MBA-III Semester

Course Title: Strategic Management

Course Code: MBA-301
Unit-3
Course Contents
Strategy Formulation: Corporate, Business, Functional strategy, Concentration Strategies,
Integration Strategies: Horizontal & Vertical, Diversification: Related & Unrelated,
Internationalization , Porters Model of competitive advantage of nations, Cooperative: Mergers &
acquisition Strategies, Joint Venture, Strategic Alliance , Digitalization Strategies

Strategy Formulation
Strategy formulation is the process of using available knowledge to document the intended
direction of a business and the actionable steps to reach its goals.
This process is used for resource allocation, prioritization, organization-wide alignment,
and validation of business goals.
A successful strategy can allow your organization to share one clear vision, catch biases by
examining the reasoning behind goals, and track performance with measurable key
performance indicators (KPIs).

Strategy Formulation is an analytical process of selection of the best suitable course of

action to meet the organizational objectives and vision. It is one of the steps of the strategic
management process. The strategic plan allows an organization to examine its resources,
provides a financial plan and establishes the most appropriate action plan for increasing
profits.

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Steps of Strategy Formulation
The steps of strategy formulation include the following:

1. Establishing Organizational Objectives: This involves establishing long-term goals of

an organization. Strategic decisions can be taken once the organizational objectives are
determined.
2. Analysis of Organizational Environment: This involves SWOT analysis, meaning
identifying the company’s strengths and weaknesses and keeping vigilance over
competitors’ actions to understand opportunities and threats. Strengths and
weaknesses are internal factors which the company has control over. Opportunities and
threats, on the other hand, are external factors over which the company has no control.
A successful organization builds on its strengths, overcomes its weakness, identifies
new opportunities and protects against external threats.
3. Forming quantitative goals: Defining targets so as to meet the company’s short-term
and long-term objectives. Example, 30% increase in revenue this year of a company.
4. Objectives in context with divisional plans: This involves setting up targets for every
department so that they work in coherence with the organization as a whole.
5. Performance Analysis: This is done to estimate the degree of variation between the
actual and the standard performance of an organization.
6. Selection of Strategy: This is the final step of strategy formulation. It involves
evaluation of the alternatives and selection of the best strategy amongst them to be the
strategy of the organization.
Strategy formulation process is an integral part of strategic management, as it helps in
framing effective strategies for the organization, to survive and grow in the
dynamic business environment.

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Levels of strategy formulation
There are three levels of strategy formulation used in an organization:

 Corporate level strategy: This level outlines what you want to achieve: growth,
stability, acquisition or retrenchment. It focuses on what business you are going to
enter the market.
 Business level strategy: This level answers the question of how you are going to
compete. It plays a role in those organization which have smaller units of business and
each is considered as the strategic business unit (SBU).
 Functional level strategy: This level concentrates on how an organization is going to
grow. It defines daily actions including allocation of resources to deliver corporate and
business level strategies.
Hence, all organisations have competitors, and it is the strategy that enables one
business to become more successful and established than the other.

Concentration Strategies,
These strategies involve trying to compete successfully within only a single industry.
McDonald’s, Starbucks, and Subway are three firms that have relied heavily on
concentration strategies to become dominant players. Within concentration strategies,
there are three sub-strategies: (1) market penetration, (2) market development, and (3)
product development
1. Market Penetration. It is often adopted as a strategy when the organization has an
existing product with a known market and needs a growth strategy within that market.
The best example of such a scenario is the telecom industry. Most telecom products
exist in the market and must cater to that market. In such cases competition is intense.
This means that in order to grow, the organization may have to go out of its way to
increase market share.
2. Market Development. This strategy is used when the firm targets a new market with
existing products. There are several examples. These include leading footwear firms
like Adidas, Nike and Reebok, which have entered international markets for expansion.
These companies continue to expand their brands across new global markets. That's the
perfect example of market development. For a smaller enterprise, this strategy entails

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 expanding from a current market to another market where its product does not
currently compete.
3. Product Development. It refers to firms which have a good market share in an existing
market and therefore might need to introduce new products for expansion. Product
development is needed when the company has a good customer base and knows that
the market for its existing product has reached saturation. In this case, the market
penetration strategy is no longer practical. A new product development strategy that
caters to the existing market is a better approach.

Integration Strategies:
Integration strategy also known as management control strategy, as the name implies, it
provides the business an option to have control over various processes like competitors,
suppliers, or distributors.
Types of Integration Strategies
Business-integration strategy has two major types and sub-types; horizontal integration
and vertical integration. They’re as follows;

1. Horizontal Integration
Horizontal integration is when a business acquires and merges with a
similar/dissimilar company. Businesses do it for various reasons like entering into the
newer markets, expand the market, lower the risks, develop a unique product, achieve
economies of scale, and increasing the company’s size and capabilities. Horizontal
integration usually has long-term benefits on the strategy and planning of the business.
Therefore, the company has to make the right choice.
Standard Oil bought 40 refineries is a very good example of horizontal integration.
2. Vertical integration
Vertical integration is a strategy that allows a company to streamline its operations by
taking direct ownership of various stages of its production process rather than relying
on external contractors or suppliers.
A company may achieve vertical integration by acquiring or establishing its own
suppliers, manufacturers, distributors, or retail locations rather than outsourcing them.
Netflix, Inc. is a prime example of vertical integration. The company started as a DVD
rental business before moving into online streaming of films and movies licensed from
major studios.
Types of Vertical Integration
There are a number of ways that a company can achieve vertical integration. Two of the
most common are backward and forward integration.
1. Backward Integration
A company that chooses backward integration moves the ownership control of its
products to a point earlier in the supply chain or the production process.
Amazon.com, Inc. started as an online retailer of books that it purchased from
established publishers. It still does that, but it also has become a publisher. The
company eventually branched out into thousands of branded products. Then it

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 introduced its own private label, Amazon Basics, to sell many of them directly to
consumers.
2. Forward Integration
A company that decides on forward integration expands by gaining control of the
distribution process and sale of its finished products.
A clothing manufacturer can sell its finished products to a middleman, who then sells
them in smaller batches to individual retailers. Or, the manufacturer can open its own
stores. The company will bring in more money per product, assuming it can operate its
retail arm efficiently.

Diversification: Related & Unrelated, Internationalization

Diversification strategy is applied when companies wish to grow. It is the practice of
introducing a new product into your supply chain in order to increase profits. These
products could be a new segment of the industry your company already occupies, known as
business-level diversification. Alternatively, corporate-level diversification occurs if you
penetrate a new market. Diversification is one of four different growth strategies
popularised by Igor Ansoff. Depending on the industry, size, and ambition of the company.
They are:
 Penetration
 Product Development
 Market Development
 Diversification
Penetration refers to entering the market at an incredibly low sale price in order to price
out your competitors. Product development refers to the creation and testing of new
products within your current market. Market development refers to entering new markets
outside of your current industry.

Types of diversification strategies

There are three different types of diversification strategies that are commonly used today.
These are:
 Concentric Diversification
 Horizontal Diversification
 Conglomerate Diversification
1. Concentric Diversification
Concentric diversification refers to the development of new products and services that
are similar to the ones you already sell. For example, an orange juice brand releases a
new “smooth” orange juice drink alongside it’s hero product, the orange juice “with
bits”.
2. Horizontal Diversification
Horizontal Diversification refers to the development of new products that are
somewhat related to your original lines. For example, while your original product was
plant pots, you are now selling seeds for many varieties of herbs and flowers.
3. Conglomerate Diversification
Conglomerate diversification refers to the development of new products that are
unrelated to your original lines. For example, your t-shirt company has now decided to
start stocking apple products.

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 Conglomerate diversification is a much riskier strategy than both concentric
diversification and horizontal diversification. This is because it requires more outlay in
terms of product development and advertising. Plus, due to the goal of penetrating a
new industry- this diversification strategy has more likelihood of failure.

There are three types of diversification:

 Related Diversification —Diversifying into business lines in the same industry;
Volkswagen acquiring Audi is an example.
 Unrelated Diversification —Diversifying into new industries, such as Amazon
entering the grocery store business with its purchase of Whole Foods.
 Geographic Diversification —Operating in various geographic markets, which is the
corporate strategy of Starbucks, Target, and KFC.

Porters Model of competitive advantage of nations

Porter Diamond Theory of National Advantage is a model that is designed to help
understand the competitive advantage that nations or groups possess due to certain factors
available to them, and to explain how governments can act as catalysts to improve a
country's position in a globally competitive economic environment. The model was created
by Michael Porter, a recognized authority on corporate strategy and economic competition,
and founder of the Institute for Strategy and Competitiveness at the Harvard Business
School. It is a proactive economic theory, rather than one that simply quantifies
competitive advantages that a country or region may have. The Porter Diamond is also
referred to as "Porter's Diamond" or the "Diamond Model."
 The Porter Diamond model explains the factors that can drive competitive
advantage for one national market or economy over another.
 It can be used both to describe the sources of a nation's competitive advantage and
the path to obtaining such an advantage.
 The model can also be used by businesses to help guide and shape strategy
regarding how to approach investing and operating in different national markets.

Understanding the Porter Diamond

The Porter Diamond suggests that countries can create new factor advantages for
themselves, such as a strong technology industry, skilled labor, and government support of
a country's economy. Most traditional theories of global economics differ by mentioning
elements, or factors, that a country or region inherently possesses, such as land,
location, natural resources, labor, and population size as the primary determinants in a
country's competitive economic advantage. Another application of the Porter Diamond is in
corporate strategy, to use as a framework to analyze the relative merits of investing and
operating in various national markets.
How the Porter Diamond Works
The Porter Diamond is visually represented by a diagram that resembles the four points of
a diamond. The four points represent four interrelated determinants that Porter theorizes
as the deciding factors of national comparative economic advantage. These four factors are
firm strategy, structure and rivalry; related supporting industries; demand conditions; and
factor conditions. These can in some ways also be thought of as analogous to the
eponymous forces of Porter's Five Forces model of business strategy.

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1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products

1. Potential of New Entrants Into an Industry

A company's power is also affected by the force of new entrants into its market. The less
time and money it costs for a competitor to enter a company's market and be an
effective competitor, the more an established company's position could be significantly
weakened. An industry with strong barriers to entry is ideal for existing companies
within that industry since the company would be able to charge higher prices and
negotiate better terms.
2. Power of Suppliers
The next factor in the five forces model addresses how easily suppliers can drive up the
cost of inputs. It is affected by the number of suppliers of key inputs of a good or
service, how unique these inputs are, and how much it would cost a company to switch
to another supplier. The fewer suppliers to an industry, the more a company would
depend on a supplier. As a result, the supplier has more power and can drive up input
costs and push for other advantages in trade. On the other hand, when there are many
suppliers or low switching costs between rival suppliers, a company can keep its input
costs lower and enhance its profits.
3. Power of Customers

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 The ability that customers have to drive prices lower or their level of power is one of
the five forces. It is affected by how many buyers or customers a company has, how
significant each customer is, and how much it would cost a company to find new
customers or markets for its output. A smaller and more powerful client base means
that each customer has more power to negotiate for lower prices and better deals. A
company that has many, smaller, independent customers will have an easier time
charging higher prices to increase profitability.
4. Threat of Substitutes
The last of the five forces focuses on substitutes. Substitute goods or services that can
be used in place of a company's products or services pose a threat. Companies that
produce goods or services for which there are no close substitutes will have more
power to increase prices and lock in favorable terms. When close substitutes are
available, customers will have the option to forgo buying a company's product, and a
company's power can be weakened.
Understanding Porter's Five Forces and how they apply to an industry, can enable a
company to adjust its business strategy to better use its resources to generate higher
earnings for its investors.

Cooperative Strategy
Cooperative Strategy refers to a planning strategy in which two or more firms work
together in order to achieve a common objective. Several companies apply cooperative
strategies to increase their profits through cooperation with other companies that stop
being competitors.
A cooperative strategy gives company advantages, specially to companies that have a lack
of competitiveness, know how or resources. This strategy gives to the company the
possibility to fulfill the lack of competitiveness.
Cooperative strategy also offers access to new and wider market to companies and the
possibility of learning through cooperation. Cooperative strategy has been recently applied
by companies that want to open their markets and have a liberalist vision of negotiation
through cooperation
Types of cooperative strategies are two. Such as:-
 Strategic Alliance
 Joint Venture

1. Strategic Alliance
It is also known as a strategic partnership, a strategic alliance is a collaborative
arrangement between two or more organizations. The strategic alliance is the first
cooperative strategy. It is a non-equity cooperation agreement between two or more firms
for promoting their joint competitive advantage. The strategic alliance is formed to help
each other in organizational or business functions for mutual benefits. It doesn’t entail
creating a new organizational entity. The partners in strategic alliances have no formal
ownership ties like a joint venture. The partners instead work cooperatively under an
agreement.
The collaborative arrangement must outcome in win-win consequences for all partners to
confirm ultimate achievement. None of the parties lose; instead, all gain. Strategic alliances
form good earth for the allies to execute joint research, improve products, and share
technology. In sharing R & D information, they cooperate on technological development,
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develop new products that complement each other in the marketplace, and build networks
of dealers and distributors to handle their products. Examples of strategic alliances include
HP and Intel, Microsoft, AT&T, and UPS; Merck and J&J; IBM and Dell; Pfizer. And also have
Warner-Lambert, Grameen Phone and five mobile phone operators; and Dutch-Bangla
Bank and few other commercial banks.
Firms enter into strategic alliances for many reasons. They can achieve various benefits if
they do cooperate within the national boundary or outside the national border.

2. Joint venture
The joint venture is the second type of cooperative strategy. A joint venture denotes a new
organization recognized by two or more groups. It is an agreement where two or more
firms hold equity capital in a venture. In this venture, all the partner companies have some
degree of a switch. The equity arrangement between independent enterprises results in the
creation of a new organizational entity. It means that the supporting organizations’ formula
a distinct organization. And have shared proprietorship in the anew created organization.
The partner-companies own the newly created firm. Two businesses must agree to
establish a new firm jointly to form a joint venture.
The joint venture is preferred when two or more firms lack a necessary component for new
business success. In the case of construction of Jamuna Bridge (Bangabandhu Setu), for
example, no lone construction firm had essential resources to construct the bridge single-
handedly. The solution was a set for joint ventures. There are many joint ventures in Dhaka
EPZ and Chittagong EPZ, both national and international. Numerous firms’ similar joint
ventures to the overwhelmed resource. The restraints and or take benefit of the distinctive
competencies of the partner-companies. There are many countries like India, where the
government makes it mandatory for foreign companies to do business on joint ownership
basis. It is done to decrease the ‘threat of foreign dominion and increase skills,
employment, growing and revenues of local business.’ Here includes the joint venture of
cooperative strategy advantages and disadvantages. Such as:-

The advantages of the joint venture:

Including here that the joint venture of cooperative strategy advantages and disadvantages.
Such as:
 It creates an opportunity to combine the skills and assets of partner-companies
necessary to establish a successful new venture.
 A joint venture is a formidable way to enter into a foreign market when the market
entry restricts by govt./joint venture with a local partner in a foreign country. It is
accommodating to overcome import quotas and tariff barriers.
 The international joint venture is a fruitful means for strengthening a company’s
competitiveness in the world market.
 Both local and international joint venture helps facilitate joint research efforts,
technology sharing, joint use of production facilities, marketing one another’s
products, and joining forces to produce components or assemble finished products.
Situations Suitable for Joint Venture:
The following positions are suitable for the joint venture of cooperative strategy
advantages and disadvantages. Such as:-
 All the conditions are ideal for strategic partnerships.

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  Business activity was pursuing an opportunity is complicated or risky. A joint
venture is a decent way to assume that opportunity.
 Entry to a foreign market needs a local international partner, the difficulty in the
listing may arise from restrictions by the government or local culture and socio-
political situations.
Difficulties with Joint Venture:
The following challenges for the joint venture of cooperative strategy advantages and
disadvantages. Such as:-
 The difficulty arises in dividing the share of control between the partners.
 The joint venture firms may begin to compete more with one of the partners than
the other does when all partners are in a similar business.
 Glitches may arise when the supporting firms do not offer support to the joint
venture as well.
 Finally, struggle over how to route the joint venture. It can rent it not together and
result in a business blow.

Mergers and acquisitions Strategies

Mergers and acquisitions (M&A) strategy refers to the driving idea behind a deal.
Companies’ and investors’ motivations determine the types of deals they pursue. Broadly
speaking, the most common objectives of M&A fall into two main categories: improving
financial performance and reducing risk.

To understand business mergers and acquisitions strategies, you first need to know the
two main buyer types, each of which seeks to acquire companies for different reasons:
1. Strategic buyers undertake mergers and acquisitions to further their own strategic
objectives — acquiring products or expertise, expanding markets, or gaining customers.
Strategic buyers are more likely to be other companies, and these deals are
called strategic M&A.

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2. Financial buyers are interested in performing M&A transactions for the purpose of
financial return, such as increasing operating cash flow. These buyers may acquire a
company with the intention of exiting at a later date, either by selling the company or
listing it on the stock market with an initial public offering (IPO). These deals are
called financial M&A, and some financial buyers are professional investors.
Among these professional investors are private equity firms (PE firms), which seek to buy
and hold companies for a cycle (often 10 years) before selling them at a profit. PE firms
typically try to actively increase a company’s value so that they can maximize profits and
may do so by installing people they choose as top executives.

Venture capital firms are a subset of private equity firms that specifically target small,
young companies that they believe have high growth potential. As such, venture capitalists
court riskier acquisitions than do other private equity firms.

Digitalization Strategies
A digital marketing strategy is a plan that outlines how your business will achieve its
marketing goals via online channels like search and social media. Most strategy plans will
summarize which online channels and digital marketing tactics you will use, plus how
much you will invest in these channels and tactics.
Examples of digital marketing strategies include a social media campaign that includes
partnerships with influencers, a content marketing strategy that uses online guides to drive
leads, or a growth marketing strategy that uses social media and email build customer
loyalty.
Example -
 Search engine optimization (SEO) is one of the most effective digital marketing
initiatives today. SEO is the process of improving your website so that it ranks
highly in search engine results for keywords and phrases related to your business.
 Pay-per-click (PPC) advertising-Another powerful and cost-effective online
marketing strategy is pay-per-click (PPC) advertising.
 Content marketing -Content marketing is another go-to online marketing strategy
for companies today. In content marketing, your business focuses on reaching,
engaging, and connecting with consumers via content. This content, which can
include videos, blog posts, info graphics, and more, provides values to users. It’s not,
however, sales-orientated copy — it’s informational.

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