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ECOOAPTRR GESTARTY
CORPORATE STRATEGY
Graftinc
Crafting
NONRMETALVIEN LYSANAIS
ENVIRONMENTAL ANALYSIS
BTAILYSTI ESTARTYG
STABILITY STRATEGY
FONRIVEDISTICIA
DIVERSIFICATION
 CHAPTER 7
CORPORATE LEVEL STRATEGY
Learning Objectives
At the end of this chapter, the student should be able to:
1. Describe the nature of strategy;
2. Identify the elements in corporate strategy formulation; and
3. Discuss the different corporate strategy
 CONCEPT AND NATURE OF A STRATEGY

 The term strategy comes from the Greek word strategia which refers to the art of a
troop leader or a general. Dess et al. (2012) defines strategy as the analysis, decision
and action that enables a company to succeed. Wheelen and Hunger (2010) define it
as the comprehensive plan that states how a company will achieve its missions and
objectives.In the context of strategic management, this text defines strategy as a
plan formulated after an extensive critical analysis of a companies resources which is
then implemented in order for a company to achieve its mission and objectives
immediately.
 CHARACTERISTICS OF A GOOD AND EFFECTIVE STRATEGY

 A good and effective strategy has the following features:

 It is based on critical analysis or different factors comprising a company’s environment
 It is supported by a relevant data obtained from reliable resources.
 It is directed to and aligned with the organizational goals and objectives of a company.
 It is clear and realistic.
 It considers a company’s limitations in resources and capabilities.
 It provides operational directions and guides a company’s decision making.
 It covers a long term period.
 It uses key indicators that are realistic, measurable and attainable.
 It makes use of reasonable assumptions based on available information.
1. It depicts the nature of a business and it’s priorities.
 STRATEGIC TYPES OF BUSINESSES

 Wheelen and Hunger (2010) reffered to them as strategic types which represents the category of companies based
on their strategic orientation and combination of structure, culture, and processes.
The four strategic types are as follows:
Defenders. These are business with few product lines and they intend to defend them from new products entering the
market.
Prospectors. These are companies with broad lines of products.
Analyzers. These are multi-divisional companies that compete in at least two types of industries, ones stable and one
variable, while maintaining stability and flexibility.
1. Reactors. These are businesses that do not have firm or consistent strategic orientations.They adopt piecemeal or
quick response strategies which are oftentimes ineffective to meet, the pressures, changes, and challenges of the
environment.
 HIERARCHY OF STRATEGIES

 The types of strategies according to hierarchy are as follows:

1. Corporate Strategy – Which is usually formulated by the top level management, is a comprehensive master plan
that describes the overall direction of a company.
2. Business Strategy – Which occurs at the business or product unit, describes how a company improves the
competitive position in a specific industry.
3. Functional Strategy – is a plan taken by functional areas that is intended to maximize the productivity of a
resource to achieve competitive advantage.

Strategy Formulation. The first stage of the strategic management process, is the process of developing a
comprehensive plan to effectively manage the external environmental strategic forces (e.g., opportunities and threats)
relative to a company’s strengths and weaknesses.
 Corporate Strategy

The formulation of a corporate strategy is conducted by the top-level management, with inputs from the middle
to lower level management and other stakeholders in form of quantitative or qualitative information.It is concerned with
the overall direction of a company and is considered the general or grand strategy of the company .This strategy is
broadly categorized into three general orientations to follows:
1. Growth Strategy
2. Stability Strategy
3. Retrenchment Strategy
1. Growth Strategy
A growth strategy is a corporate strategy that a company may adopt if it aims to expand its present operating
activities.In short,the company intends to grow. Growth may happen internally or externally.
Growth strategies are broadly classified into two as follows:
4. Concentration Strategy
5. Diversification Strategy
 Concentration Strategy

- is a appropriate to adopt when a company can reasonably determine that its current product lines have real
growth potentials.This strategy works effectively when an industry is growing and attractive.
Two types of concentration are broadly classified into two as follows:
1. Horizontal Growth Strategy
2. Vertical Growth Strategy

 Horizontal Growth Strategy.In a horizontal growth strategy,a business expands it’s operations into two ways as
follows:
1. By entering into other geographic locations.
2. By increasing the range of product lines for the current market.
 A horizontal growth strategy results in a horizontal integration where a company operates in various geographic
locations.A company can make a international entry using the following mechanism:
 Exporting – A company ships goods to other foreign countries.
 Licensing- A company enters into an agreement with another company from another country to produce or sell the
products of the former.
1. Franchising – A company enters into agreement with a franchiser to use the name and system of the latter.
2. Joint Venture- A company combines its resources with other companies from foreign countries to produce new
products.
3. Acquisition- A company purchases a foreign company.
4. Green Field Development –A company constructs its own plant and invest with other assets in a foreign country.
5. Turnkey operations- A company construct operating facilities and transfer the same to the host country when
completed.
6. BOT (built,operate, transfer) scheme- A company construct facilities, operates them when completed, and turns
them over to the host country.
 Vertical Growth Strategy. A company takes over the functions of a supplier and a distributor in a vertical growth
strategy.It results a vertical integration where a company takes full responsibility of all activities in the value chain
(e.g.,from the acquisition of raw materials up to the delivery to final customers).The degrees of vertical integration
are categorized as follows:
1. Full integration- A company takes 100% control of the value chain.
2. Taper integration (backward integration)- A company acquires not more than 50% of it’s requirements from
outsiders.
3. Quasi-integration (forward integration)- A company purchases not most of its requirements from integration.
4. Long-term contracts- A company enters into an agreement with other companies to provides goods to each other
over a specified period of time.

DIVERSIFICATION STRATEGY – A diversification strategy is an appropriate growth strategy when the original industry
appears to have matured, plateaued, and consolidated already. Diversification growth strategy can be categorized as
follows:
1. Concentric diversification strategy
2. Conglomerate Diversification strategy
2. STABILITY STRATEGY. In this strategy,a company plans to continue its current activities without
substancial change in its direction.
The common types of stabilities strategies are the following:
1. Pause or Proceed-With-Caution Strategy – In a pause proceed with caution strategy, a company
takes a temporary timeout from its major activities while observing changes in its external
environment. It is a temporary strategy.
2. No Change Strategy- When an industry is not turbulent variables and a company is enjoying the
fruits of its continued successful activities, it may adopt the no change strategy as its corporate
strategy.
3. Profit Strategy – The profit strategy is a temporary plan for a company in its desire to increase its
profits when revenues are declining.
3. Retrenchment Strategy- This is the strategy to be adopted when a company experiences poor competitive position
and operating performance and competitive disadvantage.
The most common retrenchment strategies include the following:
1. Turn around strategy – is adopted when a company is not yet critically bleeding financially. A company intends to
improve its operational effiency by adopting drastic actions for a learner organization. It undergoes two basic
phases – contraction and consolidation.
2. Captive company strategy – is adopted by a company that has a weak competitive position in industry and does
not have capability to implement a complete turnaround strategy.
3. Sell out or Divestment Strategy – The term “sell out” implies that a business is selling the entire company,
including all the business units and devision. However, divestment occurs when a company only sells its devision or
business unit that does not operate profitably. This 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.
4. Bankruptcy or Liquadation Strategy – is adopted when a company that is suffering heavy losses terminates its
operation.
 CRAFTING A CORPORATE STRATEGY

1. The overall orientation of a company toward growth, stability, or retrenchment.

2. The industry or the market that a company intends to compete in.
3. The manner in which a company builds its capabilities and supports it’s functional units.
Considering the significant contributions of the three key issues, the best way to formulate a corporate strategy is by
doing the following:
1. Conduct a critical environmental analysis – The first step in strategy formulation is conduct a deep and critical
environmental analysis. It is indeed for the gathering of reliable and relevant information as basis when making a
sound forecast about an industry (e.g., expected trends, growth and competitive forces) and the capability of a
company to exploit its resources for competitive advantage.
2. Set the overall direction of the company – With the relevant and reliable data on hand provided by an
environmental analysis, the next step is to set the overall orientation of a company. A company can choose to
adopt the growth, stability or retrenchment strategy.
3. Identify the industry or market to compete in – At the corporate level, it must be clear what industry or market a
company will compete in. This is especially true if a company adopts the growth strategy.A company cannot serve all
types of customers with different tastes, preferences and priorities.This way a company will be able to focus its
efforts and activities towards it’s ultimate direction.
4.Define how the company transfers resources to its business or functional units. Different functional units do not
operate independently for their own growth and success. The last stage of corporate strategy formulation involves a
business being able to define how its different functional units create synergy as its transfer resources from one unit
to another.
 These steps are not rigid and distinct frim each other;rather, the entire process is reiterative. It involves continous
refinement by moving from one step to another. The bottom line of these steps is to answer the following “how”
questions:
1. For the growth strategy: How can growth be achieved in a company?
2. For the stability strategy: How can the current performance be continued to achieve stability?
3. For the retrenchment Strategy: How can the present operating activities discontinue but receive a pair return on
investment?
 QUIZ

1.It is a corporate strategy that a company may adopt if it aims to expand its present operating activities.
2-4Three types of strategies according to Hierarchy
5.It comes from the Greek word strategia which refers to the art of a troop leader or a general.
6.In this strategy,a company plans to continue its current activities without substancial change in its
direction.
7.This strategy is a temporary plan for a company in its desire to increase its profits when revenues are
declining.
8.These are business with few product lines and they intend to defend them from new products entering
the market.
9. It is usually formulated by the top level management, it is a comprehensive master plan that describes
the overall direction of a company.