Identifying Strategy Alternatives

Ms.N.Jasintha
Department of HRM
 Learning Objectives
• Distinguish corporate, business unit, and functional strategies
• Explain the characteristics of various strategies
• Propose strategies which are applicable in given
organizational situations
• Strategy outlines the fundamental steps an organization intends to take in order
to achieve a set of objectives.
• Strategies exist at different levels in an organization and are classified as
corporate, business unit, and functional strategies according to the scope of
their coverage.
• Corporate strategy is concerned with which business an organization will be in
and how its resources will be distributed among those businesses.
• Business Unit strategies focus on how to compete in a given business.
• Functional strategies are concerned with the activities of the different
functional areas, such as production/ operations, finance, marketing, and HR.
• The most appropriate strategy can be selected based on the internal and
external environmental analyses. The strategies can be categorized into
three:
• Corporate level strategies
• Business level strategies
• Functional level strategies
 The strategy alternatives available to
organizations are as follows.
• Stable growth strategy
•Growth strategy.
1.Concentration strategy
2.Vertical Integration Corporate strategy alternatives
3.Diversification
•Harvesting strategies
•Defensive strategies
•Combination strategies.
Overall cost Leadership.
•Differentiation of product/Service Business unit strategy alternatives
•Focus of product/service
 Corporate level strategies

• This comprises the overall strategy elements for the corporation as a whole.
• Grand Strategies are the corporate level strategies designed to identify the
firm‘s choice with respect to the direction it follows to accomplish its set
objectives.
• The grand strategies are concerned with the decisions about the allocation
and transfer of resources from one business to the other in order to achieve
overall objective of the organization.
• The four grand strategies are shown below.
 Stability strategies

• A stability strategy is relatively low-risk strategy and is effective for

successful organization in a growing industry. Often, this may be used for a
relatively short period, after which further growth is planned. Stable growth
strategy is suitable in the following situations.
– When management may not wish to take risk of modifying its present strategy.
– When changes in strategy require changes in resource allocation.
– When rapid growth can lead to inefficiencies.
– When the organization may not be aware of changes that lead to success.
 Stability strategies
• No Change: This alternative could be a cop-out, representing indecision or
hesitance in making a choice for change.
• Pause and then Proceed: This stability strategy may be appropriate in
either of two situations:
• the need for an opportunity to rest, digest, and consolidate after growth or a
turbulent events
• an uncertain or hostile environment in which it is prudent to stay in a "holding
pattern" until there is change in the environment.
• Profit strategy: This strategy can be used in a deteriorating situation. It is a
temporary strategy in a worsening situation, usually chosen to show
profitability to the stakeholders.
•
• Organization pursuing growth strategies can be characterized as follows.
• They grow faster than the markets in which their products are sold.
• They tend have larger profit margins.
• They regularly develop new products, new markets, new processes and new
uses for old products.
.

Growth strategy can be divided into the following types

• Market development.
•Product development. Concentration strategy
•Horizontal Integration.
•Vertical Integration.
•Diversification.
 Concentration strategy

• Concentration strategy focuses on a single product/service and involves

increasing sales, profits or market share faster than it has increased in the
past.
• Basically there are three general approaches to pursuing a concentration
strategy
• Market Development: The firm seeks new markets for its current products. there
are many possible approaches to this strategy
– New geographical areas and export markets
• eg: a mobile network provider constructs a new tower to reach new customers
– Different package sizes
• eg: soft drink packs to satisfy those who by in bulk and those who by in small
quantities
– New distribution channels
• eg: selling through supermarkets not just specialist shops
– Differential pricing policies
• eg: A hotel charges cheap rates for long staying customers and high rates for
those who stay few days.
• Product development: Altering the basic product/ service or to add a
closely related product or service that can be sold through the current
marketing channels. Product development forces competitors to innovate.
The drawback of this strategy includes high cost and the risk.
•
• Horizontal integration: Acquiring another organization that produces
similar products/ services. This strategy eliminates the competition between
the two organizations.
• Vertical Integration: Expanding an organization’s present business in two
possible directions.
• Forward integration moves the organization into distributing its own
products/services
– E.g. A hotel acquiring g a chain of travel agent.
• Backward integration moves an organization into supplying materials/
resources for its products/ services.
– E.g. A restaurant purchasing a bakery
• Diversification: Diversification occurs when an organization moves in to areas
that are clearly differentiated from its current business. Diversification strategies
can be classified as
• Concentric diversification Conglomerate diversification.
• Concentric diversification occurs when the organization moves into or acquires
related business.
– Eg. A White board producing company acquire white board marker producing company.
– Rain coat manufacturer makes products like water proof shoes
• Conglomerate diversification occurs when the firm acquires an unrelated
business. This involves adding new products/ services that are significantly
different from the organizations present products/ services. Most frequently it is
achieved through mergers, acquisitions, or joint ventures.
Organizations seek acquisition and mergers
for many reasons.
• Obtaining the potential benefit that can accrue to the stockholders of both
companies.
– E.g. Merger can increase the market value of the stock of both companies
• A better utilization of existing manufacturing facilities.
• Selling in the same channels.
• Entering a new and growing field.
• Securing or protecting sources of raw materials used in manufacturing
process.
• Providing resources for expanding the organization.
• Reducing tax obligation.
• Getting additional fund, or managerial skills.
• Reducing risk
• Acquisitions and mergers can be carried out in either a friendly or a
hostile environment.
• Friendly acquisition and mergers are accomplished when the stock
holders and management of both organization agree and then work
together to ensure its success.
• On the other hand, hostile acquisitions and mergers (often called
takeover) result when the organization to be acquired resists the attempt.
Guidelines for successfully implementing
acquisitions and mergers.
• Define the objectives of merger.
• Specify the gains for the stockholders of both organizations.
• Ensure that the management of the acquired company can be made
competent.
• Ensure that the merger will result in synergy.
• Clearly define the business of the acquiring company.
• Determine the strengths and weaknesses of both organizations.
• Create a climate of mutual trust.
• On the other hand, several factors need to be avoided to ensure a successful
merger. They are
• Paying Too much.
• Straying too far a field.
• Taking over a too larger company.
Ansoff’s growth matrix
• The Ansoff Matrix, also called the Product/Market Expansion Grid, is a
tool used by firms to analyze and plan their strategies for growth.
• The matrix shows four strategies that can be used to help a firm grow
and also analyzes the risk associated with each strategy.
• The matrix was developed by applied mathematician and business
manager, Igor Ansoff and was published in the Harvard Business
Review in 1957.
• The Ansoff Matrix has helped many marketers and executives better
understand the risks inherent in growing their business.
• Each box of the Matrix corresponds to a specific growth strategy. They are:
• Market Penetration – The concept of increasing sales of existing products
into an existing market
• Market Development – Focuses on selling existing products into new markets
• Product Development – Focuses on introducing new products to
an existing market
• Diversification – The concept of entering a new market with
altogether new products
 Market Penetration
• The least risky, in relative terms, is market penetration.
• When employing a market penetration strategy, management seeks to sell
more of its existing products into markets that they’re familiar with and
where they have existing relationships. Typical execution strategies include:
– Increasing marketing efforts or streamlining distribution processes
– Decreasing prices to attract new customers within the market segment
– Acquiring a competitor in the same market
• Consider a consumer packaged goods business that sells into grocery chains.
Management may seek greater penetration by amending pricing for a large
chain in order to secure incremental shelf space not just for packaged food
products but also for several lines of its pet food products, too.
 Market Development
• A market development strategy is the next least risky because it does not require
significant investment in R&D or product development. Rather, it allows a
management team to leverage existing products and take them to a different
market. Approaches include:
– Catering to a different customer segment or target demographic
– Entering a new domestic market (regional expansion)
– Entering into a foreign market (international expansion)
• An example is Lululemon; management made a decision to aggressively expand
into the Asia Pacific market to sell its already very popular athleisure products.
While building an advertising and logistics infrastructure in a foreign market
inherently presents risks, it’s made less risky by virtue of the fact that they’re
selling a product with a proven roadmap.
 Product Development
• A business that firmly has the ears of a particular market or target audience
may look to expand its share of wallet from that customer base. Think of it as
a play on brand loyalty, which may be achieved in a variety of ways,
including:
– Investing(Research
in R&D to develop an altogether new product(s).
& Development)
– Acquiring the rights to produce and sell another firm’s product(s).
– Creating a new offering by branding a white-label product that’s actually produced by a third
party.
• An example might be a beauty brand that produces and sells hair care products
that are popular among women aged 28-35. In an effort to capitalize on the
brand’s popularity and loyalty with this demographic, they invest heavily in
the production of a new line of hair care products, hoping that the existing
target market will adopt it.
 Diversification
• In relative terms, a diversification strategy is generally the highest risk
endeavor; after all, both product development and market development are
required. While it is the highest risk strategy, it can reap huge rewards –
either by achieving altogether new revenue opportunities or by reducing a
firm’s reliance on a single product/market fit (for whatever reason).
• There are generally two types of diversification strategies that a
management team might consider: Related and unrelated diversification.

Creating new offerings

Cargills establishing.
• 1. Related Diversification – Where there are potential synergies that can
Eg: Tyres and tubes, dairy products mfr. Kandurata umbrella, samsung tv and phones........ less risky
be realized between the existing business and the new product/market.
• An example is a producer of leather shoes that decides to produce leather
car seats. There are almost certainly synergies to be had in sourcing raw
materials, although the product itself and the production process will
require considerable investment in R&D and production.
• 2. Unrelated Diversification – Where it’s unlikely that any real synergies
Maliban biscuit doing Maliban Tea, Browns electronics and hospital, Wijeya n/p in Wijeya resorts
will be realized between the existing business and the new product/market.
• Let’s work on the leather shoe producer example again. Consider if
management wanted to reduce its overall reliance on the (highly cyclical)
consumer discretionary high-end shoe business, they might invest heavily
in a consumer packaged goods product in order to diversify.
 Harvesting strategies
is used, 1. when they have more stocks, 2. when they need to close down the business
house fashion closing their outlet in duplication road they gave unexpected offers to finish the stocks

• Organizations using harvesting strategy will maintain market share at least

over the short- run.
• They limit additional investment and expenses and maximize short-term
profit and cash flow.
• Harvesting strategies are usually used and put into action at the end of a
product or business life cycle.
• At this point, it is decided that additional investment into the product or
business line will not increase revenue.
• A harvesting strategy can be adopted under the following conditions.
– The product/ service is in a declining market.
– The current market share is small and it is not cost effective to try to increase it.
– Profit is not attractive.
– The product / service is not a major contributor of sales, or prestige to the
organization.
 Retrenchment strategies/ Defensive strategies
• Defensive strategies are used when a company wants to reduce its
operations. Most often, defensive strategies are used to overcome a crisis
or problem situation. Defensive strategies usually are chosen as a short-
term solution when no better alternative exists.
• Defensive strategies are adopted under the following situations.
– The company is having financial problems
– The company forecasts hard times ahead
• Eg: new competitor enter the market
– Owners get tired of the business or have an opportunity to profit by
selling the business
• Defensive strategies include the following
• Turnaround
• Divestment
• Liquidation
• Bankruptcy
• Turnaround strategy
• Turnaround strategy is designed to get the organization back on track to profitability.
Turnaround strategy usually tries to reduce operating costs by:
• Cutting excess costs Operating more efficiently Reducing the operations
– Turnaround strategy includes the following
• Eliminating or cutting back employee compensation and benefits
• Replacing higher- paid employees with lower- paid employees
• Leasing rather than buying equipment
• Reducing expense account
• Cutting back marketing efforts E.g.: Selling building or equipment
• Laying off employees Eliminating unprofitable products
• Turnaround will be only a temporary arrangement until things improve
• Divestment
• Divestment involves selling off a part of the business, which can be a SBU, a product
line, or a division. Divestment is used when harvesting or turnaround strategies are
not successful. Divestment strategy can be adopted in the following situations
– When a previous diversification did not work out.
– When the only way for survival is to sell major components and thereby raise capital to put the
remaining parts of the business.
– To settle high levels of debt.
– Divestment is frequently interpreted as a sign of failure or mismanagement.
• Liquidation
• Liquidation occurs when an entire company is either sold or dissolved. The
liquidation can be adopted in the following situations.
– When owners are tired of business or are near retirement.
– When management has a negative view of the future potential.
– When financial condition deteriorates.
• Bankruptcy
• Bankruptcy involves giving up management of the firm to the courts in
return for some settlement of the firm’s obligations.
• This allows a company to protect itself from insolvency. The reason behind
is that a company should have an opportunity to rehabilitate itself and avoid
insolvency.
 Combination strategy

• Most multi business organizations use some type of combination strategy.

When an organization is serving several different markets, different types
of strategies can be adopted.
• For example: divestment strategy in one area of the organization and
growth strategy in another area.
Business unit strategy alternatives
• Overall cost leadership
• Overall cost leadership strategy is to produce and deliver the product/service at a
lower cost than the competitors. By producing at the lowest cost, the manufacturer
can compete on price with competitors and earn higher profits.
• How to achieve overall cost leadership?
• Set up production facilities to obtain economy of scales
• Use the latest technology to reduce costs
• Exploit learning curve effect (by producing more items than competitors, a
firm can benefit from the learning curve, and achieve lower costs.
• Improve productivity
• Minimize overhead costs
• Get favourable access to sources of supply
• Relocate to cheaper areas
•
• Differentiation of the product/ service
• Differentiation means creating a product / service that is recognized as
being unique, thus permitting the organization to charge higher-than-
average prices. Differentiation can take many forms, such as:
– Brand image
– Technology
– Customer service
– Dealer network.
• The basic purpose of a differentiation strategy is to gain the
brand loyalty of customers.
• How to differentiate?
– Build up a brand image
– Give the product with special features.
– Exploit other activities of the value chain
• Focus strategy
• Focus strategy means, the firm serving a well-defined but narrow market
better than competitors who serve a broader market. The firm does not
serve the entire market with a single product. The basic idea of a focus
strategy is to achieve a least-cost position or differentiation, or both, within
a narrow market.
– Cost-focus strategy : aims to be cost leader for a particular segment ( eg:
clothes manufacturing or printing industries)
– Differentiation-focus strategy : pursue differentiation for a chosen
segment (eg: luxury goods)
 BCG Matrix: Portfolio Analysis in Corporate
Strategy
• BCG Matrix (also known as the Boston Consulting Group analysis, the
Growth-Share matrix, the Boston Box or Product Portfolio matrix) is a tool
used in corporate strategy to analyse business units or product lines based
on two variables: relative market share and the market growth rate.
• By combining these two variables into a matrix, a corporation can plot
their business units accordingly and determine where to allocate extra
(financial) resources, where to cash out and where to divest.
• The main purpose of the BCG Matrix is therefore to make investment
decisions on a corporate level. Depending on how well the unit and the
industry is doing, four different category labels can be attributed to each
unit: Dogs, Question Marks, Cash Cows and Stars.
• Stars
• Stars are business units with a high market share (potentially market
leaders) in a fast- growing industry. Stars generate large amounts of cash
due to their high relative market share but also require large investments to
fight competitors and maintain their growth rate. Successfully diversified
companies should always have some Stars in their portfolio in order to
ensure future cash flows in the long term. Apart from the assurance that
Stars give for the future, they are also very good to have for your
corporate’s image.
• Question Marks
• Ventures or start-ups usually start off as Question Marks. Question Marks
(or Problem Children) are businesses operating with a low market share in a
high growth market. They have the potential to gain market share and
become Stars (market leaders) eventually. If managed well, Question
Marks will grow rapidly and thus consume a large amount of cash
investments. If Question Marks do not succeed in becoming a market
leader, they might degenerate into Dogs when market growth declines
after years of cash consumption. Question marks must therefore be
analyzed carefully in order to determine whether they are worth the
investment required to grow market share
• Cash Cows
• Eventually after years of operating in the industry, market growth might
decline and revenues stagnate. At this stage, your Stars are likely to
transform into Cash Cows. Because they still have a large relative market
share in a stagnating (mature) market, profits and cash flows are expected
to be high. Because of the lower growth rate, investments needed should
also be low. Cash cows therefore typically generate cash in excess of the
amount of cash needed to maintain the business. This ‘excess cash’ is
supposed to be ‘milked’ from the Cash Cow for investments in other
business units (Stars and Question Marks). Cash Cows ultimately bring
balance and stability to a portfolio.
• Dogs
• Business units in a slow-growth or declining market with a small relative
market share are considered Dogs. These units typically break even (they
neither create nor consume a large amount of cash) and generate barely
enough cash to maintain the business’s market share. These businesses are
therefore not so interesting for investors. Since there is still money involved
in these business units that could be used in units with more potential, Dogs
are likely to be divested or liquidated.
Strategies used in each situation of BCG
matrix

Star Question Mark

Cash Cow Dog