MARY THE QUEEN COLLEGE (P)

Institute of Business Education

Guagua, Pampanga

Strategic Management

JESSIE D. MANAPSAL, Ph.D.

Professor
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• Categories of Business Organizations

• By ownership and structure, business organizations are generally
organized either as a:
• 1. Corporation
• 2. Sole or single proprietorship
• 3. Partnership
• 4. Cooperative
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• As the number of independently organized business organizations grows,

they are now considered group of companies or conglomerate so to
speak. Within the family of member companies, one stands out as a
leading business organization often referred to as mother or parent
company which serves as the core or the unifying factor in the over all
strategic direction of the entire business. This lead organization, which in
some cases organized as a holding firm or holding company influences
other small business organizations known as subsidiaries or affiliates
which are either partly capitalized or wholly owned or simply affiliates or
members of the business family. What is clear by then is that diversified
business group involved in a variety of business concerns with one given
out business opportunities for the other one is serving as major contractor
or supplier of member or affiliates of the business empire.
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• The Nature of Corporate Level Strategy

• Whether each member of a business group operates independently or
directly and indirectly supports one another as interdependent business
units, this matter need not be a direct concern of the employees of the
various organizations belonging to the family but this aspect is a vital
consideration at the level of the Board of Directors or owners of the business.
While the employees of the different business units forming part of the
conglomerate are focused on their own tasks and all members of the
business organization having their own vision and strategic objectives, each
one has to contribute or has role to play in the vision and mission as well as
corporate objectives of the mother firm. At this stage, the mother or parent
company has to be concerned with corporate strategy and the independent
or single business unit (SBU) forming part of the family of business or group
of business concerns needs to be bothered with its own business level
strategy.
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• A highly diversified business organization means a group of individual

business organizations with individual charters or corporate status
registered in appropriate agencies of the government. Corporations and
partnerships are typically registered with the Securities and Exchange
Commission (SEC), whereas single or sole proprietorship categories of
business concerns are registered with the Dept. of Trade and Industry or
DTI.
• Corporate level strategy essentially refers to broad or corporate wide
strategy synchronizing various business level strategies into a cohesive
and coordinated efforts to achieve the vision of the entire business
organization. It describes company’s over all direction in terms of its
general attitude toward growth and management of its various businesses
and product lines.
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• The 4 Es in Addressing Corporate Strategy

• As large organization that is highly diversified, a conglomerate and with
business interests in various sectors of the economy extending even
beyond the geographical or political boundaries of the country where the
business operates, strategy at corporate level can be addressed in at least
four ways or options. Thompson and Cats-Baril that strategists can
consider are as follows:
• 1. Extend. It means extending the business by going beyond its current
business model by adopting a new business model or entering into new
businesses.
• 2. Expand. This option takes the form of adding products and/or services
within the context of the company’s existing business concern or present
area of operation.
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• 3. Exit. This option takes the form of making some sacrifice by dropping some
product lines and services or business units deemed uncompetitive or
unprofitable or less profitable.
• 4. Enhance. This option takes the form of adding functionality or improving a
product or service that is currently being offered.

• Strategic Choices at the Corporate Level

• Williamson, Jenkins, et al (2004) suggest that in generic term and at the
corporate level, the strategic choices can take the form of any of the following:
• 1. Business closure. This is an undesired act of folding up or shutting down
nonprofitable business units to control or avoid further looses. This effort
means avoiding or controlling dissipation of assets of the firm and recover
whatever is left out of the business.
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• 2. Business disposal. This calls for disposing or unloading some of the

members, subsidiaries, affiliates or investments in other business
concerns deemed unprofitable or less profitable and/or deemed a burden
to the mother organization.
• 3. Business acquisition. This is an option of business establishments
meant to expand their size and make their presence felt in whatever area
they want to do business. It is growth strategy that in operations may take
the form for acquisition and merger. The idea is to scout for existing firms
that the company can buy out as a whole or it may also take the form of
acquiring substantial share in the ownership or stockholding of the firm,
thus gaining control of its operations and making it a force to reckon with
as part of the conglomerate.
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• 4. Business reorganization. This option may or may not lead to

ownership changes among members of the organization or conglomerate
nor it may result to business acquisition or disposal options. Rather it may
result to restructuring, reorganizing and consolidating to make the entire
organization more responsive to the needs of the time. It is more of an
internal shake up which is either dressing down or dressing up to make the
conglomerate more manageable and competitive.
• 5. Business start up. Realizing the need to create new business units to
cater to market opportunities, this options means purposely organizing
another business concern instead of simply acquiring an existing business
organization or investing in it.
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• 6. The impact of doing nothing different. Sounding weird and uncalled

for, status quo can be an option if after a thorough study and analysis such
situation is deemed appropriate. At the corporate level, any move to
expand, reduce or invest requires serious study.

• The Corporate Expansion Option

• Development and growth of the business in not limited to the idea of
increasing the sales and income of a business organization particularly
among group of businesses concerned owned or controlled by a few
investors. There is always that human urge and drive to expand further.
Hence, what was once a single business unit eventually expands its
business operations thereby metamorphosing into a conglomerate. As a
single business expands or grows into a number of companies or business
units, the need to develop a corporate strategy becomes a necessity.
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• Vertical Integration Option

• Among others, engaging in the business is bridging the gap between the raw
materials and the consumer product resulting from the processing of such
product. This bridging act results to the concept of vertical integration. The
concept of Vertical Integration evolves around the notion of how far or close
a business is from the source of raw materials or the final consumer product.
• In a more specific terms, Vertical Integration Strategy is categorized by
Harrigan (1983) as:
• 1. Full integration
• 2. Taper integration
• 3. Quasi-integration
• 4. Long-term contracts
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• 1. Full integration. Under this scenario, the firm internally makes 100% of
its key supplies and completely controls its distributors. This means that
the firm ventures into the incredible task of creating or producing all the
raw materials it needs to be able to produce a product and does all the
needed services to push the product to the market and sell to its targeted
market.
• 2. Taper integration. In this case, a firm internally produces less than half
of its own requirements and buys the rest from outside suppliers. This
option takes the form of using its resources to contain majority of the
inputs to its product so that it has a certain level of control of the market
price.
• 3. Quasi-integration. In this concept, the company does make any of its
key supplies but purchases most of its requirements from outside suppliers
that are under its partial ownership or control.
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• 4. Long-term contracts. In this scheme, the company signs an

agreement or contract with another firm providing agreed upon goods and
services for a specified period of time.

• Forward Vertical Integration

• It is another corporate option where the firm engages in business activities
in the area of distribution and retailing of the product or service directly to
the customers. This means that business organization seeks ownership or
is investing in business concerns dealing with delivery or distribution of its
own product lines including opening new retail outlets either fully or partly-
owned is involved in forward vertical integration.
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• Backward Vertical Integration

• Within the industry or sector it is currently serving, getting close to either
the source of raw materials or far away from it to be closer to the
consumer side gives the business the option to do either backward or
forward form of vertical integration. Backward vertical integration is a
corporate option to engage in the business concentrating the efforts at the
stage of raw materials production or close the source of raw materials. It
means that a business organization investing in new businesses or buying
other business concerns dealing with raw materials or inputs to what they
are presently doing is engaged in backwards integration strategy.
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• Horizontal Diversification
• The premises and presumption behind the idea of going into horizontal
diversification is to allow expansion by way of adding new products or
services. Operationally, this can be done either by developing new products
or services through internal efforts or adding or adding into its fold new
organization with another kind of product or service may it be similar or
different to what the business is handling now.
• Horizontal diversification, however, is generally, perceived as a strategy that
evolves around the idea of seeking ownership or increased control over the
direct and indirect competitors of the business.
• Direct competitors are those business concerns whose products and
services are of the same kind of what is offered by the business and where
the price and marketing strategies of each firm are strong determinants to
competitiveness.
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• Indirect competitors on the other hand refer to those business

organizations whose products or services are not in direct collision course
or head on competition with one another but are potential threats to the
business because its products or services are considered alternatives or
substitutes.

• Conglomerate Diversification
• Getting into horizontal diversification either by investing or buying into
business organizations directly or indirectly or not competing with the firm
can be categorized into either:
• 1. Conglomerate
• 2. Concentric
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• Conglomerate or unrelated diversification

• It is a diversification option involves investing in or buying into business
organizations whose products and or services have nothing to do or not
related to the kind of products or services it is presently dealing with.

• Concentric diversification
• It is a corporate diversification option that involves engaging or dealing
with products or services that are somehow related to or associated with
what the firm is presently handling. Doing this option will not only allow the
business to grow by investing in a new business or start up or simply
investing in existing business organizations.
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• Directions of Corporate Level Strategies

• Among conglomerates or diversified business group, the group may
expand forward, move somehow backward by reducing its size or simply
stay put. In similar context, corporate level strategy comes in three general
orientations, sometimes called grand strategies.
• Wheelen and Hunger (2004) theorize that these strategies are
directional in nature and the set of direction it may wish to take is
generally categorized as follows:
• 1. Growth strategy
• 2. Stability strategies
• 3. Retrenchment strategies
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• Growth strategy options

• Growth strategy usually done by large corporations or conglomerates
basically aiming at the growth potentials in terms of size or magnitudes.
Growth strategies are essentially designed to achieve growth in sales,
assets, profits, or some combination.

• For large organizations as in the corporate level, the following

options or strategies fall within the category of growth strategy:
• 1. Merger. Involves a transaction involving two or more corporations in
which a stock is exchanges or swapped among independent business
organizations from which only one company survives.
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• 2. Acquisition. Is an option that involves the purchase of a company then

completely absorbed as an operating subsidiary or division of the acquiring
corporation. Like merger acquisition may occur between firms of different
sizes but can be either “friendly” or “hostile.”
• 3. Strategic alliance. Is another option involving a partnership among two
or more corporations or business units to achieve strategically significant
objectives that mutually beneficial. The alliance generally does not involve
stock purchase or swap but merely formalizes the union in the form of
memorandum agreement, memorandum if understanding or other form of
formal or written agreement between parties designed to achieve mutually
beneficial goals.
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• Stability strategies
• A corporation may choose stability over growth by continuing its current
activities without any significant change in direction. Given this situation,
this option is sometimes viewed as having lack of strategy as the firm
simply opts to stay put or maintain the current array of business.

• Operationally, the stability strategy may come in any of the following

forms:
• 1. Pause/proceed with caution. This is in effect, a sort of time out. It is an
opportunity to rest before continuing a growth or retrenchment strategy. It
is a deliberate attempt to make only incremental improvements until a
particular environment situation changes.
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• 2. No change strategy. It involves a decision to do nothing new, a choice

to continue current operations and policies for the foreseeable future.
Rarely articulated as a definite strategy, a no change strategy’s success
depends on a lack of significant change in a corporation’s situation.
• 3. Profit strategy. It involves a decision to do nothing new in worsening
situation and instead, to act as though the company’s problems are only
temporary. The profit strategy is an attempt to artificially support profits
when a company’s sales are declining by reducing investment and short-
term discretionary expenditures. Rather than announcing the company’s
poor position to the shareholders and investment community at large, top
management may be tempted to follow this very seductive strategy.
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• Retrenchment strategies
• The notion of retrenchment evolves around the concept of reduction in a
variety of aspects usually in terms of size, capital, personnel complement,
and the like. It may take the form in any of the following:
• 1. Turnaround strategy. This strategy emphasizes on the improvement of
operational efficiency and is probably most appropriate when a
corporation’s problem are pervasive but not yet critical.
• 2. Sell-out/Divestment strategy. This strategy is resorted to when a
company has a weak competitive position in its industry and unable to
either pull itself up by its bootstraps or find customer to which it can
become a captive company. The sell-out strategy makes sense if
management can still obtain a good price for its shareholders and the
employees can keep their jobs by selling the entire company to another
firm.
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• 3. Bankruptcy strategy. Bankruptcy strategy involves giving up

management of the firm to the courts in return for some settlement of the
corporation’s obligation. Top management hopes that once the court
decides the claims on the company, the company will be stronger and
better able to compete in a more attractive industry.
• 4. Liquidation strategy. In contrast to bankruptcy , which seeks
perpetuate the corporation, liquidation is the termination of the firm’s
business operations. Because the industry is unattractive and the
company too weak to be sold as a going concern, management may
choose to convert as many saleable assets as possible to cash, which is
then distributed to the shareholders after all obligations are paid.
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• International and other entry options

• International entry options strategies usually done by multinational or foreign
based organizations are designed to explore other markets beyond their usual
original place of doing their business.
• In entering the international markets, the following strategies can be explored:
• 1. Exporting. The basic and traditional or usual strategy to explore the
foreign markets which basically refer to shipping goods produced in the
company’s home country to other countries.
• 2. Licensing agreement. This is a scheme wherein the licensing firm grants
rights to another firm in the host country to produce and/or sell a product or
service. The licensee pays compensation to the licensing firm in return for the
technical expertise and other considerations referred to in the licensing
agreement.
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• 3. Franchising. The franchiser grants rights to another company to open a

business, usually a retail store, using the franchiser’s name and operating
system. In exchange, the franchisee pays the franchiser a percentage of
its sales as a royalty.
• 4. Joint venture. It involves formation and registration of a new business
organization based on investment sharing agreed upon and intents as well
as purpose agreed upon. Companies often joint ventures to combine the
resources and expertise needed to develop new product or technologies or
any undertaking.
• 5. Acquisition. It is a quick way to move into an international arena and
this is done by way of acquiring or purchasing another company already
operating in that area.
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• 6. Greenfield development. It refers to building its own manufacturing

plant and distribution system. This is done in lieu of acquiring the entire
company with all its inherent liabilities and problems which can affect the
firm’s entry in to the domestic market.
• 7. Production sharing. This scheme allows combining resources to pursue
a business by sharing whatever proceeds as may be agreed upon. The
scheme combines the labor skills in developing countries and technologies
as well as capital available in the developed countries represented by its
investors.
• 8. Turnkey operations. This scheme generally comes in the form of a
contract for the construction of operating facilities in exchange for a fee.
After the completion of the construction and technical monitoring as to
acceptability under the terms of the turnkey contract/agreement, the
facilities are transferred to the host country or firm.
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• 9. Management contract. It offers a scheme, as defined in the

management contract, through which a corporation may use some of its
personnel to assists a firm in a host country or company for a specified fee
and period of time.
• 10. Build Operate Transfer (BOT). Usually adopted in government
infrastructure projects, it is a concept thar is actually a variation of the
turnkey contracts. Instead of turning the facility over to the host country
when completed, the company operates the facility for a fixed period of
time during which it earns back its investments, plus a profit. It then turns
the facility over to the government at little or no cost to the host country.
• 11. Outsourcing. It essentially refers to de-integration or unbundling of
certain business activities narrowing the scope of the firm’s operations,
focusing on performing certain “core” value chain activities and relying on
outsiders to perform the remaining value chain activities.
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• Strategic alliance
• Aside from the strategic options earlier discussed which involved
investment outlays that may result to restructuring and/or forming new
business organizations, strategic alliance is another option taken by
business organizations for purpose of achieving mutual advantage and
certain strategic or specific goals.
• Strategic alliance is an option to take where it might be costly or
disadvantageous to engage in any of the other strategies already
discussed. Operationally, strategic alliance can be done through a process
of exploration and negotiation with targeted parties or business concerns
leading to signing up an alliance document in the form of memorandum of
agreement, memorandum of understanding and/or contracts stipulating
mutual desire to attain specific objective and expressing support for one
another.
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• Outsourcing
• The recent development in the global trade and crumbling of ideological
beliefs particularly the opening up of centrally planned economies giving
way for Western views on the conduct of the business has opened up
opportunities for strategy conscious business organizations. The high cost
of corporate taxes, high cost of labor and other cost associated with social
services in advanced countries has resulted to high overhead cost for
many firms driving these companies to explore options elsewhere. This
scenario has given rise or popularity to the idea of outsourcing and
subcontracting among large multinational organizations.
 Reference

• Orcullo, N.A. (2007), Fundamentals of Strategic Management, Quezon

City, Rex Printing Company, Inc.
Thank you!