourcing
Salim Solaiman
Founder, Coach & Mentor : Liberate Learning & Consulting
Adjunct Faculty Sum ‘23, BRAC U
1
Definition , Objectives & Salient Features of
Corporate Level Strategy
• Definition: Corporate-Level Strategy Salient Features of Corporate Level Strategy
refers to the top management’s approach • Corporate Level Strategies is developed by the
or game plan for administering and company’s highest level of mgmt considering
company’s overall growth & opportunities in
directing the entire concern. These are future.
based on the company’s business • It describes the orientation and direction of
environment and internal capabilities. It the enterprise in the long run and the overall
boundaries which acts as the basis for
also called as Grand Strategy. formulating the company’s middle and low-
level strategies, i.e. business strategies
• Objectives of Corporate strategy is to and functional strategies.
“directing” the managers on ‘how to • While formulating corporate-level strategies,
manage the scope of various business the company’s available resources and
activities’ and ‘how to make optimum environmental factors are kept in mind.
utilization of firm’s resources (material, • It is concerned with the decisions regarding
money, men, machinery), etc. on different the two-way flow of company’s information
and resources between the various levels of
business activities’. management.
https://businessjargons.com/corporate-level-strategy.html
Salim Solaiman/ Founder, Coach & Mentor: Liberate Learning & Consulting / Adjunct Faculty Sum 23 , BRAC U 2
Classification of Corporate Level Strategy
• In the stability strategy, the firm continues with its existing
business and product markets, as well as it maintains the
current level of endeavor as the firm is satisfied with the
marginal growth.
• In the expansion strategy, the enterprise looks for
considerable growth, either from the existing business or
product market or by entering a new business, which may or
may not be related to the firm’s existing business. Basically,
it encompasses diversification, merger and acquisitions,
strategic alliance, etc.
• Retrenchment Strategy is pursued when the company opts
for decreasing its scope of activity or operations. In
retrenchment strategy, a number of business activities are
retrenched (cut or reduced) so as to minimize cost, as a
response to the firm’s financial crisis. Sometimes, the
business itself is dropped by selling out or liquidation.
• In Combination Strategy the enterprise combines any or
https://businessjargons.com/corporate-level-strategy.html all of the three corporate strategies, so as to fulfil the firm’s
requirements. The firm may choose to stabilize some areas
of activity while expanding the other and retrenching the rest
(loss-making ones).
Strategic options for 4 Corporate Level
Strategies
https://indiafreenotes.com/corporate-level-strategy/
Reasons of opting for Stability Strategy
• In case the firm wants to make its position stronger in its operating industry.
• When an organisation do not want to take a huge risk in case the economy is facing a recession,
the country is slowing down.
• In case the company have a huge debt or loan to pay it back. It is to make sure that the company
will be able to pay the principal and interest amount with convenience.
• If the industry has reached maturity and the future does not hold the prospects of growth.
• If the ROI received from the expansion is negative.
• Suppose the market current position or earrings are in a satisfying position then management can
opt for this position.
• A stability strategy is also used for risk management in an organization.
• Companies also adopt a stability strategy after post-merger, if the transition happened smoothly.
• Stability strategy in strategic management allows the organization to take a break in fast-growth
years to plan and formulate future growth and expansion plans.
• Family businesses also opt for this strategy when they do not want to give their financial control in
the case when the market or economic conditions are not good.
https://www.thekeepitsimple.com/stability-strategy-in-strategic-management/
Reasons of opting for Expansion Strategy
2 Types, Horizontal & Vertical Integration
1) Creates Strength : Growth acts as a source of strength. A growing company is
considered successful while a company unable to expand its business is regarded
as a failure.
2) Necessary for Survival : The strategy of growth is relevant in industries which
are subject to frequent changes in technology environmental conditions. Such
industries and should exploit all opportunities and overcome its threats.
3) Employee Satisfaction : Expansion strategy increases the motivation of top

management. When an organization is able to achieve growth in a particular
industry its employees are also able realize their individual career growth. It also
opens up opportunities for management to exhibit their skills.
4) Increases Productivity : According to experience curve theory, over time with

increasing size and experience of an enterprise the productivity increases
and cost decreases. https://www.toppers4u.com/2021/12/what-is-expansion-strategy-
meaning.html
Horizontal Integration for Expansion
• Horizontal integration is another
competitive strategy that companies use.
An academic definition is that horizontal
integration is the acquisition of business
activities that are at the same level of the
value chain in similar or different
industries.
• In simpler terms, horizontal integration is
the acquisition of a related business: a
fast-food restaurant chain merging with a
similar business in another country to gain
a foothold in foreign markets.
https://www.mbacrystalball.com/blog/strategy/vertical-
horizontal-integration-strategy/
3 Types of Horizontal Integration
1. Merger : When two similar companies merge to create a new joint organization. In a
merger, both companies are striving to become a larger presence in their existing
market. Being similar integration of the two companies may be seamless operationally
due to the similarities between what the two former companies used to do. It is seen as
marriage of equals
2. Acquisition: An acquisition occurs when one company outright takes over the
operations of another company which is usually smaller / weaker one. Though the two
companies technically join together, one company remains in control. The acquiring
company's staff, executives, and operations often remain in place, while the acquired
company's resources are integrated as management sees fit. Companies often pursue
acquisitions in an attempt to get something specific. For example, Microsoft specifically
wanted to enhance its presence in the video game market. Therefore, it acquired
Activision Blizzard in January 22.
3. Take Over : It is almost similar to acquisition , but in this case it happens with out any
mutual agreement between i.e. bigger / powerful company takes over the
smaller/weaker company against its will.
https://www.investopedia.com/terms/h/horizontalintegration.asp#:~:text=Horizontal%20integration%20is%20a%20business,product%20offerings%2C%20
and%20reduce%20competition.
Pros & Cons of Horizontal Integration
Pros Cons
• Reduces competition in the sector • Synergies with other companies do not
always produce the expected added value
• New distribution channels are taken for the organization
advantage of as a result of merging with
other companies • Legal implications. Horizontal integration
can lead to a monopoly which is
• Strengthens market positioning discouraging for many governments due
• Complements the existing product to the lack of competition from other
portfolio rather than creating a new brand organizations
from scratch • Reduced flexibility. Large companies are
• Increases the company’s negotiating more difficult to manage as they are less
power with its customers and suppliers flexible in introducing new products to the
market
• Reduces costs for international trade
• Potential problems with organizational
• Increases in the organization’s income culture and leadership styles when
merging companies
Vertical Integration for Expansion
• Vertical integration is a competitive strategy by
which a company takes complete control over
one or more stages in the production or
distribution of a product.
• A company opts for vertical integration to
ensure full control over the supply of the raw
materials to manufacture its products. It may
also employ vertical integration to take over
the reins of distribution of its products.
• A classic example is that of the Carnegie Steel
Company, which not only bought iron mines to
ensure the supply of the raw material but also
took over railroads to strengthen the
distribution of the final product. The strategy
helped Carnegie produce cheaper steel, and
empowered it in the marketplace.
https://www.mbacrystalball.com/blog/strategy/vertical-
horizontal-integration-strategy/
3 Types of Vertical Integration
• Backwards vertical integration: when
the company creates businesses
that produce the raw material
• Forward vertical integration: when the
company buys or builds
businesses in which to distribute its
product/service
• Compensated vertical integration:
subsidiaries are established that
supply raw materials and at the
same time distribute the product
https://www.toolshero.com/management/horizontal-integration/
Vertical Integration Can be Full or Taper
Pros & Cons of Vertical Integration
Pros Cons
• Higher profitability. Companies can capture more profit • Distracts business. After having business outside core
and value in each steps of supply chain. competency, the core business may loose focus.
• Lower production costs. Under one control, the company • Adds risk. Getting into a new business means increasing
can save costs related to production, transportation, input business risk, not just increasing potential profits.
quality inspection, and delivery time.
• More complicated management. Operations became fatter
• Reducing dependence on external parties. Integration and bureaucracy more complex, making it more challenging
reduces disruption due to external parties’ unreliability. to organize and coordinate business processes. It also
reduces the company’s flexibility in responding to
• Stronger bargaining position. The company has a chance
competitive and demand dynamics.
to negotiate specifications for quality, price, or credit terms,
which it may not have had before integration. • Requires large capital. Companies must invest a lot of
capital to take over another company or establish a
• Get customer feedback. Can get feedback from different
subsidiary. When integration fails to create value higher than
level of value chain.
the cost of capital, it lowers firm value.
• Improve synergy hence reliability. Increasing synergy and
• Operating inefficiency. Inefficiency also arises because
coordination between supply, production, and distribution so
management does not have a core business focus. Different
turns more reliable
part of business needs different skill set that may be missing
• Build market powers and entry barriers. Firms can
• Susceptible to internal failure. A failure in one supply
monopolize the market throughout the chain and provide
chain disrupts operations as a whole. If forced to outsource
competitors with less access.
to external parties, it will increase costs.
https://penpoin.com/vertical-integration/
Alternatives of Vertical Integration
• Following are alternatives of
Vertical Integration those offers
benefits of full integration to a great
extent with fewer drawbacks
• Long term Explicit Contract
• Franchise agreement
• Joint venture
• Co-location facilities
• Implicit contract relying on firms
reputation
Strategic Outsourcing
Definition 2 Reasons of Outsourcing
Strategic outsourcing • Reducing operating, labor, and
represent a set of operations overhead costs.
that are delegated by a • Focusing more on the company's
company for management to a core competencies, and thus
third-party service provider. improving its competitive
advantages by outsourcing time-
consuming processes to external
companies.
Pros & Cons of Strategic Outsourcing
PROS CONS
1. Lack Of Control : Although you can provide
1. You Don’t Have To Hire More Employees :When direction in regard to what you need to accomplish, you
you outsource, you can pay your help as a contractor. give up some control when you outsource. since the
This allows you to avoid bringing an employee into the person is not working on-site, it can be difficult to
maintain the level of control you desire.
company, which saves you money on everything from
benefits to training. 2. Communication Issues :This doesn’t always come
into play, but it’s one of the biggest potential
2. Access To A Larger Talent Pool : When hiring an drawbacks. Here are several questions to ask: . What
employee, you may only have access to a small, local time zone does the person live in and how does this
match up with your business hours? What is your
talent pool. This often means you have to compromise. preferred method of communication? Phone, email,
Many companies have found that outsourcing gives instant messaging? Does the person have access to a
them access to talent in other parts of the world. If you reliable internet connection?
need specialized help, it often makes sense to expand 3. Problems With Quality :Despite all the benefits of
your search. outsourcing, it is only a good thing if you’re receiving
the quality you expect. Anything less than this will be a
3. Lower Labor Cost : Can explore places where labor disappointment.
cost is lower labor costs. Instead of trading quality for
price , outsourcing often allows get the best of both https://www.forbes.com/sites/deeppatel/2017/07/17/the-pros-and-cons-of-
worlds. By searching a global talent pool, it’s easier to outsourcing-and-the-effect-on-company-culture/?sh=3358458d562d
find the right talent at the right price.

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Corporate Level Strategy , Integration &

3) Employee Satisfaction : Expansion strategy increases the motivation of top

4) Increases Productivity : According to experience curve theory, over time with

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