TYPES OF STRATEGIES

Generic and Grand Strategies

They include;

1. Business level strategies

2. Corporate Strategy

Objectives
 Define strategy formulation
 Formulate corporate strategies
 Formulate business level strategies
 Formulate functional strategies

1.BUSINESS LEVEL STRATEGIES (Generic Strategies)

A long-term or grand strategy must be based on a core idea about how
the firm can best compete in the marketplace. The popular term for this
core idea is generic strategy.

The Three Generic Strategies

3 Generic Strategies:
 Striving for overall low-cost leadership in the industry.
 Striving to create and market unique products for varied
customer groups through differentiation.
 Striving to have special appeal to one or more groups of
consumers or industrial buyers, focusing on their cost or
differentiation concerns.
 1.Low-Cost Leadership
Low-cost producers usually excel at cost reductions and
efficiencies
They maximize economies of scale, implement cost-cutting
technologies, stress reductions in overhead and in
administrative expenses, and use volume sales techniques to
propel themselves up the earning curve
A low-cost leader is able to use its cost advantage to charge
lower prices or to enjoy higher profit margins
2.Differentiation
Strategies dependent on differentiation are designed to appeal
to customers with a special sensitivity for a particular product
attribute
By stressing the attribute above other product qualities, the
firm attempts to build customer loyalty
Often such loyalty translates into a firm’s ability to charge a
premium price for its product
The product attribute also can be the marketing channels
through which it is delivered, its image for excellence, the
features it includes, and its service network
3.Focus
A focus strategy, whether anchored in a low-cost base or a
differentiation base, attempts to attend to the needs of a
particular market segment
A firm pursuing a focus strategy is willing to service isolated
geographic areas; to satisfy the needs of customers with
 special financing, inventory, or servicing problems; or to tailor
the product to the somewhat unique demands of the small- to
medium-sized customer
The focusing firms profit from their willingness to serve
otherwise ignored or underappreciated customer segments

Grand Strategies
A master long-term plan that provides basic direction for major
actions for achieving long-term business objectives
The 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.
Simply, it involves the decision of choosing the long-term plans from the
set of available alternatives. The Grand Strategies are also
called Master Strategies or Corporate Strategies
usually they are selected by top level managers.

2.CORPORATE STRATEGIES
A corporate strategy helps to exercise the choice of direction that an
organization adopts.

strategic alternatives:
 Expansion strategies
 Concentration strategies
 Growth strategies
 Stability strategies
 Retrenchment strategies
 Combination strategies
 1.Expansion Strategy
Is adopted by an organization when it attempts to achieve a
high growth as compared to its past achievements. In other
words, when a firm aims to grow considerably by broadening
the scope of one of its business operations in the perspective of
customer groups, customer functions and technology
alternatives, either individually or jointly
The reasons for the expansion could be survival, higher profits,
increased prestige, economies of scale, larger market share,
social benefits,
Example of an expansion strategy;
2. Concentration strategies
Is one in which an organization focuses on a single line of
business. This strategy is used by firms seeking to gain
competitive advantage through specialized knowledge and
efficiency and to avoid the problems involved in managing
many businesses.

3.Growth strategy
Means by which an organization plans to achieve the increased
level of objective that is much higher than its past level.
The strategy may be selected;
 To increase profits, sales, or market share.
 To reduce cost of production per unit
 To increase in performance objectives.
Examples;
Horizontal integration - involves growth through acquisition
of competing firms in the same lines of business
Vertical integration - involves growth through acquisition of
other organization in the channel of distribution
Diversification - involves growth through acquisition of firms
in other industries or lines of business

Why diversification
 Organizations in slow-growth industries may purchase
firms to increase their overall growth rate.
 Organizations with excess cash often find investment in
another industry a profitability strategy
 To spread their risks across several industries
 May have management talent, financial and technical
resources, or marketing skills
 To leverage buyouts

4.Stability strategy
Focus on its existing line or lines of business and attempts to
maintain them. The Stability Strategy is adopted when the
organization attempts to maintain its current position (status
quo) and focuses only on the incremental improvement by
marginally changing the business and concentrates its
resources where it has or can develop rapidly a meaningful
competitive advantage in one or more of its business
operations in the perspective of customer groups, customer
functions and technology alternatives, either individually or
collectively.
The stability strategy is adopted by the firms that are risk
averse, usually the small-scale businesses or where there is
absence of significant change, or if the market conditions are
not favorable, and the firm is satisfied with its performance

The strategy is useful in;

(i) Organization that is large and dominates its markets may
choose a stability strategy to avoid government controls or
penalties for monopolizing the industry
(ii) Organization may find that further growth is too costly and
have detrimental effects on profitability
(iii)Organization in slow-growth or no-growth industry that has
no other viable options may be forced to select a stability
strategy.

5.Retrenchment strategies
when an organization’s survival is threatened, and it is not
competing effectively, or reduces the scope of its activities,
retrenchment strategies are needed.
The strategy is often used to cut expenses, to try becoming a
more financial stable business.
The types of retrenchment include:
 Turnaround strategy-change the status quo
 Divestment strategy - involves selling business or selling it
up as a separate corporation
  Liquidation strategy - business is terminated and its
assets sold off

6.Combination strategies

It’s also known as mixed or hybrid strategy. It’s not an

independent classification but it’s a combination of different
strategies i.e. growth, stability, retrenchment but in various
forms.
Organization may seek growth through acquisition of new
business, employ a stability strategy for some of existing
business, and divest itself of other business.

Benefits
 Develop competitive advantage and achieve lrge market
share
 The firm is comparatively more protected from the impact
of downward trend in the industry
 Cost advantage acts as an entry barrier
Disadvantages/ Drawbacks
 Can be sustained only if barriers exist that prevents
competitors from achieving the same low cost
 Severe cost reduction may dilute customers focus and
customer interests may be ignored
 Customers requiring extra features and ready to pay
higher price are lost
 Selection of Long-Term Objectives and
Grand Strategy Sets
When strategic planners study their opportunities, they try to
determine which are most likely to result in achieving various
long-range objectives
Almost simultaneously, they try to forecast whether an
available grand strategy can take advantage of preferred
opportunities, so the tentative objectives can be met
In essence, then, three distinct but highly interdependent
choices are being made at one time

STRATEGIC CHOICE PROCESS

1. Focusing on strategic alternatives:
It involves identification of all alternatives -The strategist
examines what the organization wants to achieve (desired
performance) and what it has really achieved (actual
performance). The gap between the two positions constitutes the
background for various alternatives and diagnosis.
2.Evaluating strategic alternatives:
The next step is to assess the pros and cons of various
alternatives and their suitability. The tools which may be used are
portfolio analysis,
3.Considering decision factors:
Objective factors: -
 Environmental factors
  Organizational factors
 Subjective factors
Strategies adopted in the previous period
Management’s attitude toward risk
Needs and desires of key managers

4.Strategic choice
This last step depends on firm’s nature in terms of whether it is a
single product firm or a multi - business firm
STRATEGIC CHOICE FOR SINGLE PRODUCT FIRM
Industry structure generally falls in four categories
 Fragmented Industries
 Emerging Industries
 Industries Transitioning to Maturity
 Mature and Decline Industries
 Global Industries

1.Fragmented industries options

Consolidation. These could be done through buying
competitors, building market power and exploitation of
economies of scale.
There is increased value added.

The following are the characteristics of fragmented

industries
 Large number of small firms
 No dominant technology
  Low barriers to entry
 Few, if any, economies of scale
 No firm has a significant market share
 No firm can significantly influence industry outcomes
 Products hard to differentiate
 Intense competition and low margins

2.Emerging Industries
The following are the characteristics of emerging
industries
 New industry based on breakthrough technology or
product
 No product standard has been reached
 No dominant firm has emerged
 New customers come from non-consumption not from
competitors
 Competitor uncertainty due to inadequate information
 High initial cost structure – no learning curve advantages
 Few entry barriers
 First-time buyers require initial inducements
 Inability to easily obtain raw materials and components -
problems obtaining items from suppliers
 Need for high-risk capital
3.Industries transitioning to maturity
The following are the characteristics of industries transitioning
to maturity
  Intense competition for market share
 Increased sales to experienced, repeat buyers
 Greater emphasis on cost and service
 Industry capacity “tops” out
 New products and new applications harder to come by
 Increase in international competition
 Declining profitability

4.Mature declining industries

The following are the characteristics of mature/declining
industries
 Demand grows more slowly than economy, or even
declines
 Slowing growth is caused by
 Technological substitution
 Demographic shifts
 Shifts in consumer needs

Global industries
The following are the characteristics of global industries
 Differences in prices and costs among countries due to
 Currency exchange fluctuations
 Differences in wage and inflation rates
 Other economic factors
 Differences in buyer needs across countries
 Differences in competitors and ways of competing among
countries
  Differences in trade rules and governmental regulations
across countries

STRATEGY CHOICE FOR MULTIBUSINESS FIRMS

When the company is in more than one business, it can select

more than one strategic alternative depending upon demand of
the situation prevailing in the different portfolios. It is
necessary to analyze the position of different business which is
done by corporate portfolio analysis.
Portfolio analysis is an analytical tool which views a
corporation as a basket or portfolio of products or business
units to be managed for the best possible returns, so, the key
strategy is to produce a balanced portfolio of products, some
with low risk but dull growth and some with high risk but great
potential for growth and profits. This is what we call portfolio
analysis
Aims of portfolio analysis
1) To analyze its current business portfolio and decide which
businesses should receive more or less investment
2) To develop growth strategies, for adding new businesses to
the portfolio
3) To decide which business should no longer be retained
Balancing the portfolio with respect to four basic
aspects;
 Profitability
 Cash flow
  Growth
 Risk

Different types of portfolio analysis

A) BCG matrix
B) GE nine cell matrix
BCG Matrix
The BCG matrix was developed by Boston Consulting group in
1970s. It is also called the growth share matrix
The BCG matrix helps to determine priorities in a product
portfolio. Its basic purpose is to invest where there is growth
from which the firm can benefit and divest those businesses
that have low market share and low growth prospects .

It is a portfolio planning model which is based on the

observation that a company’s business units can be
classified in to four categories:
 Stars
 Question marks
 Cash cows
 Dogs

It is based on the combination of market growth and market

share relative to the next best competitor.
Market share
Market share is the percentage of the total market that is being
serviced by your company, measured either in revenue terms
or unit volume terms.
 RELATIVE MARKET SHARE

RMS = Business unit sales this year

Leading rival sales this year

The higher your market share, the higher proportion of the

market you control.

Market growth
Market growth is used as a measure of a market’s attractiveness.

MGR = Individual sales - individual sales

this year last year
Individual sales last year

Markets experiencing high growth are ones where the total

market share available is expanding, and there’s plenty of
opportunity for everyone to make money.

1. Stars
characteristics include;
 High growth, high market share
 Stars are leaders in business.
 They also require heavy investment, to maintain its
large market share.
 It leads to large amount of cash consumption and cash
generation.
 Attempts should be made to hold the market share
otherwise the star will become a CASH COW
2. Cash cows
Characteristics
 Low growth, high market share
 They are foundation of the company and often the stars of
yesterday.
 They generate more cash than required.
 They extract the profits by investing as little cash as
possible
 They are located in an industry that is mature, not

growing or declining.

3. Dogs
Characteristics
 Low growth, low market share
 Dogs are the cash traps.
 Dogs do not have potential to bring in much cash.
 Number of dogs in the company should be minimized.
 Business is situated at a declining stage
4. Question marks
Characteristics
 High growth, low market share
 Most businesses start of as question marks.
 They will absorb great amounts of cash if the market
share remains unchanged, (low).
Why question marks?
Question marks have potential to become star and eventually
cash cow but can also become a dog.
Investments should be high for question marks.

Why BCG?
To assess:
 Profiles of products/businesses
 The cash demands of products
 The development cycles of products
 Resource allocation and divestment decisions

Benefits of BCG
 BCG MATRIX is simple and easy to understand.
 It helps you to quickly and simply screen the opportunities
open to you, and helps you think about how you can make
the most of them.
 It is used to identify how corporate cash resources can
best be used to maximize a company’s future growth and
profitability.

Limitations
 BCG MATRIX uses only two dimensions, Relative market
share and market growth rate.
 Problems of getting data on market share and market
growth.
 High market share does not mean profits all the time.
  Business with low market share can be profitable too.

Criticisms of BCG
 The labelling of business as stars, cash cows, question
marks and dogs tend to oversimplify the nature of these
businesses.
 Managers hearing the term “dog” believe that such
entities should be done away with, although, they might
want to keep it for its profitability.
 The matrix neglects an average performing firm
 The criteria used to classify the business relative to
market share and market growth rate, may not be the
best or may not be the only ones appropriate to be used
to assess businesses

Thank you