TYPES OF STRATEGIES

UNIT 4
Types / Levels of Strategy
I. Corporate / Grand Strategy
• Deals with the major issues like:

• Resource allocation among the different businesses of the company.

• Transferring resources from one set of businesses to others.
• Selecting, managing and nurturing a portfolio of businesses.
 [Link] Strategies

• Attempts only a marginal or incremental improvement in its

functional performance by marginally improving or changing
one or more of its businesses
• Aim - Consolidate, move slowly and surely, leading the
companies to marginally improve their performance, or at least
letting them stay where they are.
Options in Stability Strategy
a) Maintain / No Change Strategy: is a deliberate, conscious decision to do nothing new.
• If the environment is stable, existing competition is manageable and also stable, and
then this strategy may work.

b) Small Exploration Strategy / Pause – Proceed with Caution Strategies:

• This is a typical strategy taken by companies in gauging (judging) new products and
markets, Test markets, launches the product to watch and judge the reaction of its
customers.
c) Profit strategy:
• Company initiates a lot of internal actions like cost cutting, quality improvements, etc,
which will result in a positive return, with no risk involved at all.
II Expansion / Growth Strategies

• Most popular corporate strategies.

• Numerous opportunities for companies to go for
expansion.
• The scope of business is broadened
• There are 5 types of expansion strategies:
• Expansion through Concentration
• Expansion through Integration
• Expansion through Diversification
• Expansion through Co – operation
• Expansion through Internationalization
 a) Expansion through Concentration

• The first preference strategy

• Invest more in known business rather than unknown
ones.
• Involves converging (pooling) resources in one or more
of a company’s businesses
• Also known as focus, intensification or specialization
strategies
Various options for concentration
• 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.
• Market Development - Attempt is made to increase
sales by developing new markets either geography
wise or segment wise.
• Product Development – innovation in the product to
enter into new markets. TV sets
Advantages of Concentration Strategies
• Fewer organizational changes
• Less threatening.
• Specialize by gaining an in – depth knowledge of
business
• Competitive advantage.
• Past experience is valuable, as it is replicable.
• Predictable decision – making
Disadvantages of Concentration Strategies
• Heavily dependent on the industry
• Product outdated can be a threat.
• Doing too much of a thing may create an
organizational inertia
Expansion through Diversification
• A substantial change in business definition – singly or jointly
• Entry into a business which is new to an organization either market
wise or technology wise or both
• Reasons for diversification - Spread of risk and If growth in existing
business is blocked
• Two types – concentric and conglomerate diversification
 Concentric / Related Diversification
• Activity related to the existing business definition
• Three sub types-
• A) Marketing – related concentric diversification – the firm diversifies in a
business which can use same distribution & marketing facilities
• B) Technology – related concentric diversification – the firm may use the
same / similar technology for the new market eg. Leasing + financing
• C) Marketing and Technology related concentric diversification
Conglomerate / Unrelated Diversification
• High Risk
• High cash/capital availability
Expansion through Integration
• A company widen the scope of its business definition in such a
manner that it results in serving the same set of customers.
• Integration basically means combining activities on the basis of value
chain related to the present activity of a company.
• A firm may move up or down the value chain to concentrate more
comprehensively on the customer groups and needs than it is already
serving.
• Several process – based industries, such as, petrochemicals, steel,
textiles or hydrocarbons, have integrated firms.
Expansion through Integration
• Make or buy decision
• If the cost of making is less than the cost of procurement then the
firm moves up the value chain to make the items itself.
• Likewise, if the cost of selling the finished products is lesser than the
price paid to the sellers to do the same thing then it is profitable for
the firm to move down on the value chain
Types of integration strategies - Ansoff
• Vertical Integration: When an organization starts
making new products that serve its own needs.
• In other words, any new activity undertaken with the
purpose of either supplying inputs (such as, raw
materials) or serving as a customer for outputs (such
as marketing of firm’s products) is vertical integration.
• Vertical integration could be of two types: backward
and forward integration.
• Horizontal Integration - When an organization takes
up the same type of products at the same level of
production or marketing process (Merger)
Advantages & Disadvantages
• High risk
• If the main product fails or becomes obsolete then it faces a great
risk.
• However, integration strategies provide a firm better control over
its value chain by creating access to and control of supply and
demand.
Cooperative Strategy
• Cooperative Strategy
• A strategy in which firms work together to achieve a shared objective
• Cooperating with other firms is a strategy that:
• Creates value for a customer
• Exceeds the cost of constructing customer value in other ways
• Establishes a favorable position relative to competitors
Types of Cooperative Strategies
• Cooperative strategies could be of following types:
• Mergers and Acquisitions (or Takeovers)
• Joint Ventures
• Strategic Alliances
Mergers & Acquisitions
• A merger is a combination (other terms used: amalgamation,
consolidation or integration) of two or more organizations in which
one acquires the assets and liabilities of the other in exchange for
shares or cash, or both the organizations are dissolved and assets and
liabilities are combined and new stock is created.
Mergers & Acquisitions
• 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
• An acquisition involves acquiring ownership in a
property. In the context of business combination, an
acquisition is the purchase by one company, of
controlling interest in the share capital of an existing
company.
 Types of Mergers and Acquisitions

1. Horizontal Mergers: takes place when there is a combination of two

or more organizations in the same business, or of organizations
engaged in certain aspects of the production or marketing
processes.
2. Vertical Mergers: Takes place when there is a combination of two or
more organizations, not necessarily in the same business, which
creates complementarities either in terms of supply of materials or
marketing of goods and services.
Types of Mergers
• Concentric Mergers: Takes place when there is a combination of two
or more organizations related to each other either in terms of
customer functions, customer groups or alternative technologies
used.
• Conglomerate Mergers: Takes place when there is a combination of
two or more organizations unrelated to each other, either in terms of
customer functions, customer groups or alternative technologies
used, eg., a footwear company with a pharmaceutical firm.
Reverse Mergers / Demergers / Spin – offs:
• Merger carried out in reverse .
• Demerger involves spinning off an unrelated division /
business in a diversified company into a stand - alone
company, along with a free distribution of its shares
to the existing shareholders of the original company.
Joint Venture Strategies
• JV is a business agreement between two different
companies to work together to achieve specific goals.
• 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 profits or losses of
the entity.
 Joint Venture Strategies
• Benefits of maintaining their independence and identities as individual
companies while offsetting one or more weaknesses with another
company's strengths.
• Also called a "strategic partnership."
• Strategic Alliance: When companies want to quickly gain a new area of
expertise or access to new technology or markets, they form a strategic
alliance with another company that would benefit equally from the
partnership.
Expansion through internationalization
• Types of International Strategies
Cost pressure & Pressure for local responsiveness
1 International strategy when they create value by
transferring products and services to foreign markets
where these products and services are not available.
Offers standardised products and services in different
countries with little or no differentiation.
2. Multi – domestic Strategy
• Achieve a high level of responsiveness by matching their products
and services offerings to the national conditions operating in the
countries they operate in.
• Extensively customize their products and services according to the
local conditions operating in the different countries.
• Leads to a high – cost structure as functions, such as, research and
development, production, and marketing have to be duplicated.
[Link] Strategy
• Rely on a low – cost approach offering standardized
products and services across different countries.
• The global firm tries to focus intensively on a low –
cost structure and concentrating the production of
these standardized products and services at a few
favourable locations around the world.
• These products and services are offered in an
undifferentiated manner in all countries the global
firm operates in, usually at competitive prices.
4. 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.
• Dealing with these two often contradictory objectives is a difficult
proposition and calls for a creative approach to managing the
production and marketing of products and services.
Entry Modes

1. Export Entry Modes: Under these modes, the firm produces in the
home country and markets in the overseas markets.
• Direct exports marketing is done either through direct agent /
distributor or through direct branch / subsidiary in the overseas
markets.
• Indirect exports involving intermediaries in the home country and
who are responsible for exporting the firm’s products.
Contractual Entry Modes
• Non – equity associations between an international company
and a company or any other legal entity in the overseas
markets.
• Licensing: is an arrangement where the international
company transfers knowledge, technology, patent, and so on
for a limited period of time to an overseas entity in return for
some form of payment, usually a royalty payment.
• Franchising: involves the right to use a business format,
usually a brand name, in the overseas market in return for
the franchiser receiving some form of payment.
• Example, Archies greetings and Gifts has collaborations with
Gibson Greetings and American Greetings Corporation and
has adopted the franchising route for expansion
Investment Entry Modes
• These entry modes involve ownership of production units in the
overseas market based on some form of equity investment or direct
foreign investment.
• Joint Venture and Strategic Alliances
• Independent Ventures or wholly Owned subsidiaries are modes in
which the parent international company holds 100% equity and is in
full control.
Retrenchment strategies

• Reduce the diversity or the overall size of the

operations of the company. This strategy is often used
in order to cut expenses with the goal of becoming a
more financial stable business.
• Fall on account of external or internal factors
• Fountain pens, manual typewriters, steam engines,
calculators, and wooden toys they either disappeared
or face decline.
• Most companies in these industries and markets have
had to curtail operations or shutdown factories.
 Types of retrenchment strategies

1. Turnaround Strategies: Typically the strategy involves withdrawing from

certain markets or the discontinuation of selling certain products or
service in order to make a beneficial turnaround.
Aim: Reversing a negative trend.
• 2. Divestment Strategies/Divestiture or Cutback Strategy: Involves the
sale or liquidation of a part/portion of business
• Divestment is adopted when a turnaround has been attempted but has
proved to be unsuccessful
• Reasons: A business that had been acquired proves to be a mismatch
• Persistent negative cash flows from a particular business
• Severity of competition and the inability of a firm to cope with it
Liquidation Strategy

• Considered the most extreme &unattractive

• Involves closing down a firm and selling its assets.
• Considered as the last step because it leads to serious consequences
• Examples: Binny, Shri Ambica, Dawn, Sriram and India United, etc. are
some of the companies whose products and services and brand
names were quite popular but had to be closed down.
Corporate Portfolio Analysis
•A set of techniques that help strategists in taking strategic
decisions with regard to individual products or businesses in a
firm’s portfolio.
•Used for competitive analysis and corporate strategic
planning in multi – product and multi – business firms.
•This helps to channelize the resources at the corporate level
to those businesses that possesses the greatest potential.
•Techniques: Boston Consulting Group (BCG) Matrix
•General Electric Nine – Cell Matrix or Stop Light Matrix
•Directional Policy Matrix (DPM) Model
•Product/Market Evolution Matrix
•Profit Impact of Market Strategy (PIMS) Model
•SPACE
Directional Policy Matrix (DPM) Model
DPM
• Company’s Competitive Capability (i.e. measures the
competitive position and market performance of the
company)
• The Business Sector Prospects (i.e. is the sector in a
growing or declining sector)
• The recommendation may be to invest, grow, harvest
or divest.
Hofer’s Product / Market Evolution Matrix
Hofer’s Product / Market Evolution Matrix
• The 15 – cell matrix that considers the stages of development of the
product or market and the competitive position of different
businesses in a company’s corporate portfolio.
• Circles represent the size of the industry while the segment denote
the business market share.
• Competitive position reflects the firm’s relative functional
performance compared to its competitors.
Hofer’s Product / Market Evolution Matrix
• Business A represents a product/market that has a high
potential and deserves expansion strategies through large
investments.
• Business B has a strong competitive position but has a product
that is entering the shake – out stage and therefore, needs a
cautious expansion strategy.
• Business C is probably a ‘dog’,
• ‘D’ represents a business which can be used for cash
generation that could be diverted to A and B.
• Business E is a potential loser and may be considered for
divestment.
• Portrays a company’s corporate portfolio with a high level of
accuracy and completeness.
Profit Impact of Market Strategy (PIMS) Model
• Used by the Strategic Planning Institute, the PIMS model is
based on analysis of data provided by the companies to derive
general laws governing business strategies in different
competitive environments producing different profit results.
• Statistical relationships derived from the past experience of
companies.
• Develops an industry characteristic – Business Average
Profitability using multi – dimensional cross – sectional
regression studies of the profitability of more than 2000
companies.
• Find clue to appropriate strategic approaches.
• Involves analysis of relationship that is based on heterogeneity
of business and time periods.
Strategic Evaluation Process
Steps:
1. Fixing benchmark of performance – Quantitative and/or Qualitative
2. Measurement of Performance
3. Analyzing variance
4. Taking corrective actions