“Insights and hard work deliver results”

• What types of strategies are used by organizations?
• How are strategies formulated and implemented in strategic management?

Corporate Directional Strategies

Directional Strategy

Managers decide on 3 grand strategies based on the following questions: 1. Expand, cut back, or stays the same (status quo)? 2. Concentrate within current industry or diversify into other industries? 3. If expansion then decide if through internal development, acquisitions, mergers, or strategic alliances?


Digitalization is a vast subject that mainly includes computerization, electronisation and digitization.

Digitalization is defined as the digital coding of information and the growing productivity gains in processing and transmission it enables

The Versality and economy of digitalization makes information available efficiently ,widely and cheaply within and outside organization.

Digitalization strategies are categorized as (A) E-channel Pattern This refers to the chain of relationships between companies and customers and between companies and their Partners or resellers. Four business models are possible in e-channel pattern;
1) Transaction Enhancement( Providing information in a presale format), 2) E-Channel Compression ( using technology to reduce, through disintermediation, the no. of steps in
the channel),

3) E-Channel Expansion 4) E-Channel Innovation

( lengthen the channel by adding their brokering functionality),

( develop new channels to satisfy unmet customer needs)

(B) Click And Brick Pattern
Brick –and-mortar firms are traditional organizations. Click and order firms are the new types of organizations that rely on information technology. When the traditional business adopts some aspects of the new types of organizations or the reverse happens, then it is click-and-brick pattern.
(C) E-Portal

Portals are intermediaries offering an aggregated set of services for a specific, well defined group of users . Yahoo! Is an example of a portal. Portal owners position themselves between the suppliers and customers. By doing so, they may offer value- added services or decrease transaction costs between the suppliers and customers. The business model could be ;eyeball aggregators or super- portals ( Yahoo!), auction portals (e-Bay) or megatransactions portals (e.g. Expedia)


(D) E-Market maker or Net market pattern

This is an online intermediary that connects disparate buyers and sellers within a common vertical industry, such as chemicals or steel. Net markets eliminate marketing channel inefficiencies by aggregating offerings from many sellers or by matching buyers and sellers in an exchange or an auction. There are several business models such as exchanges, virtual distributors, lead generations, catalog aggregators etc.

(E) Pure E-digital products pattern

Many products or services can be produced, delivered, consumed and licensed electronically. Several business models are emerging such as digital media, delivery such as music download, mobile commerce , mobile commerce, content delivery etc.

Retrenchment Strategy
Reduce the scale or scope of a corporation’s businesses Conditions
 Poor economic conditions  Close inefficient factories  Increased competition  Sell unprofitable businesses
© Prentice Hall, 2008
International Business 4e Chapter 11 - 7

 Lay off workers

        

Retrenchment strategy is followed when an organization substantially reduces the scope of its activities. This is done through an attempt to find out the problem areas and diagnose the causes of the problems. Next, steps are taken to solve the problems. These steps results in different kinds of retrenchment strategies. Basically, retrenchment strategies are a response to decline in industries and markets. An organization therefore needs to understand clearly, the causes of the decline and its consequences. some of the major factors leading to decline are as below: New organizational forms New dominant technologies New business models Adverse government policies Demand saturation Changing customer needs and preferences Emerging of substitute products. Diminishing profitability Loss of credibility and goodwill

The firm finds itself with declining profits
 

Among the reasons are economic recessions, production inefficiencies, and innovative breakthroughs by competitors Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround. Turnaround strategies derive their name from action involved i.e., reversing a negative trend and turning around the organization to profitability. Two forms of retrenchment: ◦ Cost reduction ◦ Asset reduction

Elements of Turnaround
• A turnaround situation represents absolute and relativeto-industry declining performance of a sufficient magnitude to warrant explicit turnaround actions The immediacy of the resulting threat to company survival is known as situation severity Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment and the recovery response The primary causes of the turnaround situation have been associated with the second phase of the turnaround process, the recovery response

• •

A Model of the Turnaround Process
Turnaround situation

Turnaround response
Recovery phase (operating)

Severity Retrenchment phase

Internal factors

Declining sales or margins Low

Cost reduction

Efficiency maintenance

High External factors Imminent bankruptcy Asset reductio n Entrepreneurial reconfiguration




• A divesment strategy involves the sale of a firm or a major component of a firm • When retrenchment fails to accomplish the desired turnaround, or when a non integrated business activity achieves an unusually high market value, strategic managers often decide to sell the firm • Reasons for divestment vary accordingly.

When liquidation is the grand strategy, the firm typically is sold in parts, only occasionally as a whole—but for its tangible asset value and not as a going concern Planned liquidation can be worthwhile


America West Airlines closing its hub at Columbus, Ohio and laying off 390 employees ConocoPhillips recently sold its Circle K convenience store chain to Alimentation Couche-Tard, a Canadian firm Sprint liquidated its Web-hosting division



The Strategy of Bankruptcy

◦ Liquidation - Involves complete distribution of a firm’s assets to creditors, most of whom receive a small fraction of amount owed ◦ Reorganization - Involves creditors temporarily freezing their claims while a firm reorganizes and rebuilds its operations more profitably ◦ Proactive option offering maximum repayment of a firm’s debt in the future if a recovery strategy is successful



of a reorganization bankruptcy


move out of loss- making business To meet threatening environment like govt./competitor/economy/customer need etc. Supports profitable businesses by reallocation of resources Saves managements efforts by cutting off unprofitable business.

Combination Strategy
Mix of growth, retrenchment, and stability strategies across a corporation’s business units

Invest in promising units Stabilize other units

Retrench for less exposure

 Joint

venture ◦ Involves establishing a third company (child), operated for the benefit of the co-owners (parents) Strategic alliance ◦ Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project  Exists for a defined period Does not involve the exchange of equity

Acquiring Firm
Acquired Firm

 IBM  Yahoo  U.S.

 Rational

Steel  Pfizer  Krispy Kreme Doughnuts  Oracle  Palm  Nike

Software Corp  Inktomi Corp  National Steel Corp  Pharmacia  Montana Mills  People Soft  Handspring  Converse


organisation facing complex environment cannot run a single strategy An organization has different businesses Each business lies in different industry requiring a different response.

The conclusion is that there are various strategic alternatives before a strategist. Any strategy can be adopted depending on the factors given below  type and nature of business  growth &future of business  nature and number of competitors  external environmental variables  Overall philosophy of the top management

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