Alternative Strategies - Corporate

Strategic Management All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T) 2010 Ch. 5: 1

Chapter 5
Typology of Alternate
Strategies I: The Corporate
Level

LEARNING OBJECTIVES
After reading this chapter, you should be able to:

 Understand different levels of organizational strategies,
namely corporate, business and functional.
 Explain corporate level strategies such as growth,
turnaround, integration, diversification, retrenchment,
divestiture, acquisition, merger, joint venture and
global strategies.
 Describe the three generic business level strategies:
cost leadership, differentiation and focus.
 Explain functional level strategies as they make up the
components of the value chain.

Different Levels of Strategies
 The three levels of strategies consider that the
decision-making process is done at three different
levels or under three different circumstances within
the organization.
 Basically, the three broad levels of decision making
are:
– Corporate level strategies
– Business level strategies
To be discussed in Chapter 6
– Functional level strategies

Corporate Level Strategies
 Attempts to identify strategies that corporations or

organizations decide to pursue for the benefit of the
whole organization
 Usually made at the top management level
 Concern is for the welfare of the whole corporation
in terms of its future and to bring it to a higher
position overall in terms of the group’s share value,
profit or any performance measures

(cont.)
 The various corporate level strategies will be
discussed under the following headings:
– Grand strategies:
• Growth
• Stable growth
• Turnaround
• Combination
– Secondary level strategies:
• Expand
• Integrate
• Diversify

(cont.)
– Tactical level strategies:
• Organically
• Joint venture
• Merger
• Acquisition
• Reverse takeover
• Strategic alliance
• Licensing/Franchising

(cont.)
Figure 5.1 Relationships between the various levels of strategies

The Grand Strategies
 They are generic in nature in the sense that all

organizations will most likely choose any of the
following four strategies in the beginning:
– Growth strategy
– Stable growth strategy
– Turnaround strategy
– Combination strategy

The Grand Strategies (cont.)
1. The Growth Strategy

 To ensure next year’s
growth rate is higher
than the previous year
 Presented graphically as
a simple form where the
rate of growth is higher
than that of last year
Figure 5.2 Growth Strategy

2. The Stable Growth

Strategy
 To target a growth rate
similar to that as achieved
in the previous year
 As shown graphically in Fig
5.3, the slope of the growth
rate is the same as that of
last year’s.
 This strategy is selected
when times are bad or if
there is a need to
consolidate. Figure 5.3 The Stable Growth Strategy

3. The Turnaround Strategy

 A choice when the company
has been experiencing a bad
spell and at a certain time
decides that it needs to do a
turnaround
 During this situation, the growth
of the company has been on a
negative trend and a decision is
made to strategize so that the
growth rate will be positive
again.
Figure 5.4 The Turnaround Strategy

4. The Combination Strategy

 For a big organization or a holding
company, sometimes turnaround
can only be done by a Combination
Strategy where some of its
components need to be dismantled
or pruned off.
 By doing this, its leaner status will
enable the company to be in the
black again. Thus, as shown by the
graph, some of the components will
have to go down in order for its
other components to go up. Figure 5.5 The Combination Strategy

The Secondary Level Strategies
 A company, having decided on a grand strategy,

then has to decide on the next level of corporate
strategy in order to achieve the grand strategy.
 A strategy needs to be selected from another set of
alternatives called the secondary level strategies.
 There are four types of strategies grouped under
this category:
– Expansion
– Integration
– Diversification
– Turnaround

(cont.)
1. The Expansion Strategy

 The strategy basically is to grow and increase its
operations through the existing activities. In other
words, the measure is to increase the volume of
the existing operations.
 No new product will be introduced and the final
measure of an expansion strategy is the volume
increase of its current activities is to be the same
as that of the previous year.

(cont.)
 Examples:
– Most banks would go for the expansion strategy if
they set up new branches in other parts of the
country.
– Supermarkets (Giant, Tesco)
– Petrol stations (Petronas, Shell)
– Fast food chain outlets (Kentucky Fried Chicken,
Secret Recipe)
– Other franchisees such as London Optical and local
restaurants

(cont.)
2. The Integration Strategy

 The main objective of an integration strategy is to
seek control of its operations.
 Control here refers to the activities along the supply
chain right from the raw material production until
the purchase of the final product by the ultimate
consumer.

(cont.)
 Example:
– A furniture manufacturer would buy the sawn timber
as its raw material and subject them to a series of
processes to finally be assembled into a furniture
form (dining set).
– Once business picks up and the volume of production
has reached optimum volume, the owner would
probably like to have control of some of its processes
in the supply chain line.

(cont.)
 There are several intergration strategies that coud

be opted for:
– Backward integration strategy enables the owner to
control the availability of resources/raw material
supplies in terms of pricing, quality, delivery, choice of
material, source of supply, etc.
– Forward integration strategy is where the owner
would prefer to have control of the value-added
activities down the line once the manufactered
products are sold to the wholesaler,e.g. packaging,
transporting, warehousing, setting up retail outlets,
etc.

INTEGRATION STRATEGIES (Cont.)
 When to use this Forward Integration strategy?

i. Current firm distributors are expensive, incapable or
unreliable on meeting the company’s distribution
needs.
ii. Limited availability of quality distributors
iii. Compete in a growing industry which is expected to
grow markedly
iv. Firms have capital and human resource needed to
manage the operation and business
v. Current distributors have high profit margin
 When to use backward integration strategy?
i. When present suppliers are expensive or unreliable
ii. Number of suppliers is small and competitors is large
iii. Organization have both capital and human resources to
manage new business
iv. When present supplies have high profit margins

(cont.)
– The forward and backward integration strategies are
sometimes labelled as vertical integration strategy
to differentiate them from the next strategy that
follows.
– Horizontal integration strategy deals with also
wanting to control the business operations.
– Adopting this strategy would reduce the number of
competitors as the company would choose an
acquisition, joint venture or strategic alliance to reduce
competition.
– The banking and plantation industries in Malaysia had
adopted this strategy and the number of players had
been reduced as a result.

 When to use horizontal integration strategy?
i. When firm can gain monopolistic in particular area
ii. When organization competes in growing industry
iii. When competitors are faltering due to lack of
managerial expertise
iv. When organization has both capital and human
talent needed to successfully manage an expanded
organization

(cont.)
3. The Diversification Strategy
 Diversification is basically increasing the number of
outputs produced or services rendered.
 Thus, a company wanting to diversify is looking at how
to increase the variety of activities in its present
operations.
 There are four decisions that come under this category:
– Concentric diversification strategy is when a company
would want to increase the variety of its manufactured
products that are related to its present operations.

(cont.)
– Conglomerate diversification strategy is adding
variety in a different or unrelated sector.
– Horizontal diversification strategy (term quite
rarely used) refers to a company having to diversify
because of requests by its regular clients. In order
for it to continue doing business with the regular
clients, it is somewhat obliged to meet the request.

(cont.)
– Geographical diversification strategy is when a

company goes into a new country for the first time to
carry out its current business activites. Although no
new variety is added, the ‘new variety’ covers the
new country as market development strategy
(functional level strategy) rarely talks about going into
a new country.
– Thus, going into a new territory or region within
the same country is not considered as geographical
diversification.

(cont.)
4. Turnaround Strategies
 These are strategies that are grouped together as they
all represent actions commonly used in corporations
facing some difficulties in their operations as reflected
in their negative performance indicators. Such
indicators are like negative growth rate, rate of return,
profitablility, dividends payout or even making losses.

(cont.)
 The following are turnaround strategies:

– Retrenchment strategy is option to cut costs. Any cutting
that affect an increase in productivity and efficiency or
reduction in overhead costs would help any troubled
organizations.
– Divestiture strategy involves dividing activities into those

that are making profit (where putting in money would be
rational) and those that are not going to give profit
(activities that are not supported and therefore no money
to be allocated or withdrawn). Non-profitable activities are
closed and sold off while profitable ones are maintained.

(cont.)
– Liquidation strategy is the most extreme type of

turnaround strategy. If retrenchment and divestiture
are not able to turnaround the company, then
liquidation or selling of the whole company is the only
alternative left.

The Tactical Level Strategies
 The tactical strategies are the enablers as they are

the ones that will allow the various grand and
secondary level strategies to be acted upon.
 There are seven tactical strategies as follows:
– Organically
– Joint venture
– Merger
– Acquisition
– Reverse takeover
– Strategic alliances
– Licensing/Franchising

The Tactical Level Strategies
(cont.)
Figure 5.6 Relationships between three classes of corporate level strategies

International Corporate Level
Strategies
 With the spread of companies overseas, corporate

level strategies have to take care of emerging
needs such as what strategies to be adopted for
various strategic business units (SBUs) in several
countries.
 The generic strategies still stand but a separate set
of strategic decisions need to be considered.
 There are four types of international strategies that
have been widely recognized as indicated in Figure
5.7.

Strategies (cont.)
Figure 5.7 Corporate level strategies for international operations

Strategies (cont.)
 Replication Strategy
– Replication of home strategies on the international
operations is the first strategy that is adopted in the early
stages.
– The best approach until the time comes that it has been
proven ineffective.
 Global Strategy
– Refers to decisions made by companies to have a standard
product/service across markets in various countries
– Local adaptation is at its minimum but global coordination
and sharing of resources is necessary and can be difficult.

Strategies (cont.)
 Multi-domestic Strategy
– Companies allow all their respective operations to
adapt to the local needs and environment
– Full autonomy to decide on the appropriate strategies
that need to be implemented
 Transnational Strategy
– Attempts to achieve domestic adaptability and at the
same time a global economy of scale.
– Getting production at its most efficient source but at
the same time allows various domestic entities to
make their own strategic decisions I facing
competitors in their respective markets


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Strategic Management All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2010 Ch. 5: 1

Strategic Management All Rights Reserved

After reading this chapter, you should be able to:

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

 Attempts to identify strategies that corporations or

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

Figure 5.1 Relationships between the various levels of strategies

Strategic Management All Rights Reserved

 They are generic in nature in the sense that all

Strategic Management All Rights Reserved

1. The Growth Strategy

Figure 5.2 Growth Strategy

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2. The Stable Growth

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3. The Turnaround Strategy

Strategic Management All Rights Reserved

4. The Combination Strategy

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 A company, having decided on a grand strategy,

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1. The Expansion Strategy

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

2. The Integration Strategy

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

 There are several intergration strategies that coud

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 When to use this Forward Integration strategy?

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

– Geographical diversification strategy is when a

Strategic Management All Rights Reserved

Strategic Management All Rights Reserved

 The following are turnaround strategies:

– Divestiture strategy involves dividing activities into those

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– Liquidation strategy is the most extreme type of

Strategic Management All Rights Reserved

 The tactical strategies are the enablers as they are

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Figure 5.6 Relationships between three classes of corporate level strategies

 With the spread of companies overseas, corporate

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Figure 5.7 Corporate level strategies for international operations

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Strategic Management All Rights Reserved

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