Corporate Level

Strategies
 Strategy formation: formation of strategic alternatives from
environmental and organizational appraisal leads to strategic
formulation of strategies.

 Modes of strategy making:

1. Intuition mode
2. The entrepreneurial mode
3. Adaptive mode (reactive approach)
4. The planning mode
5. Integrated mode
 Corporate level strategies, also known as
grand or root strategies, are fundamentally
concerned with the selection of businesses in
which an organization should be in and with
the development and coordination of the
portfolio of business.
 Corporate level strategy

Stability Expansion strategies Retrenchment strategies

strategies
Combination
strategies
No change
strategies Concentration Turnaround

Pause/proceed Integration Divestment

with caution Diversification Simultaneous
strategies Liquidation
Cooperation Sequential
Profit strategies Internationalization Combination
of both
Stability Strategies
 This corporate strategy can be relevant for an organization
operating reasonably certain and predictable environment.
 Usually followed by small and medium sized organizations,
stability strategies can be useful in the short run when such
organizations are satisfied with their current performance.
 Stability or status quo strategy is an attempt to maintain
present situation with minor changes if needed.
 Stability strategy signifies that a firm stays with the same
business or product markets and functions as at present.
 Stability does not mean absence of growth.
 The firms adopting the stability route do seek and plan for
business growth and profit improvement in a mild or
modest way.
A firm pursues stability strategy when
1. It continues to serve the public in the same
product or service, market, and function sectors
as defined in its business definition.
2. Its main strategic decisions focus on
incremental improvement of functional
performance.
 This stability strategy is conscious decision to do nothing
new, i.e., to continue with the present business definition.
 This could be characterized as an absence of strategy
though in reality, it is not so. Taking no decision sometimes,
is a decision too!
 When faced with a predictable and certain external
environment and stable organizational environment, an
organization decides to continue with its present strategy.
 This is so because the organization does not find it
worthwhile to alter the present situation by changing its
strategy.
 One must make a distinction between an inactive
organization and an organization that consciously decides to
continue with its present strategy.
 It is a decision to do nothing new, a choice to
continue current operations and policies for
the foreseeable future. If when analyzing an
environment, it is seen that there are no new
significant opportunities and threats or if
they are no major strengths and weaknesses
within the organization or they are no new
competitors or threats of substitute goods,
the organization may decide to do nothing.
 No organization can indefinitely continue with a no
change strategy.
 Things do change and the organization is faced with a
situation where it has to do something.
 An organization may assess the situation and assume
that its problems are short lived and will go away with
time.
 Till then, the organization tries to sustain its
profitability by artificial measures, by adopting a profit
strategy.
 Such a strategy could only work if the problems are
temporary.
 A profit strategy is a decision to do nothing
new in a worsening situation but instead to
act as the company's problems are only
temporary and attempt to create profits even
in a case of declining sales by primarily
reducing investments and short term
discretionary expenditures.
 Rather than announcing the company’s poor
position to shareholders and other investors
at large, top management may be tempted to
follow this strategy.
 Obviously, the profit strategy is useful to get
over a temporary difficulty, but if continued
for long, it will lead to a serious deterioration
in the company’s competitive position.
 A profit strategy is one that capitalizes on a
situation in which old and obsolete product
or technology is being replaced by a new one.
This type of strategy does not require new
investment, so it is not a growth strategy.
 pause strategy is pursued by those
organizations whose past history is full of
growth. In such a case, it is desirable to
maintain stability for some time to take the
advantages of future growth opportunities.
 This strategy is also known as “breathing
spell” strategy.
 The basic objective of the organization is to
make present factors of production more
productive as in the absence of this, future
rapid growth may be dysfunctional.
 It is deliberate and conscious attempt.
 it is a timeout, an opportunity to rest before
continuing a growth or retrenchment
strategy. It may be used for a temporary
period of time till the environmental situation
changes especially if they have been growing
too fast in previous years. It may be used by
companies as a test strategy before going
into a full fledged grand strategy.
Expansion
Strategies
 A firm turns to expansion strategy when it seeks
sizeable growth.
 A firm to grow by exploiting the opportunities in the
environment. These opportunities may stem from either
existing business of the firm or outside. It means
intensification and diversification.
 A growth strategy is different from the stable growth
strategy.
 when a firm increases the level of objectives higher
than what it has achieved in the immediate past in terms
of market share, sales revenue or strategic decisions
centre round increased functional performance in major
respects, it is a case of growth strategy.
 Expansion through concentration
 Expansion through integration
 Expansion through diversification
 Expansion through cooperation
 Expansion through internationalization
 Expansion through digitalization
 Expansion
Through
Concentration
 Concentration is a simple, first-level type of expansion
strategy.
 The first route of growth is to expand the present line of
business, also known as growth through intensification, which
can be aimed at market penetration, market development, and
product development.
 In each case, the objective is to expand organization’s present
business.
 Market penetration
 Market development
 Product development
 Diversification
 Market penetration involves selling more product to the
same market: a firm may attempt at focusing intensely on
existing markets with its present products, using a market
penetration type of concentration.
 In market penetration, the organization tries to capture market
share in the existing product and aims at expanding its
business at a rate higher than the industry growth.
 Budget airlines in India went into aggressive marketing with
low pricing, adopting a market penetration type of
concentration strategy, resulting in a very high growth rate for
the aviation industry for several years.
 It involves selling the same products to new
markets: it may try attracting new users for existing
products, resulting in a market development type of
concentration.
New market may not necessarily be in the
geographical sense, they can be demographic, for
instance, offering the same product with different
pricing to a different set of customers.
It involves selling new products to the same markets:
it may introduce newer products in the existing
markets by concentration on product development.
The tourism industry in India has been able to attract
new customers in significant numbers. New products
such as selling India as a golfing or ayurveda based
medical treatment destination are some of the product
development efforts in the tourism industry to attract
more tourist.
1. Concentration involves minimal organizational
changes.
2. It also enables the firm to master one or a few
business.
3. Managers face less problems dealing with known
situations.
4. Systems and processes within the firm are developed
in such a way that people are familiar with them.
5. The decision making process is under less strain as
there is high level of predictability.
Expansion Through
Integration
 Integration means combining activities related to the
present activity of a firm.
 Such a combination may done on the basis of the value
chain.
 Value chain is a set of interlinked activities
performed by an organization, right from
procurement of basic raw material down to the
marketing of finished products to the ultimate
consumers.
 So, a firm may move up or down the value chain to
concentrate more comprehensively on the customer
groups
 In other words, a company attempts to widen the scope
of its business definition in such a manner that it results
in serving the same set of customers.
 Among the integration strategies, we have two types:-
1. Horizontal and
2. Vertical integration strategy
 In concentration, whatever the organization does, it
does not move it beyond its own boundaries.
 But when the organization moves beyond its
boundaries into the domain of the industry it is
operating in, it no longer is adopting a concentration
strategy. It goes over to the adoption of horizontal
integration.
 When an organization take up the same type of
products at the same level of production or marketing
process, it is said to follow a strategy of horizontal
integration.
 Horizontal integration exists both in terms of the
marketing and operations functions.
 When a company wishes to sell in various geographical
market segments, it can have a number of subsidiaries
selling the same product widely, making it horizontally
integrated in terms of marketing.
 When a company has several factories producing the
same product and selling them through an integrated
marketing network, it is horizontally integrated in terms
of production.
 Horizontal integration is possible when two
competing units come together.
 Brooke Bond and Lipton join together
 Aristocrat taken over by VIP
I. Killing of competition the earlier competition
II. Taking tax advantage by accepting sick units
III. Better utilization of resources
IV. Sharing in common the benefits of R&D, finance
 Vertical integration takes place when two firms
combine their down stream or upstream activities for
sharing benefits.
 Vertical integration takes place when a firm accepts
either earlier activities or the later activities then what it
is engaged in the series of activities that start
converting raw material till the handing over of the end
products to the class of consumers.
 Vertical integration could be of two types: backward
and forward integration
 Backward integration means retreating to the source of
raw materials.
 Backward integration or upstream development
involves addition of activities to ensure the supply of
firms raw inputs.
 It is moving lower on the production process or moving
to earlier stages of manufacture to get the inputs at the
lowest price quality remaining at highest level and
quantity fairly high.
 Forward integration moves the organization ahead,
taking it nearer to the ultimate customers.
 Forward integration or downstream development , is a
case of the firm going for advanced phases.
 Downstream expansion refers to moving higher up in
the production and or distribution processes towards
the end user.
 A textile unit that produces cloth, opens its own retail
outlet.
 Getting regular and adequate supply of inputs
 To have the benefits of enhanced quality control
 To get higher return on investment by better use of
facilities
 To save the indirect taxes payable on the purchase of
inputs.
REASONS AS TO WHY NOT TO GO IN FOR
BACKWARD INTEGRATION:
 Opportunities of procurement at lower cost which might
emerge can not be availed.
 Emerging problem of transfer pricing when in house
dealings take place
 Gaining better control over sales and prices
 exploit the competitive advantage in broader
perspective
 Improving the scope of quality control
Expansion Through
Diversification
 When new products are made for new markets then
diversification take place. The concept of diversifying
is therefore related to the newness of products or
markets or both.
 By adopting diversification, an organization does
something new in terms of making new products or
serving new markets or doing both simultaneously.
 Diversification strategy is expansion by entering new
business or businesses that are other than current ones.
 If the new business is in any way related to the original
business in terms of the customer groups served,
customer functions performed or alternative
technologies employed, then it is concentric
diversification.
 Concentric diversification means adding new, but
related products. For instance, when telephone
companies and cable firms offered Internet access, this
represented concentric diversification.
• Marketing-related concentric diversification-: A similar
type of product is offered with the help of unrelated
technology. A company in the sewing machine business
diversifies into kitchenware and household appliances,
which are sold through a chain of retail stores to family
consumers.
• Technology-related concentric diversification-: A new
type of product or service is provided with the help of
related technology. A leasing firm offering hire purchase
services to institutional customers also starts consumer
financing for purchase of durable to individual consumers.
The technology relatedness in terms of procedure of the
financing services.
• Marketing-and technology-related concentric
diversification-: A similar type of product or service is
provided with the help of a related technology. A synthetic
water tank manufacturer makes other synthetic items such
as pre fabricated doors and windows.
 When an organization adopts a strategy which requires
taking up those activities which are unrelated to the
existing business definition of any of its businesses, it
is conglomerate diversification.
• Diversification strategies are adopted to minimize risk by
spreading it over several business.
• Diversification may be used to capabilities and business
model so as to maximize organizational strength or
minimize weakness.
• Diversification may be the only way out if growth in
existing business is blocked due to environmental and
regulatory factors.
Expansion Through
Internationalization
 International strategies are type of expansion strategies that
require organizations to market their products or services
beyond the domestic or national market. For doing so, an
organization would have to assess the international
environment, evaluate its own capabilities and devise
strategies to enter foreign markets.
 Global strategy Transnational Strategy

Pressure
for Cost
reduction
International strategy Multi domestic Strategy

Pressure for
Local
responsiveness
• International strategy-:
Firms adopt an international strategy when they create value
by transferring products and services to foreign markets
where these products and services are not available. This is
a simple strategy in the sense that an international firm
offers standardized products and services in different
countries, with little or no difference.
• Multi domestic strategy-:
Firms adopt a multi domestic strategy when they try to
achieve a high level of local responsiveness. The Multi
domestic firm attempts to extensively customize their
products and services according to local conditions
operating in different countries. This leads to high cost
structure.
• Global strategy-:
Firms adopt a global strategy when they rely on a low-
cost approach based on reaping the benefits of
experience-curve effects and location economies and
offering standardized products and services across
different countries.
• Transnational strategy-:
Firms adopt a transnational strategy when they adopt a
combined approach of low-cost and high local
responsiveness simultaneously, for their products and
services.
 Realizing economies scale-: By expanding sales
volume through international expansion, firms can
realize cost economies of scale.
 Realizing economies of scope-: Firms develop
valuable competencies and skills when they operate in
home markets and implement particular business
models.
• Expansion and extension of markets-: Economies of
scale and scope enable firms to expand their markets
from local to global markets, in a two-way beneficial
relationship where the expanded markets enable the
firms to realize lower costs and attain economies of
scale.
• Access to resources overseas-: by expanding
internationally, firms gain access to resources overseas
that they do not get when they operate in domestic
markets only.
 Higher risks-: International expansion often entails a
higher risk as compared to a situation where a firm
operate only domestically.
 Difficulty in managing cultural diversity-:
International firms face challenges of managing
cultural diversity within and outside.
• High bureaucratic costs-: Operating internationally
require an extensive coordination between the home
office and the foreign operations and subsidiaries.
• Trade barriers-: Despite liberalization of trade
between countries, substantial trade barriers in the form
of tariffs, pricing restrictions, differing standards or
local content requirements exist.
 Corporate strategies could take into account the
possibility of mutual cooperation with competitors, at
the same time competing with them so that the market
potential could expand.
 The term ‘co-opetition’ expresses the idea of
simultaneously competition and cooperation among
rival firms for mutual benefit.
 Mergers and acquisitions
 Joint Ventures
 Strategic Alliances
 A merger is a combination of two or more organizations in
which one acquires the assets and liabilities of other in
exchange for shares or cash, or both the organizations are
dissolved and assets and liabilities are combined and new
stock is issued.
 For the organization which acquires another, it is an
acquisition.
 For the organization which is acquired, it is a merger.
 If both the organizations dissolve their identity to create a new
organization, it is consolidation.
“Takeovers” is a popular strategic alternative adopted by Indian
companies.(2 types i.e.Hostile and Friendly )
Eg. Tata Steel Takeover of Corus Steel for US$ 10 billions in
2007.
If both organisation dissolve their identity to create a new
 Horizontal mergers: when there is a combination of two or
more organizations in the same business.
 Vertical mergers:- when there is a combination of two or
more organizations, not necessarily in the same business,
which creates complementary either in terms of supply of
material or marketing of goods and services.
 Concentric mergers: when there is a combination of two
or more organization related to each other either in terms of
customer functions, customer groups
 Conglomerate mergers: when there is a combination of
two or more organizations unrelated to each other either in
terms of customer functions, customer groups.
 To increase the value of the organizations stock.
 To increase the growth rate and make a good
investment.
 To reduce competition.
 To improve the stability of its earnings and sales.
 To avail tax concessions and benefits.
 A joint venture could be considered as an entity resulting from a long-
term contractual agreement between two or more parties, to undertake
mutually beneficial economic activities, exercise joint control and
contribute equity and share in the profit or losses of the entity.
 Merger refers to a combination of two or more companies into one
company and may be possible in two ways:- Absorption and
consolidation.
 Absorption takes place in merger and acquisition where the company
acquires another company.
 Consolidation takes place when two or more companies combine to
form a new company. Joint ventures are special case of consolidation.
 JV is a combined efforts of two or more companies to
form a new company. JV are undertaken to bring the
distinctive competence of two or more parties together.
Each party brings its own resources- finance,
managerial talents, etc. when these are put together,
these give birth to a new entity which is quite distinct
from its parents.
 Usually, a joint venture is formed between two or more
partners to take the advantage of their complementary
skills.
 When an activity is uneconomical for an organization
to do alone.
 When the risk of business has to be shared and,
therefore, is reduced for the participating firms.
 When the distinctive competence of two or more
organizations can be brought together.
Between two Indian organizations in one industry.
E.g. NTPC ltd. +Indian Railway =Bharatiya Rail Bijlee company
◦ Between two Indian organizations across different industries.
E.g. Action Aid India + TISS = offering degree courses in rural
India
◦ Between an Indian organization and a foreign organization in India.
E.g. DLF ltd + Nakheel ( UAE ) = 2 integrated town ships in India
◦ Between an Indian organization and a foreign organization in that
foreign country.
E.g. Kirlosker pumps = SPP Pumps Ltd ( UK) = Catering of EU
market
◦ Between an Indian organization and a foreign organization in a third
country.
E.g. Apollo Tyres + Continental AG Germany = Tyre manufacturing
facility in Malaysia.
Benefits
 Minimising risk
 Reducing an individual companies investment
 Access to foreign technology
 Broad based equity participation
 Access to governmental and political area
Drawbacks
 Change of strategy
 Regulatory changes
 Success of joint venture
 Having partners hampers growth
 Lack of transparency
 Another form of combining the efforts of two or more
organizations to develop competitive advantage.
 In strategic alliance, two or more partners join hands together
for certain specified objectives, generally, for certain specific
period.
 When these objectives are achieved, partners terminate their
alliance.
 A strategic alliance differs from Joint venture in two ways.
First in JV all partners bring their equity to establish JV while
in strategic alliance there is no contribution of equity form
any partner. Second, a JV has a distinct identity and continues
for longer period while a strategic alliance is of temporary
nature and called off when its purpose is over.
1. Technology Development Alliance:- different
partners join together to reduce cost and hedge the
risk associated with technology development. All
partners pool their R&D efforts by exchanging
information and ideas among themselves through
networking.
2. Operating and logistics Alliance:- such an alliance
aims at improving production or manufacturing
efficiency through exchange of information about
these aspects.
3. Marketing, sales and service alliance:- Such an
alliance is established to make joint efforts by all
partners so as to create synergistic affect for marketing
products or services thereby enhancing sales revenue
and reducing marketing costs.
4. Single country or multi country Alliances:- alliances
may be formed among organizations of the same
country or from different countries.
5. X and Y Alliance:- In X alliance, activities are divided
among partners, for example, one may manufacture and
another may sell. In Y alliance, different partners have
similar type of skills and they join together to reap the
benefits of economies of scale.
 Entering new markets
 Reducing manufacturing costs
 Developing and diffusing technology
 Lack of trust and commitment
 Perceived misunderstandings among partners
 Conflicting goals and interests
 Inadequate preparation for entering into partnership
 Hasty implementation of plans and focusing on
controlling the relationship rather than on managing it
for mutual benefits
 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
Retrenchment
Strategies
 Retrenchment strategy is the strategic option which
entrails reduction of any existing product or service line
along with the level of objectives set below the past
achievement.
 This strategy is based on this philosophy that, ‘slow
down and catch your breath, we have to do better’.
 A retrenchment strategy is one when the firm decides to
improve its performance in reaching its objectives by:
a) focusing on functional improvement- reduction in
costs
b) Reducing the number of functions it performs by
becoming a captive company
c) Reducing the number of the products and markets it
serves.
 Defensive strategy
 Less frequently used in business
 The fundamental aim of such a strategy is to raise the
level of enterprise achievements by focusing on
improvements in the functional performance and
cutting down the operations with negative cash
flows.
 Poor Performance:- when a firm suffers from poor
performance in terms of lower earnings and profits and
is unable to recover its spoiled position by any other
means, the only way is to close down to avoid further
loss. The reason for poor performance are due to i)
poor management ii) overexpansion iii) inadequate
financial control iv) unforeseen shifts in demand
 Threat to survival:- at times the firm’s very survival
is threatened by unforeseen situations in the product
market. The firm has no control on market forces.
 Redeployment of resources:-the firm is after the
alternative business opportunities than the existing one.
It pays to close and dispose of less profitable units and
redeploy the resources including the sale for exploiting
the more promising lines.
 Insufficiency of resources:- in case the firm finds it
difficult to raise the necessary funds in time at
reasonable cost, the only way is to cut off the less
efficient, less profitable line and use the same in
supporting the more efficient, more profitable lines.
Thus insufficiency of resources is a reason for
retrenchment strategy.
 Getting improved Managerial efficiency:- the
performance level of the firm may be below the
expected level. This means that there is good scope for
improvement in human performance both top and
bottom line employees. It is to kick out the inefficient
and incapable people from their positions. Better use of
physical and manpower resources.
 Turnaround Strategy
 Divestment strategy
 Liquidation Strategy
 This strategy focuses on improving a business
position.
 Turnaround or cut back strategy involves those
strategic actions which an organization takes to
compete in the same business in turnaround situation.
 Turnaround situation may be improvement in
organizational lower performance caused by
downward trend .
 Downward trend is caused by environmental and
internal factors such as lower profit margin, raw
material supply problems as to quality, quantity,
strikes and lockouts, increased competition.
 All these contribute to lower level organizational
performance, by whatever criteria they are expressed,
and the firm is not able to achieve its present
objectives.
 This calls for Turnaround strategy.
 This turnaround strategy is aimed at giving a grinding
halt to the present declining trend in performance and
improving the long run efficiency of operations.
 This strategy focuses on (a) Cost reduction, and (b)
assets reduction © Revenue increases.
 Example of cost reduction are decreasing the workforce
through employee attrition, leasing rather than
purchasing equipment, extending the life of machinery
 Examples of assets reduction include the sale of land,
buildings and equipment not essential to the basic
activity of the business, and elimination of ‘perks’ like
the company airplane and executive cars.
 Example of revenue increases include improving sales
promotion without increasing the expenditure,
inventory control and the like.
 Turnaround strategy is more or less a must when the
business firm is caught in the hot pang of recession.
 Even the best managed companies were to welcome
turnaround strategy to get out of rut caused by internal
and external factors.
 Internal factors are controllable while external factors
certainly not
 Strategic turnaround involves the change in the firm’s
strategy to compete in the present business.
 In case of operating or functional areas the turnarounds
are to do with skills in marketing, production. These
emphasizes increasing revenue through regaining
lost positions than increased penetration of the market,
decreasing costs, decreasing assets or a combination of
all these.
 In operating turnaround, the basic focus in on
performance targets to be achieved while in strategic
turnaround the focus is on change in strategy in which
the firm operates.
 Divestment strategy is quite opposite to expansion
strategy because it involves selling off or liquidation of
part of SBUs by the corporate office.
 in other words, a divestment strategy involves the sale
of a business or a major business component.
 Robinson says that ‘ when retrenchment fails to
accomplish the desired turnaround, strategic managers
often decide to sell the business’.
 Divestment strategy involves selling off a shedding
business unit or product divisions to redeploy the
resources so released for other purpose.
 The most common forms of divestment are:- (A)
Selling off a business segment or product division to
another company (B) giving up control over a unit of
business to the holding company.
 To better utilize the resources available (divest or withdraw
from weak segments better utilization of available resources in
some other promising product market.)
 To write off the acquisition hidden losses (Firm has to
accept the good assets along with some unwanted or bad assets
hidden in the package. It is these unwanted assets of acquired
business are to be sold off at reasonable prices to recover the
cost of acquisition.)
 To turn promises into performance (it is quite possible that
the actual performance remains far from promises or prospects
of firm because of unexpected emergence of very strong
competitors, the operating costs rise and demand for products
fall as competed away by the competitors. In such a situation it
is worth while to go in for divestment strategy to save the
 To streamline the product portfolio ( there are firms which
are multi product and multi division firms producing
traditional products side by side the modern product that have
better sales helping in increase in the share. In case these
traditional product and activities, can be discarded and the
resources can be used in updating the new warranted product
folio.
 To simplify the range of enterprise activities (too many
products in the market leads to utter confusion. This confusion
can clearly wiped off for future better performance.)
 Due to Government rules and regulations ( less frequent
reason for divesture is government anti trust action when a
corporation is believed a monopolies or unfairly dominate a
particular market.)
 Harvest or asset reduction strategy is a strategy where the
firm reduces its assets to minimum, even sacrificing the
future profits for the purpose of generating enough cash.
 It is already stated that a firm has to choose between liquidity
and profitability.
 The harvest strategy calls for systematic step by step
disinvestment in a business unit to utilize best the cash flows
as the company exists from an industry.
 At the starting stage, the management eliminates the new
investment, cut back research and development
expenditure, reduces maintenance expenditure while
encashing the benefits of past goodwill.
 The cash generated through harvest strategy is reinvested
elsewhere in the firm. Once the cash flows begin to decline,
the firm goes in for liquidation strategy.
 In case the firm has not succeeded in the earlier
strategies, it resorts to liquidation strategy as the last
resort.
 This liquidation strategy is to sell of or close down the
firm to avoid bankruptcy and further losses.
 The liquidation strategy is the extreme step where the
firm deliberates shuts of the business and gets the
money to safeguard the interests of stake holders.
 When the future of business is not bright
 The firm has accumated losses with no come back ( the
firm goes on increasing losses with every extra step it
takes.)
 When the retaining value is less than sale value
 Better business offers
 Combination strategy is not an independent
classification but it is a combination of different
strategies- Stability, growth, retrenchment.
 This is usually followed by organizations having
different business portfolios with each business facing
different problems.
 This is likely to happen in the following situation:-
1. Different products in different product life cycle
2. Business cycle
3. Number of businesses
4. If the organization is large and faces complex
environment
5. The organization is composed of different businesses,
each of which lies in a different industry, requiring a
different response