Corporate-Level Strategies CORPORATE LEVEL STRATEGIES/GRAND STRATEGIES Corporate strategy refers to the overall strategy for

a diversified company. It is concerned with the mix of businesses the company should compete in. The ways in which strategies of individual units should be coordinated and integrated. Corporate Level Strategy arms senior managers and corporate planners with a set of proven strategic principles and clear guidelines for successfully managing a diverse, multi-business company. Corporate-level strategies are related todecisions related to allocating resources among the different businesses of a firm transferring resources from one set of businesses to others managing and nurturing a portfolio of businesses in such a way that the overall corporate objectives are achieved. Critical questions answered by corporate-level strategists What should be the scope of operations? How should the firm allocate its resources among existing businesses? What level of diversification should the firm pursue? Should the firm enter into strategic alliances? Types of corporate level strategy: 1. Stability Strategies 2. Expansion Strategies 3. Retrenchment Strategies 4. Combination Strategies Stability Strategy STABILITY STRATEGIES Faced with a predictable and certain external environment and a stable internal organization. When firms are satisfied with their current rate of growth and profits, they may decide to use a stability strategy. Expansion may be perceived as being threatening Consolidation is sought through stabilising after a period of rapid expansion The stability grand strategy is adopted by an organisation when it attempts at an incremental improvement of its functional performance by marginally changing one or more of its businesses in terms of their respective customer groups, customer functions, and alternative technologies either singly or collectively. Stability strategy is adopted because: It is less risky, involves fewer changes and people feel comfortable with things as they are The environment faced is relatively stable Expansion may be perceived as being threatening Consolidation is sought through stabilising after a period of rapid expansion Types of stability strategies: a. No-change strategy b. Profit strategies c. Pause/Proceed with caution strategies No-change Strategy It is a conscious decision to do nothing new, i.e. to continue with its present business definition. The firm does not find it worthwhile to alter the present situation by changing its strategy. There are no significant opportunities or threats operating in the environment. There are no major new strengths and weaknesses within the organisation.

allow structural changes to take place. Profit strategies No firm can indefinitely continue with a no-change strategy. Eg. usually as measured by: sales. The purpose is to let the strategic changes seep down the organisational levels. c. b. d. GROWTH STRATEGIES/EXPANSION STRATEGIES Expansion strategy is adopted because: It may become imperative when environment demands increase the pace of activity Psychologically. e. Expansion through cooperation. strategists may feel more satisfied with the prospects of growth from expansion: chief executives may take pride in presiding over organisations perceived to be growth-oriented Increasing size may lead to more control over the market against competitors Advantages from the experience curve and scale of operations may accrue Growth strategies are designed to expand an organization's performance. profits. and let the systems adapt to the new strategies. raising prices. or adopting some other measures to tide over what are supposed to be temporary difficulties. product mix. Alternatively it may introduce newer products in existing markets by concentration on product development. Expansion through concentration. market share etc Five types of expansion strategies: a. A firm tries to sustain its profitability by adopting profit strategy by cutting costs. Expansion through integration. McDonalds in fast foods and Bajaj Auto has been concentrating on two-wheelers for the last several years and still find it to be a high-growth and attractive industry to invest in. increasing productivity. Advantages/Limitations Advantages Minimal organisational changes . Expansion through diversification. Pause/Proceed with caution strategies It is employed by firms that wish to test the ground before moving ahead with a full-fledged grand strategy. It may try attracting new users for existing products resulting in a market development type of concentration. Expansion through internationalization With a concentration strategy the firm attempts to achieve greater market penetration by focusing intensely or specializing on existing markets with its limited product line. Types of Concentration Strategy A firm may attempt focusing intensely on existing markets with its present products by using a market penetration type of concentration.There are no new competitors and no obvious threat of substitute products.

Backward Integration means retreating to the source of raw materials by undertaking business activities formerly performed by one of its suppliers in order to reduce dependency. When a luggage company takes over its rival luggage company. Secondly. raw materials) or serving the customer with outputs (such as. Forward Integration means moving the organisation nearer to the ultimate customer by undertaking business activities performed by its channel of distribution.achieved by sharing resources common to different products. Examples Horizontal growth can be achieved by external expansion through mergers and acquisitions of firms offering similar products and services. books. An automobile manufacturer's acquisition of a sport utility vehicle manufacturer. Commonly referred to as "synergies. Horizontal Integration When an organisation takes up the same type of products at the same level of production or marketing process. fickleness of markets. to increase the market share or to benefit from economies of scale. factors such as product obsolescence. E. It moves organisation nearer to customers. By using an integration strategy. television. Advantages of Horizontal Integration Economies of scale .g. Vertical Integration is of 2 types: 1. Combining activities means getting into related business on the basis of the value chain. the firm attempts to expand the scope of its current operations by combining activities related to the present activity of a firm.Master one or a few businesses by specializing and gaining an in-depth knowledge of these businesses. suppliers and/or competitors. 2. it is said to follow a strategy of horizontal integration." Increased market power (over suppliers and downstream channel members) Reduction in the cost of international trade by operating factories in foreign markets. Horizontal integration strategy is adopted with a view to expand geographically by buying a competitor's business. A media company's ownership of radio. Economies of scope . Expansion through Diversification A diversification strategy entails moving into different markets or adding different products to its mix. Any new activity undertaken with the purpose of either supplying inputs (such as. Integration can be: Vertical Integration Horizontal Integration Vertical Integration When an organisation starts making new products that serve its own needs. and emergence of newer technologies are threats to concentrated firms. Managers face fewer problems when dealing with known situations as systems and processes within the firm are developed. for example. by geographic expansion. marketing of firm's product) is vertical integration. . Vertical Integration strategies allows a firm to gain control over distributors. newspapers. and magazines.achieved by selling more of the same product. Limitations Adverse conditions in an industry can and do affect firms if they are intensely concentrated.

Marketing. for example. . a raincoat manufacturer makes other rubber-based items. Diversification may be the only way out if growth in existing businesses is blocked due to environmental and regulatory factors. Expansion through Cooperation Corporate strategies could take into account the possibility of mutual cooperation with competitors while competing with them at the same time. a cigarette company diversifying into the hotel industry. for example. Two Types of diversification strategy: Concentric diversification i. which is controlled by ambitious Indian billionaire Anil Agarwal. and a reduction in flexibility.and technology-related: When a similar type of product (or service) is provided with the help of related technology. Conglomerate diversification Offers the advantage of better management and allocation of cash flows. or alternative technologies of one or more of a firm's businesses. waterproof shoes and rubber gloves. Concentric diversification is three types: Marketing-related : When a similar type of product is offered with the help of unrelated technology. in a bid to diversify into oil business. adding new. for example.Diversification involves a substantial change in the business definition in terms of customer functions. realising a higher return on investments. It has the disadvantages of diversion of resources and attention to other areas leading to a lack of concentration and facing the risks of managing entirely new businesses. The disadvantage of concentric diversification lies in the increase in risk and commitment. Technology-related: When a new type of product or service is provided with the help of related technology. sold through the same retail outlets. which are sold to housewives through the same chain of retail stores. a company in the sewing machine business diversifies into kitchenware and household appliances. is of ITC. The three basic and important reasons are: Diversification strategies are adopted to minimise risk by spreading it over several businesses. is all set to acquire a controlling stake in Cairn India. Diversification may be used to capitalise on organisational strengths or minimise weaknesses.e. The term 'cooperation' expresses the idea of simultaneous competition and cooperation among rival firms for mutual benefit. Eg. so that the market potential could expand. Banks besides providing Corporate and retail financial solutions also provide insurance services. and the reduction of risk by spreading investment in different businesses and industries. such as. customer groups. Conglomerate diversification Expansion is into products or services unrelated to the firm's existing business. Example London-listed mining group Vedanta Resources. but related products or services. Concentric diversification Advantage of concentric diversification is that it enables a firm to attain synergy by exchange of resources and skills. and to avail economies of scale and tax benefits.g. The classic e. a leasing firm offering hire-purchase services to institutional customers also starts consumer financing for the purchase of durables to individual customers.

but without the formation of a new company. A HOSTILE TAKEOVER occurs when a company attempts to buy out another whether the management of the target company likes it or not.Cooperative strategies are of following types: 1. and core competencies are combined to pursue mutual interests to develop. manufacture. In an era of globalization. or a continuing business relationship such as the Sony Ericsson joint venture. as it requires the acquirer to bypass the Board of Directors and purchase the shares from other sources. and they then share in the revenues. Sony Ericsson between Sony and Ericsson Strategic alliance Strategic alliances are partnerships between firms whereby their resources. Strategic alliances MERGERS A merger is a combination of two or more organisations in which one acquires the assets and liabilities of the other in exchange for shares or cash. and happens all the time. Such events resemble mergers. or distribute goods or services. Includes: . Mergers 2. joint ventures have proved to be an invaluable strategy for companies looking for expansion opportunities globally. The shareholders receive cash or (more commonly) an agreed-upon number of shares of the acquiring company's stock. Example Royal Bank of Scotland Group (RBS) will now be acquired by Hongkong and Shanghai Banking Corporation (HSBC) in India with a gross value of $1. This is difficult unless the shares of the target company are widely available and easily purchased Joint venture Joint ventures occur when an independent firm is created by at least two other firms. and the assets and liabilities are combined and new stock is issued. Takeovers/acquisitions 3. or both the organisations are dissolved. A hostile takeover can usually occur only through publicly traded shares. Joint Ventures 4. and control of the enterprise. capabilities. Example: Daichi Sankyo and Ranbaxy Laboratories Megamerger worth $4. BP and Reliance announce major partnership in India BP to take a 30 per cent stake in 23 oil and gas blocks Internationalization Expansion through Internationalization It requires firms to market their products or services beyond the national or domestic market.2 billion TAKEOVER/ACQUISITION A takeover in business refers to one company (the acquirer) purchasing another (the target). expenses. The parties agree to create a new entity together by both contributing equity. The venture can be for one specific project only.8 billion Forms of takeover Friendly takeover Hostile Takeover A friendly takeover consists of a straight buyout of a company.

record-making Rs 500 Crore loss. Bankruptcy iv. Example: Tata Group Empress Mill . the top brass of the company chalked out a five-pronged turn aroundstrategy Five-pronged turnaround strategy: Telco Cost Management Financial Restructuring Organisational Renovation Product Realignment A New Marketing Thrust A DIVESTMENT DECISION Example: TATA Group TATA identified their non-core businesses for divestment. In this background. There is no future for the firm. ranging from exporting to setting up wholly-owned subsidiaries . buildings and equipment are sold.113 years old mill owned by Tatas went for voluntary liquidation in 1986.were divested to Wockhardt. TOMCO was divested and sold to HUL as soaps and detergents Similarly. Example of turnaround strategy: In the year 2001. sale of assets associated with discontinued product or service lines Bankruptcy in the most extreme cases. Further Navsari Mills and Swadeshi mills (both of Tata group) was also liquidated. the pharmaceutical companies of TATAs. Lakme was divested and sold to HUL BANKRUPTCY involves legal protection against creditors or others allowing the firm to restructure its debt obligations or other payments. liquidation of the firm. and customers no longer have access to the product or service. employees are released.164 Crore Telco made a jaw-dropping. . It involves closing down a firm and selling its assets. LIQUIDATION is the most extreme form of retrenchment. Turnaround strategy ii.Merind and Tata Pharma. which also generally necessitates a: reduction in number of employees. Retrenchment strategies Retrenchment strategies involve a reduction in the scope of a corporation's activities. typically in a way that temporarily increases cash flow. There are several entry options. RETRENCHMENT STRATEGIES i.These moves are popularly called downsizing or rightsizing. 8. FDI etc. Liquidation strategy Turnaround strategy Firms pursue a Turnaround Strategy by undertaking a temporary reduction in operations in an effort to make the business stronger and more viable in the future.Assessing the international environment Evaluating own capabilities and Devise strategies to enter foreign markets. Divestment/divestiture strategy iii.

Participation and involvement 2. ORGANIZATIONAL LEVEL  Threat to power  Group inertia  Resource constraints  Sunk costs  Organizational structure COPING STRATEGIES FOR CHANGE 1. Although change is important in every sphere of life still people resist change. 2. Change may even refer to as making things happen differently. takeover of Tulsi Fine chemicals. RESISTANCE TO CHANGE 1. electronics. 1990 s: international strategy of setting up a resin plant in US. 1970 s: diversification into water treatment plants. expansion or retrenchment strategies applied either SIMULTANEOUSLY (at the same time in different businesses) or SEQUENTIALLY (at different times in the same businesses) Sequential combination strategy at THERMAX 1960 s: Thermax Private Ltd. Leadership . TTK chemicals merged with TTK Pharma 3. adopted a restructuring plan in the late 1980 s involving several combination strategies simultaneously in its different businesses. financial engineering. unrelated diversification into software. 1. JV with Babcock and Willcox. TTK Maps & Publications expanded into the general publishing business CHANGE Any alteration in the status quo or any change in the overall working environment of the organization. starts making coil-type boilers and thermic fluid heaters. 1980 s: related diversification into energy conversation equipment. TTK Ltd which made pressure cookers diversified into the related field of making non-stick cooking utensils. Simultaneous Combination strategies at TTK Group The well known companies of TTK Group. strategic alliances with fuel suppliers. is formed. related diversification into surface-coating and pollution-control equipment. Effective communication 3.Group level 3.COMBINATION STRATEGY It is a mixture of stability. based in Southern India.INDIVIDUAL LEVEL  Economic factors  Habits  Insecurity  Lack of communication  Extent of change  Social factors  Psychological factors 2.

to create synergistic effects. experience. or in a relatively large measure it is called a distinctive competence. all these together determine the organizational capability that leads to strategic advantage. organisational politics etc Strength and Weakness Strength is an inherent capability which an organization can use to gain strategic advantage. access to raw materials etc. Competencies Competencies are special qualities possessed by an organization that make them withstand pressures of competition in the marketplace. Important forces and influences that affect organisational behaviour are: the quality of leadership. Organizational resources are the formal systems and structures as well as informal relations among groups. Synergistic Effects y Where attributes do not add mathematically but combine to produce an enhanced or a reduced impact. shared values and culture. 7. quality of work environment and organisational climate. judgment. behavior. geographic location. on the other hand. synergy and competencies constitute the internal environment. The capability to use the competencies exceedingly well turns them into core competencies. or place constraints in the usage of resources. Organizational Behavior Organisational behaviour is the interaction of the various forces and influences operating in the internal environment of an organisation that create the ability for. relationships and so on.Resource Based Theory Physical resources are the technology. 5. intelligence. 6. management philosophy. it should be able to provide potential access to a wide variety of markets . A weakness. When a specific ability is possessed by a particular organization exclusively. is an inherent limitation or constraint which creates a strategic disadvantage for an organization.4. and also across different functional areas. plant and equipment. Core Competence Prahalad and Hamel prescribe three tests: 1. Human resources are training. Framework for the Development of Strategic Advantage by an Organization Organizational Resources According to Barney s. Timing of change Facilitation and support Awareness Top mgmt support Organizational Appraisal The resources. Environment Appraisal Appraisal of external environment helps firms to think of what it might choose to do. strengths and weaknesses. Appraisal of internal environment enables a firm to decide about what it can do. Strengths and weaknesses do not exist in isolation but combine within a functional area.

not available to its competitors. cost reduction and control. and distribution of products or services. Typical Strengths that Support Financial Capability Access to financial resources Amicable relationship with financial institutions High level of credit-worthiness Efficient capital budgeting system Low cost of capital as compared to competitors High level of shareholder's confidence Effective management control system Tax benefits due to various government policies. marketing. Usage of funds. 3. Capital structure. and management of funds. 4. Superior product quality in a particular attribute. credit. current assets.it should make a significant contribution to the perceived customer benefits of the end product 3. usage. operations. state of financial health. Marketing Capability Marketing capability factors relate to the pricing. fixed asset acquisition. Typical Strengths that Support Marketing Capability Wide variety of products 2. Capital investment. financing pattern. personnel. An organization's access to a low-cost financial source like equity shareholders. and tax planning and advantages. borrowings. return and risk management. reserves and surplus. working capital availability. Financial Capability Financial capability factors relate to the availability. Organizational Capability Organizational capability is the inherent capacity or potential of an organization to use its strengths and overcome its weaknesses in order to exploit opportunities and face threats in its external environment. 1. 2. and all the allied aspects that have a bearing on an organization's capacity and ability to implement its strategies. procurement of capital. CSF (Critical Success factors) A few examples of distinctive competencies are given below: 1. controllership. inflation. Six functional areas are: finance. information management and general management. Differential advantages based on the superior R&D skills of an organization not possessed by its competitors. and all allied aspects that have a bearing on an organisation's capacity and ability to implement its strategies. cash. Creation of a market niche by supplying highly-specialized products to a particular market segment. systems. promotion. dividend distribution. it should be difficult for the competitors to imitate A Distinctive Competence Any advantage a company has over its competitors because it can do something which they cannot or it can do something better than they can. and relationship with lenders. capital and credit availability. loans and advances. Sources of funds. and relationship with shareholders. bank and financial institutions. .

Pricing objectives. among others. and so on. marketing management information system. extent of vertical inte gration. cost and quality control. maintenance systems and procedures. technical collaboration and support. advertising. development. and so on. compensation. Promotional tools. Aggregate production planning. perception about and image of the organization as an employer. System for manpower planning. and others. location. quality of managers. and appraisal. Promotion-related factors. Personnel. marketing system. patent rights. working conditions. product or service design. product development. Distribution. mix. and so on. and so on. marketing intermediaries. layout. policies. transportation and logistics. safety. availability of developmental opportunities for employees. Union-management relationship. welfare and security. Factors related to industrial relations. Place-related factors. changes. packaging and others. Factors related to organizational and employees' characteristics. collective bargaining. employee satisfaction and morale. among others. Operations Capability High level of capacity utilization Favorable plant location High degree of vertical integration Reliable sources of supply Effective control of operational costs Existence of good inventory control system Availability of high caliber R&D personnel Technical collaboration with reputed firms abroad Personnel Capability Factors related to the personnel system. positioning. Typical Strengths that Support Personnel Capability Genuine concern for human resource management and development Efficient and effective personnel systems The organisation perceived as a fair and model employer Excellent training opportunities and facilities . Variety. protection. Operations Capability Factors related to the production system. position of the personnel department within the organization. organization. Factors related to the operations and control system. inventory. public relations. and so on. advantages. differentiation. material supply. communication. level of technology used. quality. selection. and so on. degree of automation. Price-related factors. staff and workers. and so on.Better quality of products Low prices as compared to those of similar products in the market. sales promotion. Capacity. marketing channels. Factors related to the R&D system. Price protection due to government policy High quality customer service Effective distribution system Effective sales promotion High-profile advertising Favorable company and product image Effective marketing management information system Product related factors. procedures and standards. Corporate image. facilities. work systems.

coordination. competence. use of power. Orientation. and capacity to assimilate and use in formation. capacity for work. scope. and timeliness of information. Factors related to general managers. introduction. philanthropy. Typical Strengths that Support Information Management Capability Ease and convenience of access to information sources Widespread use of computerized information system Availability and operations of high-tech equipment Positive attitude to sharing and disseminating information Wide coverage and networking of computer systems Presence of foolproof information security systems Presence of buyers and suppliers conversant with IT applications Top management's understanding of. systemic and supportive factors. management information system. personal goals. strategy formulation and implementation machinery. and willingness to accept information. Entrepreneurial orientation and high propensity for risk-taking . Speed. risk-propensity. and all the allied aspects that have a bearing on an organization's capacity and ability to implement its strategies. Database management. Organisational culture. acceptance and management of change. Factors related to organisational climate. norms. rewards and incentives system for top managers. corporate planning system. processes related to setting strategic intent. and so forth. regulatory agencies and financial institutions. and support to. Availability of IT infrastructure. computer systems. Factors related to the processing and synthesis of information. reward and incentive system for top managers geared to the achievement of objectives. nature of organisational structure and controls. Factors related to the general management system. Strategic management system. values. public relations. availability of computer professionals. retention capacity.Congenial working environment Highly satisfied and motivated workforce High level of organisational loyalty Low level of absenteeism Safe working conditions Information Management Capability Factors related to acquisition and retention of information. software capability. and so on. Availability and appropriateness of information formats. Factors related to the retrieval and usage of information. and so on. quality. Integrative. strategy evaluation system. and security of information. and so on. quantity. IT and its application within the organization General Management Capability General management capability relates to the integration. width and depth of coverage of information. Sources. willingness to invest in state-ofthe-art systems. its relevance and compatibility to organizational needs. and top management support. up gradation of facilities. balance of vested interests. track record. Factors related to transmission and dissemination. Typical Strengths that Support General Management Capability Effective system for corporate planning Control. sense of social responsibility. and direction of the functional capabilities towards common goals. and ability to synthesize information. political processes. balance of functional experience. public image as corporate citizen.

level of morale among employees. STRUCTURING ORGANISATIONAL APPRAISAL prepare a company capability profile(OCP) as a means for assessing a company's strengths and weakness in dealing with the opportunities and threats in the external environment . Quantitative: Non-financial Analysis Employee turnover. EVA is the wealth an organisation creates for its owners and is expressed as the difference of the after-tax operating profits and the total cost of capital. Qualitative analysis A.Good rapport with the government and bureaucracy Favorable corporate image Commonly being perceived as a good organization to work for Development-oriented organizational culture Political processes used for consensus-building in organizational interest Effective management of organizational change METHODS AND TECHNIQUES USED FOR ORGANISATIONAL APPRAISAL Internal analysis A. Porter's Generic Value Chain Primary activities Support activities Quantitative: financial analysis Economic value-added (EVA) analysis Activity-based cost (ABC) accounting Economic value-added (EVA) analysis. number of patents registered per period C. rate of advertising recall. service call rate. The calculation of EVA offers a yardstick to an organisation to assess whether it has the required capability to take a strategic action and whether the potential returns from such an action are likely to be greater than the cost of capital required to take it. and continue right up to the end products finally marketed to the ultimate consumer. absenteeism. Qualitative analysis Qualitative analysis can be used best to express tenor of corporate culture. In other words. Value chain analysis B. Activity-based cost (ABC) accounting ABC identifies the major activities in the value chain within a firm and keeps a tab on the costs within each activity. inventory units used per period. Quantitative analysis (i) Financial analysis (ii) Non-financial quantitative analysis C. market ranking. the ability to absorb and assimilate knowledge. EVA is the representation of the simple idea that an organisation needs to earn more from a business than the cost of the capital invested in it. preparation of the strategic advantage profile (SAP) where the results of organisational appraisal are presented in a summarised form. Value chain analysis A value chain is a set of interlinked value-creating activities performed by an organization.etc. These activities may begin with the procurement of basic raw materials. go through its processing in various stages. total cycle time of production. EVA is defined as the system of corporate management that defines profitability in terms of the returns on capital above the cost of servicing the capital employed. .

The strategists are required to systematically assess the various functional areas and subjectively assign values to the different functional capability factors and sub factors along a scale ranging from the values of-5 to +5.The organisational capability profile (OCP) is drawn in the form of a chart. Capability factors Weakness Normal Strength -5 0 +5 .

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