Strategic Management Chapter 7

CHAPTER 7 Corporate strategy
-“ strategy ” comes from the Greek - usually formulated by the top-level

word “ strategia ” which refers to the art of a management, is a comprehensive master plan
troop leader or a general. that describes the overall direction of a
company.
- Dess et al. (2012) – defines the strategy as the - It is concerned with the overall
analysis, direction of a company and is considered the
decision, and action that enables a company to general or grand strategy of the company
succeed.
Growth strategy
- Wheelen and Hunger (2010)- define it as the - is a corporate strategy that a company
comprehensive plan that states how a company may adopt if it aims to expand its present
will achieve its mission and objectives operating activities.
Strategy Internal growth- occurs when a company

- defines as a plan formulated after an expands its operation domestically or globally.
extensive critical analysis of a company ’ s
resources which is then implanted in order for a External growth- happens when a company
company to achieve its mission and objectives enters into mergers, acquisition, or strategic
effectively. alliances.
1. Defenders Business strategy

- these are businesses with few product -occurs at the business or product unit,
lines, and they intend to defend them from new and describes how a company improves its
products entering the market.Their foremost competitive position in a specific industry.
concern is how to improve their operating - A concentration strategy is appropriate to adopt
activities in terms of cost reduction. when a company can reasonable determine that
its current product lines have real growth
potentials
2. Prospectors Functional strategy

- these are the companies with broad - a plan taken by functional areas that is
lines of products. Product development intended to maximize the productivity of a
innovation, and a new market are the essence of resource to achieve competitive advantage
their strategy orientation.
3. Analyzers Horizontal growth strategy- business expands

- these are multi-divisional companies its operations in two ways as follows:
that compete in at least two types of industries, 1. By entering into other geographic locations
one stable and one variable, while maintaining 2. By increasing the range of product lines for
stability and flexibility. the current market
4. Reactors
- these are the businesses that do not VERTICAL GROWTH STRATEGY
have the firm or consistent strategic orientations. - A company takes over the functions of
They adopt piecemeal or quick-response a supplier and a distributor in a vertical growth
strategies which are oftentimes strategy. It results in a vertical integration where
ineffective to meet the pressures, changes, and a company takes full responsibility of all
challenges of the environment. activities in the value chain.
1. Exporting- a company ships goods to other Conglomerate diversification strategy
foreign countries. - happens when a company enters another
2. Licensing- a company enters into an industry which is not related to the industry
agreement with another company from another where it presently
country to produce or sell the products of the belongs
former. - a company may consider this strategy as its
3. Franchising- a company enters into an growth strategy when its present industry is no
agreement with a franchiser to use the name and longer attractive and it lacks the required
system of the latter. abilities to transfer resources to related products
4. Joint venture- a company combines its or services
resources with other companies from foreign
countries to produce new products. Stability Strategy
5. Acquisition- a company purchases a foreign - company plans to continue its current activities
company.6. Green-field development- a without substantial change in its direction. It is
company constructs its own plant and invests effective for short-term planning but may be
with other assets in a foreign country. detrimental if used for long-term planning.
7. Turnkey operations- a company constructs Small businesses can benefit using this strategy
operating facilities and transfers the same to the because they usually belong to a predictable
host country when completed. environment.
8. BOT (build, operate, transfer) scheme- a
company constructs facilities, operates them Pause or Proceed-with-Caution Strategy
when completed, and turns them over to the host - a company takes a temporary timeout from its
country. major activities while observing changes in its
The degrees of vertical integration are external environment. it is a temporary
categorized as follows: strategy
1. Full integration- a company takes 100% -adopted by most companies when there is a
control of the value chain. financial crackdown and a pessimistic economic
2. Taper integration (backward integration)- outlook
a company acquires not more than 50% of its - does not imply that a company will shut down
requirement from outsiders. its operations
3. Quasi-integration (forward integration)- a - it only temporarily stops major critical
company purchases most of its requirements activities before shifting to the growth or
from outsiders. retrenchment strategy
4. Long-term contracts- a company enters into
an agreement with other companies to provide No-Change Strategy
goods to each other over a specified period of - is effective when an industry is relatively
time stable with little expected growth, and
consolidation is not expected to occur in the
Diversification strategy foreseeable future.
- is an appropriate growth strategy when the
original industry appears to have matured, Profit Strategy
plateaued, and consolidated already. - temporary plan for a company in its desire to
increase its profits when revenues are declining.
Concentric diversification strategy It is a cost-cutting mechanism to address a
- more appropriate in a less attractive industry decline in profit because of
and for a company with a strong competitive a decrease in sales.
position
- a company has a greater chance to succeed by RETRENCHMENT STRATEGY
utilizing its core competency in exploiting a - The third type of corporate strategy that a top-
related industry level management may formulate is the
retrenchment strategy. This is the strategy to be
adopted when a company experiences poor
competitive position and operating
performance and competitive disadvantage.
Turnaround strategy
-is adopted when a company is not yet critically
bleeding financially. A company intends to
improve its operational efficiency by adopting
drastic actions for a learner organization. It
undergoes two basic phases–
contraction and consolidation.
Captive company strategy

- is adopted by a company that has a weak
competitive position in an industry and does not
have the capability to implement a complete
turnaround strategy.
- In this strategy, a weak company becomes the
captive of a strong company, which usually its
customers, in order to have continued existence
SELL-OUT DIVESTMENT STRATEGY

- adopted when a company has a weak
competitive position in an industry and is not
able to look for a strong partner to whom its
business unit can be
captive.
- A sell-out or divestment strategy is a
favorable option when a company is able to look
for a good price for the company.
Bankruptcy or liquidation strategy

- is adopted when a company that is
suffering heavy losses terminates its operations.
In bankruptcy, a company gives up management
to a court and settles some financial obligations
in return. Meanwhile, liquidation involves the
conversion of non-cash assets to cash through
selling to settle financial obligation

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CHAPTER 7 Corporate strategy

-“ strategy ” comes from the Greek - usually formulated by the top-level

Strategy Internal growth- occurs when a company

1. Defenders Business strategy

2. Prospectors Functional strategy

3. Analyzers Horizontal growth strategy- business expands

Captive company strategy

SELL-OUT DIVESTMENT STRATEGY

Bankruptcy or liquidation strategy

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