This chapter will provide you all the insights of corporate strategy in easy way with help of various examples.

1. Strategy Formulation: Corporate
Strategy
Name: Anuja Rode
M.Pharm+MBA
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2. Contents
Case Study
Corporate strategy
Directional Strategy
Strategy High lights
Global Issues
Controversies
Stability Strategy
Portfolio analysis
Sustainability issue
Corporate Parenting
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3. Objective 7.1
Explain the three key
issues that
corporate strategy
addresses
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4. Indian Business Process Outsourcing Industry
Indian BPO industry has attracted many
domestic and international players over
the years.
This sector was initially associated with
outsourced cell centers in India however,
since then the industry has come a long
way and covers most of the “White collar
functions like back-office administration,
middle office international expansion
services etc.
BPO industry experience a slow growth
pushing IT-BPO providers to look for
strategic alternatives to make the
company grow.
Strategic alternative that company
experimenting with in the IT-BPO
industry is M&A strategy.
78 deals were announced in 2009, 118
deals were announced in 2010 and as
many as 175 deals have been announced
in coming year.
Company spends $925 million on BPO
buyouts in India in Concentrix,
It acquired IBM Daksh for $ 505 million in
2013 and a private equity owned Minacs is
expected to add $40 million to the revenue
of concentrix.
Expanding relam of Knowledge Process
Outsocurcing which is higher end research
and analytical based services and caters to
segments like healthcare,
pharmaceuticals, automobiles, aerospace,
entertainment and other industries.
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5. Corporate Strategy
• Corporate strategy is important for a firm’s survival and success.
• The choice of direction of the firm as a whole and the management of its
business or product portfolio and concerns.
• It is true in case of both multinational and small companies. Corporate
strategy is concerned with managing various product lines and business
units for maximum value.
• The role of organizational is to deal with various product and business.
• To obtained its own competitive advantage in the marketplace every
product lines and business has their own competitive or corporate strategy.
• Corporate strategy, includes decisions regarding:
The flow of financial requirements
Other resources
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6. Issues That Corporate Strategy Addresses
Directional Strategy:
The firm’s overall orientation toward growth,
stability or retrenchment.
Portfolio Analysis:
The industries or markets in which the firm
competes through its products and business
units.
Parenting Strategy:
The manner in which management coordinates
activities, transfers resources and cultivates
capabilities among product lines and business
units.
Directional
Strategy
Portfolio Analysis
Parenting
Strategy
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7. Objective 7.2
Apply the directional
strategies of growth,
stability, and
retrenchment to the
organizational
environment in
which they work best
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8. Directional Strategy
• To improve its competitive position, every corporation must decide its
orientation toward growth by asking three questions:
Questions Should we expand, cut back, or continue our
operations unchanged?
Should we concentrate our activities within our
current industry, or should we diversify into other
industries?
If we want to grow and expand nationally or
globally, should we do so through internal
development or through external acquisitions,
mergers or strategic alliances?
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9. Directional Strategy
• It is composed of three general orientations also called as grand strategy:
a. Growth Strategies:
Expand the company’s activities.
b. Stability Strategies:
Make no change to the company’s current activities.
c. Retrenchment Strategies:
Reduce the company’s level of activities.
Growth Strategies
Stability
Strategies
Retrenchment
Strategies
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10. Corporate Directional Strategy
Growth
Stability
Retrenchment
• Concentration Diversification
• a. Vertical Growth a. Concentric
• b. Horizontal Growth b. Conglomerate
• Pause/Proceed with caution
• No change
• Profit
• Turnaround
• Captive Company
• Sell-out/ Divestment
• Bankruptcy/Liquidation
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11. a. Growth Strategy
• The most widely pursued corporate
directional strategies are those designed
to achieve growth in:
Sales
Assets
Profit
Some combination of these
• Continuous growth means increasing
sales and a chance to take advantage of
the experience curve to reduce the per-
unit cost of products sold, which
generates profits.
• If competitors are engaging in price
wars in attempts to increase their
shares of market.
• The necessary economy of production
face large losses unless they can find
and fill a small, but profitable, niche
where higher price can be offset by
special product or service features.
• Due to this many companies has been
on acquisition trail.
• Eg. Oracel
• Growth is a popular strategy because
larger business tend to survive longer
than smaller companies due to the
greater availability of financial
resources, organizational routines and
external ties.2/26/2019 11

12. Oracel
Oracel has been on the acquisition
trail. In the past four years the
company has added 31 new
companies to the organization
focused on four major areas ,
Applications, Middleware,
Industry solutions and serves.
It can be grow by buying smaller
and weaker rivals.
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13. Growth of Corporation
Corporation
can Grow
Internally
Global
operations
Domestic
operations
Externally
Merger’s &
Acquisitions
Strategic
Alliance
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14. Strategy Highlight
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15. Mergers & Acquisitions
• Merger: A transaction involving two or more corporations in which both
companies exchange stock in order to create one new corporation.
• Merger’s of Equal: Mergers that occur between firms of somewhat similar
size.
• Eg: Heinz & Kraft Foods (2015), annual revenue US$28 billion
• Acquisitions: A purchase of another company
• It can be occurs by two ways:
The company continues to operate as an independent entity.
It is completely absorbed as an operating subsidiary or divisions.
• Mergers and Acquisitions (M&As) are usually adopted by companies as a
strategy to grow externally.
• In India there were 996 M&As in 2015 and 963 M&As in 2016.
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16. Rosneft & Essar
Russian state energy giant Rosneft
and its partners acquired Indian’s
Essar Oil
Cash deal value:$13bn
The acquisition is the biggest
Foreign acquisition effort in India
and Russia’s largest outbound deal.
The deal will give Rosneft access to
Essar’s fuel Retailing Network of
2700 petrol pump
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17. HDFC Life & Max Financial
It is the largest merger of two insurance giants in India
also mission problems with the Insurance Regulator and
Development Authority of India (IRDA).
Proposal of Merger by HDFC Life Insurance Company
Limited and Max Life Insurance Company Limited in
2016, to create the largest private-sector life insurance
company in India.
Three stage merger:
1. To merge Max Financial Services with Max Life
2. The merger of life insurance business to be
subsequently merged with HDFC Life.
( The proposed merger was denied permission by the
Insurance Regulator and Development Authority of
India (IRDA) under section 35 of the insurance act
1938)
1. The company is planning to restructure in order to
get necessary permission.
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18. Flipkart, Myntra and Jabong
In July 2016, Flipkart Limited
acquired Jabong through its unit
Myntra for $ 17 million.
Making it India’s number one e-
commerce marketplace.
The merger enabled Flipkart and
Myntra to access a combined base of
over 15 million monthly users and over
1,50,000 styles from over 1000 sellers.
The acquisition will boost the sales of
Flipkart at a time when its market
leadership is being challenged by
Amazon India.
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19. Aircel and Reliance Communication
The merger between Reliance
Communications (RCOM) and Maxis
Communications Berhad (MCB), is the
largest ever consolidation in Indian telecom
industry.
The deal would reduce RCOM debt by
₹20,000 crore ($3bn) or over 40% of total
debt, and Aircel debt by ₹4,000 crore
($600mn) on closing in 2017.
The combined entity will have business
continuity through extended validity of
spectrum till 2033-2035
The deal was approved by the competition
commission of India (CCI)in the first half of
2017.
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20. Duke Energy Acquired Piedmont Natural Gas
• In July 2015, Duke acquired Piedmont
Natural Gas, making the latter a wholly
owned unit of Duke Energy.
• With this acquisitions, Duke Energy tripled
the number of natural gas customers it
served and took more control of a key
resource for electricity production.
• This types of acquisitions usually occur
between firms of different sizes and can be
either friendly or hostile.( called as takeover)
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21. Ranbaxy and Sun Pharma
• The merger of Ranbaxy and SunPharma led to the
emergence of one of the biggest pharma companies in
India. The deal valued at US$4 billion is also one of the
biggest Merger and Acquisition transactions in India. The
transaction was completed on 25 March 2015almost one
year post its announcement in April 2014. As is the case
with most high-value transactions, the transaction had to
overcome various hurdles as it came under the scanner of
various legal and regulatory authorities in India and
overseas and required approvals from these authorities to
proceed with the transaction.
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22. Acquisition of Primal Healthcare by Abbott
US-based Abbott Laboratories acquired the
domestic formulations business of Primal
Heath care at a consideration of $3.72 billion
(Rs 17,500 crore) under a Business Transfer
Agreement (“BTA”) dated May 21, 2010. The
acquisition was part of Abbot’s strategy of
penetrating into new emerging markets in the
Pharma sector and moving beyond its patented
product business.
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23. Key Reasons for Growth
• From management’s perspective growth is very attractive for two key reasons:
1. Based on Increasing Market Demand:
 A growing flow of revenue into a highly leveraged corporation can create a large
amount of organization slack that can be used to quickly resolve problems and
conflicts between departments and divisions.
 Larger firms also have more bargaining power than do small firms and are more
likely to obtain support from key stakeholders in case of difficulty.
1. Opportunities for advancement, promotion and interesting jobs:
 The marketplace and potential investors tend to view a growing corporation as a
“winner”.
 Executive compensation tends to get bigger as an organization increase in size.
Large firms are also more difficult to acquire than smaller ones thus, an executive’s
job in a large firm is more secure.
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24. Growth Strategies
Concentration
The current or innovative
product line in one industry
Diversification
Other product lines or other
industries.
Two basic growth strategies are:
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25. Concentration
• If company’s product lines have real growth potential, the concentration of resources on
those product lines makes sense as a strategy for growth.
• Before diversification most of the campiness tries these two concentration
strategies.
• Vertical Growth:
 Can be achieved by taking over a function previously provided by a supplier or
distributor.
 In order to reduce costs, gain control over a scarce resource, guarantee quality of a key
input, or obtain access to potential customers.
It can be achieved by two ways:
 Internally : By expanding current operations
 Externally: Externally through acquisitions.
Vertical
growth
Horizont
al
growth
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26. Examples
• Henry Ford (Internal Vertical Growth)
• They used internal company resources to build his River Rouge plant outside
Detroit.
• The manufacturing process was integrated to the point that
iron orentered one end of the long plant, and finished automobiles
rolled out the other end into huge parking lot.
• Cisco (External Vertical Growth)
• In contrast, Cisco Systems, a maker of Internet hardware,
chose the external route to vertical growth by purchasing
Scientific-Atlanta Inc. a maker of set-top boxes for television
programs and movies –on-demand.
• This acquisition gave Cisco access to technology for distributing
television to living rooms through the Internet.
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27. Vertical Growth
• Vertical Integration:
• The degree to which a firm operates vertically in multiple locations on an
industry’s value chain from extracting raw materials to manufacturing to
retailing.
• Eg: FedEx it purchased Kinko’s in order to provide store-front package drop-off
and delivery services for the small-business market.
• Backward Integration:
• A company purchases or internally produces segments of its supply chain.
• Eg: The purchase of Carroll’s Foods for its hog-growing facilities by Smithfield
Foods, the world’s largest pork processor.
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28. Reliance Sobha Developers
• Reliance pursed a strategy a
backward vertical integration.
• They fully integrated along with the
materials and the energy value chain
followed the strategy of backward
vertical integration – in polyester,
fiber intermediates, a plastic,
petrochemicals, petroleum refining
and oil and gas exploration and
production.
• Sobha Developers in India : a ₹600
crore plus construction and real estate
company which ventured into India in
1955.
• The company is known for its
impressive quality standards and
world-class building techniques.
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29. Vertical Growth
• To keep and even improve its competitive position, a company may use
backward integration to minimize resource acquisition costs and inefficient
operations, as well as forward integration to gain more control over product
distribution.
• Backward integration is often more profitable than forward integration , it
can reduce a corporation’s strategic flexibility. The resulting encumbrance of
expensive assets that might be hard to sell could create an exit barrier,
preventing there corporation from leaving that particular industry.
• When demands drops in such industries there were no alternatives.
• Eg: Single-use assests are blast furnaces and refineries. Gas or oil industry
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30. Transaction Cost Economics
• Vertical integration is more efficient than contracting for goods and services
in the marketplace when the transaction costs of buying goods on the open
market become too great.
• When highly vertically integrated firms become excessively large and
bureaucratic, however, the costs of managing the internal transactions may
become greater than simply purchasing the needed goods externally thus
outsourcing over vertical integration.
• A company’s degree of vertical integration can range from total ownership of
the value chain needed to make and sell a product to no ownership at all.
• Under full integration firm internally makes 100% of its key supplies and
completely controls its distributors.
• Eg: British Petroleum and Royal Dutch Shell
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31. Example
British Petroleum and Royal Dutch
Shell
• They own the oil rigs that pump the
oil out of the ground, the ships and
pipelines that transport the oil, the
refineries that convert the oil to
gasoline, and the trucks that deliver
the gasoline to company owned and
franchised gas stations.
Sherwin-Williams Company
• Which is not only manufacturers
paint, but also sells it in its own
chain of 3000 retail stores, which is
fully integrated firm.
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32. Zara
• Zara, a Spanish clothing and accessory company, has more than
1,000 outlets worldwide. The secret to their success is vertical
integration – from design to manufacture to retail. Unlike
companies like Gap and H&M that purchase their clothes from
suppliers, Zara makes most of its own. Sixty percent of its goods
are made in house. This helps the company manage its
inventory with extreme efficiency. It also allows the company to
respond to seasonal and fashion changes very quickly. While
Gap and H&M may take up to nine months to introduce a new
line of clothing, Zara can do it in two to three weeks. The firm
can respond quickly to any market contingency.
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33. Luxottica
• Luxottica may not be a familiar name to many, but almost
everyone would recognize its brands and subsidiaries like
Ray-Ban, Oakley, Sunglass Hut and Lens Crafters.
Luxottica, an Italian company, began as a small workshop,
making components for the optical industry. Through the
1960s it grew vertically, so that by 1970 it was selling
complete glasses to independent distributors. In the 1970s it
began acquiring other firms, and it continued to expand
internationally in the 1980s. In 1995 it bought U.S. Shoe
Company to gain access to its Lens Crafters subsidiary.
Other acquisitions followed – Ray-Ban in 1999, Sunglass Hut
in 2001 and Oakley in 2007. From manufacture to
distribution to retail outlets, Luxottica has become a global
vertically-integrated giant.
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34. Strategy Highlight
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35. Transaction Cost Economics Analyszes vertical growth strategy
• Transaction cost economics is a branch of
institutional economics that attempts to
answer .
• Transaction costs include the basic costs of
drafting, negotiating and safeguarding a
market agreement as well as the later
managerial costs when the agreement is
creating problems and the costs of settling
disputes
• Vertical transaction through ownership
over marketplace occur by three ways;
• A high level of uncertainty must surround
the transaction
• Assets involved in the transaction must be
highly specialized to the transaction
• The transaction must occur frequently
• The contractor will act opportunistically to
exploit any gaps in the written agreement
thus creating problems and increasing
costs.
• Vertical integration is not always more
efficient than the marketplace,
• the costs of managing the internal
transactions may become greater than
simply purchasing the needed goods
externally
• The decision to own or outsource is,
therefore based on the particular situation
surrounding the transaction and the
ability of the corporation to manage the
transaction internally both effectively and
efficiently.2/26/2019 35

36. Taper Integration/ Concurrent sourcing
• A firm internally produces less than half of its own requirements and buys
the rest from outside suppliers .
• Eg: Smithfield Foods
• Its purchase of Carroll’s allowed it to produce 27% of hogs it needed to
process into pork.
• Forward taper integration:
• A firm sells part of its goods through company-owned stores and the rest
through general wholesalers
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37. Amazon's Acquisition of Whole Foods
• One of the highest-profile examples of forward integration in recent years was
Amazon's purchase of Whole Foods. Amazon was already a vertically
integrated company in many ways: It publishes books itself and provides a
publishing platform for independent writers, for example. It also owns its own
transportation and distribution, which is both backward integration – toward
suppliers – and forward integration, because Amazon delivers directly to end
users.
• The Whole Foods acquisition counts as forward integration because it gives
Amazon the 460 brick-and-mortar Whole Foods outlets as places to sell its
products or have customers pick them up. Amazon was already in the grocery
business in a small way, but this acquisition made it a major player overnight.
Shares of traditional food retailers plummeted, taking a $22 billion bite out of
the industry in a day, because of the potential for Amazon to shake up the
industry
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38. Quasi- integration
• A company may not want purchase outright a supplier or distributor, but it
still may want to guarantee access to needed supplies, new products,
technologies or distribution channels.
• Eg: Bristol-Myers Squibb purchased 17% of the common stock of ImClone in
order to gain access to new drug products being developed through
biotechnology.
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39. Long Term Contracts
• Eg: Telco adopted mixed strategy while
developing Indica.
• Teclo, had no expertise in designing a passenger
car, so it turned to the Italian company, I.D.E.A.
for product design: engine was purchased from
Institute Francis du Petrol of France,
transmission for the car was developed in-house
at its Engineering Research Centre(ERC), the
assembly line was outsourced from Nissan’s plant
in Australia and most of the parts were supplied
by Telco’s traditional long term single suppliers.
• This strategy help Telco to entre into small
passenger car segment.
• Are agreement between two firm’s
to provide agreed-upon goods and
services to each other for a
specified period of time.
• This cannot really be considered to
be vertical integration unless it is
an exclusive contract that specifies
that the supplier or distributor
cannot have a similar relationship
with a competitive firm this types
of firms are tied by long term
contract.
• This type of contract depends upon
partnerships, technology licensing
agreements and joint ventures
supplement a firms capabilities
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40. Horizontal Growth
• Firm can achieve horizontal growth by expanding its operations into other
geographic locations or by increasing the range of products and services
offered to current markets.
• The firms that grow horizontally by broadening their product lines have high
survival rates.
• It can also be achieved through internal development or externally through
acquisitions and strategic alliances with other firms of same industry.
• Eg: Walt Disney Company
• Consist of deep portfolio of entertainment and information in locations around
the world
• The company Continually add to its existing product, service and
entertainment lines to reduce possible niches that competitors may entre, but
also introduces successful ideas from one part of the world to another.
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41. Tech Mahindra and BIO agency
• In 2016, Indian IT services provider
alliances Tech Mahindra acquired the BIO
agency for ₹445 crore, a UK based agency
that offers digital services to global clients.
• The Bio agency specializes in digital
transformation and innovation and helps
its customers to change the way they
engage with their customers.
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42. Examples of Horizontal Growth
Internationally
It can also be achieved internationally by
applying many strategies.
2/26/2019 42

43. Facebook and
Instagram
• One of the clearest examples of horizontal integration
is Facebook's acquisition of Instagram in 2012 for a reported
$1 billion.
• Both Facebook and Instagram operated in the same
industry (social media) and shared similar production stages
in their photo-sharing services. Facebook, looking to
strengthen its position in the social sharing space, saw
the acquisition of Instagram as an opportunity to grow
its market share, reduce competition and gain access to new
audiences. All of these things came to pass, resulting in a
high level of synergy.
• Although Instagram is now owned by Facebook, it still
operates independently (as well as along with Facebook) as
its own social media platform.
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44. Diversification Strategies
• This strategy was used by Richard Rumelt .
• Being thinking about diversification when their
growth has plateaued and opportunities for
growth in the original business have been
depleted.
• This often occurs when an industry consolidates,
becomes mature and most of the surving firms
have reached the limits of growth by using
vertical and horizontal growth strategies.
• Diversification strategies are of two types:
Concentric
Conglomerate
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45. Concentric Diversification
• This type of strategies are applied when a firm has a strong competitive
position but industry attractiveness is low.
• For companies in leadership positions the chances for success are nearly three
times higher than those for followers.
• The firms attempts to secure strategic fit in a new industry where the firm’s
product knowledge, its manufacturing capabilities or marketing skills it used
so effectively in the original industry can be put to good use.
• A firm may choose to diversify concentrically through either internal or
external means.
• Eg: Electrolux.(has diversified externally through acquisitions)
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46. Pichkoo
• Addition of tomato ketchup and sauce to the
existing magiee brand processed items of food
specialties is an technological related
concentric diversification.
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47. Conglomerate Diversification
• Diversifying into an industry unrelated to its current one
• Management realizes that the current industry is unattractive
• Firm lacks outstanding abilities or skills that it could easily transfer to
related products or services in other industries
• Eg: ITC (Indian Tobacco Company)
• They incorporate complemented diversification to grow in 1910 and renamed
to Indian Tobacco Company Limited in 1970-1974
• It has variety of portfolio including hospitality group, agri-businesses,
education and stationery products, lifestyle retailing, information technology,
branded packaged foods personal care products.
• Is an sound investment and value oriented management rather than on the
product- market synergy common to concentric diversification.
• Eg: CSX corporation, consider the purchase of a natural gas transmission
business to be good fit because most of the gas transmission revenue was
realized in the winter months.
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48. Controversies In Directional Growth Strategy
• This type of strategies are appear to be higher performers and survive
longer than other companies.
• According to research:
35%
concentric
diversificat
ion
50%
horizontal
growth
80%
vertical
growth
28%
Conglomerate
diversification
Is vertical
growth better
than horizontal
growth?
Is concentration
better than
diversification?
Is concentric
diversification
better than
conglomerate
diversification?
2/26/2019 48

49. Controversies In Directional Growth Strategy
• Research suggest that the relationship
between relatedness and performance follows
an inverted U-shaped curve.
• If new business is different from the acquiring
company’s businesses, there is less potential of
synergy.
• Corporations can follow the growth strategies
of either concentration or diversification
through the internal development of new
products and services or through external
acquisitions and mergers and strategic rise of
more than 37% from 2014.
• The firms going through the acquisitions do
not perform well as a firms that grow through
internal means.
• On Sep 3, 2001 the day before HP
announced that it was purchasing
Compaq, HP’s stock was selling at
US$23.11.
• After announcement, the stock price
was fell to US$18.87 and after 3 yrs.
on Sep21,2004 the shares sold at
US$18.70.
• It was happened may be because of
high price of acquisitions.
2/26/2019 49

50. Failure of Acquisition
Reasons
for failure
High
acquisition
costs
Poor stock
performance
Negatives in
merger
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51. Improvement of Acquisition
2/26/2019 51
• A corporation must be prepared to identify roughly
100 candidates and conduct due diligence
investigation on around 40 companies in order to
ultimately purchase 10 companies.
Liknked to strategic
objectives and support
corporate strategy
• A study by Bain & Company of more than 11,000
acquisitions by companies throughout the world
concluded that successful acquires make small,
low risk acquisitions before moving on to larger
ones.
Low risk acquisitions before
moving on to larger ones.
• Based on previous experience between an acquirer
and a target firm in terms of R&D,
manufacturing, or marketing alliances improves
the likehood of a successful acquisition.
Previous experience

52. Stability Strategies
• The stability of corporate strategies can be appropriate for a successful
corporation operating in a reasonably predictable environment.
• They are very popular with small business owners who have found a niche
and are happy with their success and the manageable size of their firms.
• Stability strategies are :
Pause/Pro
ceed-with-
Caution
Strategy
No-
Change
Strategy
Profit
Strategy
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53. 1. A pause/proceed-with-caution strategy
• It is an very deliberate attempt to make only
incremental improvements until a particular
environmental situation changes.
• It is a temporary strategy
• Eg: Heyday of personal computer growth in
the early 1990’s.
• This strategy was followed by Dell and they
grew 285% in 2 years.
• But it could not keep up with the needs of a
US$2 billion,5600-employee company selling
PCs in 95 Countries
Stability Strategy
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54. Stability Strategy
2/26/2019 54
• 2. No-Change Strategy
• A choice to continue current operations and
policies for the foreseeable future.
• Making small adjustments for inflation in
its sales and profit objectives.
• There are no Obvious opportunities or
threats and the status quo is a viable
alternative.
• In this future is expected to continue as an
extension of the present.
• Many small-town businesses followed this
strategy before Wal-Mart moved into their
areas and forced them to rethink their
strategy or drove them out of business
before they could react.

55. Stability Strategy
3. Profit Strategy
• Attempt to artificially support profits when a
company’s sales are declining by reducing
investment and short term discretionary
expenditures.
• Rather than blaming the company’s problem
on a hostile environment.
• For stabilizing profit it may even sell one of its
product lines for the cash flow benefits.
• It is way to boost the value of company in
preparation to be acquired or for going public
via initial offering. It will lead to deterioration
in corporation’s competitive position.
Eg: Sylvania RCA and GE are
among the firms that followed
this strategy, They decided to
stay in the vacuum tube
market until the “ end of the
game”
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56. Example of Stability Strategies
Cigarette, liquor industries fall in this
category because of strict control over
capacity expansion.. Both these
industries require license under the
provisions of industries Development
and regulation Act 1951
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57. Retrenchment Strategies
These strategy impose a great deal of pressure to improve performance
1. Turnaround Strategy
• Emphasizes the improvement of operational efficiency when the corporation’s
problems are pervasive but not critical.
• Poorly performing firms can improve their performance by cutting costs and
expenses and by selling off assests.
• The company has to deal with 3 phases of the effort:
Contraction
Consolidation
Rebirth
2/26/2019 57

58. Retrenchment
Strategies
• a. Contraction: The board cutback in size and
costs.
• Eg; Net App faced a revenue decline of 19% and a
third straight year of layoff to mitigate the profit
• In 2016 they cut more than 12% of its employees,
US$400 million cost-cutting move.
• b. Consolidation: The company, plans are
developed to reduce unnecessary overhead and to
make functional activities cost-justified.
• It can lead to leave the organization by best
employees
• c. Re-birth: It happens when company is successful
with its efforts and starts growing profitably
again.
2/26/2019 58

59. Retrenchment Strategies
2. Captive Company Strategy
• Involves giving up independence in exchange for
security
• Firm with weak competitive position may not be able to
successfully implement a full-blown turnaround strategy
for a variety of reasons.
• Company faces poor sales and potentially increasing
losses unless it takes some action.
• It can reduce the scope of some of its functional activities
thus significantly reducing costs.
• Eg: Yahoo
• Used captive strategy by hiring investment bankers to
sell the company.
2/26/2019 59

60. Retrenchment
Strategies
3. Sell-Out/ Divestment Strategy
• If management can still obtain a good price for
its stakeholders and the employees can keep
their jobs by selling the entire company to
another firm.
• Eg: American Airlines was willing to be sold to
U.S. Airways.
• Eg: Whirlpool sold Maytag’s Hoover Vacuum
cleaner
• If the corporation has multiple business lines
and it chooses to sell off a division with low
growth potential, this is called divestment.
2/26/2019 60

61. Retrenchment Strategies
4. Bankruptcy Liquidation Strategy
• A weak company in an unattractive industry, the firm must pursue a
bankruptcy or liquidation Strategy.
• Giving up management of the firm to the courts in return for some
settlement of the corporation’s obligations.
• Eg: Delphi Corporation filed bankruptcy for its U.S. operations which
employeed 32,000 high wage union workers.
2/26/2019 61

62. Retrenchment
Strategies • Liquidation: Is the termination of the firm.
• Management choose to convert as many
saleable assets as possible to cash, which is
then distributed to the stakeholders after all
obligations are paid.
• The benefit of liquidation over bankruptcy is
that the board of directors, as
representatives of the shareholders,
together with top management, make
decisions instead of turning them over to
the bankruptcy court, which may choose to
ignore shareholders completely.
• When top managers eventually notice
trouble, they are prone to attribute the
problems to temporary environmental
disturbances and tend to follow profit
strategies.
• Top management then entre into a cycle of
decline followed by blame and scorn,
avoidance and turf protection, ending with
passively and helplessness.
2/26/2019 62

63. Asian Bank
• Asian Bank Limited is a Commercial Bank providing branch banking,
investment banking, and payment services. The Bank is having a
large investment in Land parcels and investments in various companies listed
on the local bourses. The Bank decided to shore up its capital base to increase
its lending capability and decided to divest its investment in Listed
Companies and Noncore assets like land parcels.
• By doing so, Asian Bank succeeded in raising capital. Thus we can see Asian
Limited divestiture of its investments in Noncore assets to improve its capital
base (injecting cash in the business) and focus more on its main line of
business thereby deploying its assets to a more profitable revenue.
2/26/2019 63

64. Global Issue
2/26/2019 64

65. Global Expansion is not always a path to growth
• The mantra in U.S. business growth for the
past few decades has been to look to
international markets for growth, and
especially to china.
• McDonald’s learned that lesson long ago
when it modified its menu for the Indian
market by eliminating pork and beef
products and offering such unique offerings
as the McAloo Tikkiburger with mashed
potato patty and the McPuff, which is a
vegetable and cheese pastry.
• In China based outlets, a favourite drink is
bubble tea which is tea with tapioca balls in
the bottom.
• KFC sells egg tarts and say milk in china
while not offering those menu items outside
the china market
2/26/2019 65

66. Global Expansion is not
always a path to growth
• Yum Brands Inc. had over 7100 restaurants
in over 1100 cities in China in 2016
following its business model but modifying
the approach to its market.
• Unlike the U.S market Chinese consumer
is far more interested in finished goods and
paying someone to complete a project than
they are in ding it themselves.
• IKEA struggled for years in the Chinese
market unit they began offering assembly
and delivery services.
• The do-it-yourself market does not appear
to translate well into some cultures.
• Best Buy closed all of its nine stores in
2011 after discovering that Chinese
consumers were far more interested in
appliance than its predominantly
entertainment- based product line.2/26/2019 66

67. Portfolio Analysis
• It one of the most popular aids to
develop corporate strategy in a
multiple business corporation.
• Companies with multiple product
lines or business units must also ask
themselves how these various
products and business units should
be managed to boost overall
corporate performance:
• How much of our time and money
should we spend on our best
products and business units to
ensure that they continue to be
successful?
• How much of our time and money
should we spend developing new
costly products most of which will
never be successful?
• In this analysis top management views its
product lines and business units as a
series of investments from which it
expects a profitable return.
• To ensure best return on the corporation’s
invested money.
• Also use to evaluate the contribution of
alliances to corporate and business unit
objectives.
• Eg: McKinsey & Company study of the
performance of the most active companies
acquiring and divesting in their portfolio
found that they are perceived to be more
successful.2/26/2019 67

68. Objective 7.3
Apply portfolio
analysis to guide
decisions in
companies with
multiple products
and businesses
2/26/2019 68

69. Nestle
2/26/2019 69
• 3 strategic focus: Consumer Care,
Medical Nutrition, Novel Therapeutic
Nutrition
• Strong global footprint
• Rich I&R pipeline, via strong
innovation engines
• Power brands
• Very balanced portfolio
• Positive category/geography mix
• Right focus and drive
• Discerning resource allocation

70. BCG Growth-Share Matrix
• Boston Consulting Group Growth-Share Matrix is the simplest way to portray
a corporation’s portfolio of investments.
• Each of the corporation’s product lines or business units is plotted on the
matrix according to both the growth rate of the industry in which it competes
and its relative market share.
• Unit’s relative competitive position=
𝑀𝑎𝑟𝑘𝑒𝑡 𝑠ℎ𝑎𝑟𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑖𝑛𝑑𝑢𝑠𝑡𝑟𝑦
𝐿𝑎𝑟𝑔𝑒𝑠𝑡 𝑀𝑎𝑟𝑘𝑒𝑡 𝑠ℎ𝑎𝑟𝑒 𝑜𝑓 𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑜𝑟
• Relative market share above 1.0 belongs to market leader
• The percentage by which sales of a particular business unit classification of
products have increased.
• It assumes that other things being equal, a growing market is attractive.
2/26/2019 70

71. BCG Matrix
• The line separating areas of high and
low relative competitive position is
set at 1.5 times.
• A product line or business unit must
have relative strengths of this
magnitude to ensure that it will have
the dominant position needed to be a
“star” or “cash cow”
• A product line or unit having a
relative competitive position less
than 10 has dog status.
• It has some common attributes so
that it has some common problems
with product life cycle
2/26/2019 71

72. BCG Matrix
Question Mark
New product with
the potential for
success, but need a
lot of cash for
development. Star
money must be
taken from more
mature products and
spent on the
question mark. leads
to fish or cut bait
decision
Star
Market leader that
are typically at or
nearing the peak of
their perceived
product life cycle and
are able to generate
enough cash to
maintain their high
share of the market
and usually
contribute to the
company’s profits.
Cash Cow
In this maturing or
even declining stage
of their life cycle,
these products are
milked for cash that
will be invested in
new question marks.
Expenses such as
advertising and
R&D are reduced
Dogs
Have low market
share and do not
have the potential to
bring in much cash.
It should be either
sold off or managed
carefully for the
small amount of
cash they can
generate.
2/26/2019 72

73. Question Mark • General Motors finally decided in
2006 to take a chance on developing
the Chevrolet Volt.
Question Mark
New product with the
potential for success, but need
a lot of cash for development.
Star money must be taken
from more mature products
and spent on the question
mark. leads to fish or cut bait
decision
2/26/2019 73

74. Star
• The Fitbit bracelet has been star
performer for the company with the
product still commanding more than
30% of the market share in 2016.
Star
Market leader that are
typically at or nearing the
peak of their perceived product
life cycle and are able to
generate enough cash to
maintain their high share of
the market and usually
contribute to the company’s
profits.
2/26/2019 74

75. Cash Cow • Apple’s iPhone represented more than
60% of Apple revenues even as sales
started falling in 2016.
Cash Cow
In this maturing or even
declining stage of their life
cycle, these products are
milked for cash that will be
invested in new question
marks.
Expenses such as advertising
and R&D are reduced
2/26/2019 75

76. Dogs • IBM sold its PC business to
China’s Lenovo Group in order to
focus on its growing services
business.
Dogs
Have low market share and do
not have the potential to bring
in much cash.
It should be either sold off or
managed carefully for the
small amount of cash they can
generate.
2/26/2019 76

77. Samsung
• Cash cows:
• Samsung Home appliances which include Samsung
AC’s, Refrigerators, Washing Machines and Cooking
Appliances are the Cash Cows for the company.
• Over the years, Samsung Home Appliances have
become a household name and stand for quality and
trust. Samsung has been able to attain a good market
share across different industry segments and still
holds a good potential to grow in the coming future.
2/26/2019 77

78. Samsung
• Stars:
• the products or business units that have a high
market share in high growth industry are the
stars of the organization. in the case of
Samsung, mobile phones, tab, and
tv business fall in the star category of the bcg
matrix of Samsung.
• Mobile phones: Samsung galaxy and note
series are quite a hit among customers and have
their own base of loyal customers. in order to
maintain its market share and ward off the
competition, Samsung launches new
smartphones with new features and design.
2/26/2019 78

79. Samsung
• Question mark:
• There are products that formulate a part of the industry that is still in the phase of
development, yet the organization has not been able to create a significant position
in that industry
• Considering the performance of all the products that Samsung to offer, Samsung
Printer is one such product which can be placed in the Question Mark quadrant of
the BCG Matrix of Samsung.
2/26/2019 79

80. Samsung
• Dogs:
• Dogs are those products that were perceived to
have the potential to grow but however failed to
create magic due to the slow market growth.
• Failure to deliver the expected results makes the
product a source of loss for the organization,
propelling the management to withdraw future
investment in the venture. Since the product is not
expected to bring in any significant capital, future
investment is seen as a wastage of company
resources, which could be invested in a Question
mark or Star category instead.
2/26/2019 80

81. Advantages of BCG Matrix
1. Leads to market leadership based on economic scale, among many other
things.
2. To manufacture and sell new products at a low price enough to garner early
market share leadership.
3. Company can projects its future positions.
4. Present and projected matrixes can be used to help identify major strategic
issues facing the organization.
5. To harvest mature products in declining or stagnant industries in order to
support new ones in growing industries.
6. Easy to use, Cash cow. Dog, Question Mark and Star are easy –to-remember
terms for referring to a corporation’s business units or products.
2/26/2019 81

82. Limitations of BCG Matrix
The use of highs and lows to form four categories is too
simplistic
Low share business can also be profitable.
Growth rate is only one aspect of industry
attractiveness
Product lines or business units are considered only in
relation to one competitor: the market leader. Small
competitors with fast-growing market shares are ignored.
Market share is only one aspect of overall competitive
position2/26/2019 82

83. Sustainability Issue
2/26/2019 83

84. General Motors And The Electric Car
• In 2003, top management at General Motors decided to discontinue further
work on its EV1 electric automobile.
• GM required every EV1 to be returned to the company,
• Environmentalists protested that GM stopped making cars was a bad
business, management responded by stating that the car would never have
made a profit.
• In an April 2005 meeting of GM’s top management team, Vice Chairmen
Robert Lutz suggested that it might be time to build another electric car.
• Toyota’s Prius had made Toyota look environmentally sensitive, whereas GM
was viewed as making gas” hogs”.
• Recalled by saying we lost $1 billion on the last one.
• Worldwide car ownership was growing 5% annually, rising fuel price in 2005
reduced sales of GM’s profitable SUVs, resulting n loss of US$11 billion.
2/26/2019 84

85. General Motors And The Electric Car
• In Feb 2006, approved developmental work on another
electric car.
• Larry Burns, Vice President of R&D and strategic
planning said electric cars are not sustainable .
• Tesla Motors had been founded and was planning an
all-battery powered model to be released in 2008
• In 2007 Detroit Auto show with a vow to start
developing an electric car called the Chevrolet Volt.
• New team was build to get hybrid and electric cars to
market. The R&D budget was increased from US$6.6
billion in 2006 to US$ 8.1 billion in 2007.2/26/2019 85

86. General Motors And The Electric Car
• The volt was released in 2010 and by 201 GM was selling 2500 a
month at just over US$40,000 per car.
• Meantime, Nissan, Ford, and Toyota were making significant
moves in the battery-powered car business.
• Nissan released the leaf, Ford released the electric focus and
Toyota offered the plug-in Prius and all electric RAV4 which claim
to get103MPG.
• In 2012 they launched the model S that was100% electric and
could travel 265 miles per charge.
• By 2016, Tesla had 50,000 vehicles on the road and was seen as the
leader in electric car technology.
• By mid 2015 the Volt was selling less than 9,000 units a year and
the leaf was only bit better selling roughly 15,000 units a year.
• In late 2016 Chevy planned to release the Chevy Bolt.
• Is an electric vehicle with a range of 200 miles and a price tag in
the $38,000 range.
2/26/2019 86

87. Advantages of Portfolio Analysis
It encourages top management to evaluate each of the corporation’s
businesses individually and to set objectives and allocate resources for
each
It stimulates the use of externally oriented data supplement
management’s judgment.
It rises the issue of cash-flow availability for use in expansion and
growth.
Its graphic depiction facilitates communication
2/26/2019 87

88. Limitations of Portfolio Analysis
Defining productmarket segments is difficult
It suggests the use of standard strategies that can miss opportunities or
be impractical
It provides an illusion of scientific rigor, when in reality positions are
based on subjective judgments.
It value-laden terms such as cash cow and dog can lead to self-fulfilling
prophecies.
It is not always clear what makes an industry attractive or where a
product is in its life cycle
Naively following the prescriptions of a portfolio model may actually reduce
corporate profits if they are used inappropriately. Eg: General Mills
2/26/2019 88

89. Managing A Strategic Alliance
• To ensure best return on the corporation’s invested money, strategic alliances
can also be viewed as a portfolio of investments of money, time and energy, it
influences corporates competitiveness.
• For successful alliance of portfolio management following tasks plays
important role: Developing and implementing a portfolio
strategy for each business unit and a corporate
policy for managing all the alliances of the entire
company
Monitoring the alliance portfolio in terms of
implementing business unit strategies and
corporate strategy and policies
Coordinating the portfolio to obtain synergies
and avoid conflicts among alliances
Establishing an alliance management system to
support other tasks of multi-alliance
management2/26/2019 89

90. 1.Developing and implementing a portfolio strategy for
each business unit and a corporate policy for managing
all the alliances of the entire company
• Corporate level develops general rules
concerning;
When
How
With whom to corporate
• The task of alliance policy is to strategically
align all of the corporation’s alliance
activities with corporate strategy and
corporate values.
• Before approval every alliance should
checked against corporate policy.
2/26/2019 90

91. 2. Monitoring the alliance portfolio in terms of
implementing business unit strategies and corporate
strategy and policies
• Each alliance is measured in terms of achievement of objectives, financial
measures, contributed resource quality and quantity and overall relationship.
More a firm is diversified
Less the need for monitoring
at the corporate level
2/26/2019 91

92. 3. Coordinating the portfolio to obtain synergies and
avoid conflicts among alliances
• The interdependencies among alliances
within unit are usually greater than
among different businesses.
• The need for coordination is greater at
the business level than at corporate
level.
• The need for coordination increases as
the number of alliances in one business
unit and the company as a whole
increases.
• Average number of partners per
alliance increases.
2/26/2019 92

93. 4. Establishing an alliance management system to
support other tasks of multi-alliance management
• Infrastructure consist of formalized
processes, standardized tools, and
specialized organizational units.
• For corporate development or a
department of alliance management
at the corporate level, there are
centers available.
• Most corporations prefer a system
in which the corporate level
provides the methods and tools to
support alliances centrally but
decentralizes day-to-day alliance
management to the business units.
2/26/2019 93

94. Objective 7.4
Develop a parenting
strategy for a
multiple-business
corporation
2/26/2019 94

95. Corporate Parenting
• The portfolio- based corporate strategists address two crucial questions:
• What business should this company own and why?
• What organizational structure, management processes, and philosophy will
foster superior performance from the company’s business units?
• Portfolio analysis fails to deal with the question of what industries a
corporation should enter or how a corporation can attain synergy among its
product lines and business units.
• Calculating the impact and fit of entering a new industry or a new business
acquisition within the current industry can be quite difficult.
“ Multibusiness companies create value by influencing-or parenting-the
businesses they own. The best parent companies create more value than any of
their rivals would if they owned the same businesses. Those companies have
what we call parenting advantage.”
2/26/2019 95

96. Corporate Parenting
• It focuses on the core competencies of the parent corporation and on the value
created from the relationship between the parent and its businesses.
• If there is good fit between the parent’s skills and resources and the needs
and opportunities of the business units, the corporation is likely to create
value and those company’s shows better performance.
• This corporate strategy is useful for deciding what type of new businesses to
acquire and choosing how each existing business unit should be best
managed.
• This one of the key elements to the success of General Electric under CEO
Jack Welch.
• Primary job is to obtain synergy among the business units by providing
needed resources to units, transferring skills and capabilities among the units
and coordinating the activities of shared unit functions to attain.
2/26/2019 96

97. Cafe Coffee Day
• Amalgamated Bean Coffee Trading Company (ABCTCL) known as
ABC is one of the largest exporters in India.
• The company today is more recognized by its chain of branded coffee
outlets known as Café Coffee Day (CCD).
• CCD was positioned as an internet café and was an infant industry
at that point (1996) in India.
• The original business moderate of the company was to serve coffee to
its customers.
• V.G. Siddhartha, had inherited the ABCTCL, and set up CCD,
because he was dissatisfied with his family’s coffee business.
• He had entered into coffee business because he felt that there were
no margins in coffee sales because of dependency on the international
market forces.
• He develop vertically integrated model for CCD.
• Company has a complex and integrated value chain with its presence
from plantation activity to retailing.
2/26/2019 97

98. Cafe Coffee Day
• The company started off as a grower and exporter of coffee beans and later as a
forward integration strategy also started retail operations.
• Today CCD is a chain of cafes in cities around India.
• He built Cafe Coffee day into one of India’s largest chains and took it public in
October 2015 and valuation of around $1 billion.
• In 2016 its EBIDTA increased by 23.5% as compared to FY15 and net operating
revenue saw a 14% growth from FY15 to FY16 while substantially reducing
losses to ₹8 crores in FY16, from ₹84 crores in FY15.
• The company has experience a phenomenal growth.
Lower
pricing
strategy
Equivale
nt
product
quality
Excellen
t service
Most
successful
Coffee
Chain
2/26/2019 98

99. Developing A Corporate Parenting Strategy
Examine each business unit in terms of strategic
factors
Examine each business unit in terms of areas in
which performance can be improved
Analyze how well the parent corporation fits with
the business unit
The search for appropriate corporate strategy involves three analytical steps:
2/26/2019 99

100. Developing A Corporate Parenting Strategy
1. Examine each business
unit in strategic factors
• A center of excellence is
“ an organizational unit
that embodies a set of
capabilities that has
been explicitly
recognized by the firm
as an important source
of value creation with
the intention that these
capabilities be leveraged
or disseminated to other
parts of the firm.
2. Examine each business
unit in terms of areas in
which performance can be
improved
• A unit may have good,
but not great,
manufacturing and
logistics skills.
• A parent company
having world-class
expertise in these areas
could improve that
unit’s performance
• According to employees
skills and desired
experience they are
promoted to other level.
3. Analyze how well the
parent corporation fits with
the business unit
• In terms of resources,
skills and capabilities
corporate headquarters
must be aware of its
own strengths and
weaknesses.
• They must ask whether
there is misfit between
the parent’s
characteristics and the
critical success factors of
each business unit.2/26/2019 100

101. Horizontal Strategy And Multipoint competition
• Primary responsibility of
business to develop its own
business strategy
• If corporate competitors
getting financial support the
corporate headquarters
develop horizontal strategy.
• P&G, Kimberly-Clark, Scott
Paper and Johnson & Johnson
compete with one another in
varying combinations of
consumer paper products,
from disposable diapers to
facial tissue.
Horizontal Strategy
A corporate strategy
that cuts across
business unit
boundaries to build
synergy between
business units and to
improve the
competitive position
of one or more
business units
Multipoint
Competition
Large Multibusiness
corporations compete
against other large
Multibusiness firms
that compete with
each other not only
in one business unit,
but also in a number
of business units.
2/26/2019 101

102. P&G And J&J
• J&J just developed a toilet tissue with which it chose
to challenge P&G’s high-share Charmin brand in
particular district, it might charge a low price for its
share by cutting prices on charmin.
• P&G would lose more sales dollars in a price war
than J&J due to charmin’s high market share
• P&G might challenge J&J’s high –share baby
shampoo with P&G’s response, it might choose to stop
challenging charmin so that P&G would stop
challenging J&J’s baby shampoo.
2/26/2019 102

103. Multipoint competition
• It results in use of horizontal strategy may actually slow the development of
hypercompetition in an industry.
• It may lead to multimarket rivals and competitive rivalry is reduced.
• Eg: Live and let live
• Multipoint competition is even more prevalent in the future, as corporations
become global competitors and expand into more markets through strategic
alliances.
2/26/2019 103

104. Summary
• Corporate strategy is totally depends on choice of direction for the firm as a
whole, it deals with three key issues:
The firm’s overall orientation toward growth, stability or retrenchment.
The industries or markets in which firm competes through its products
and business units
The manner in which management coordinates activities and transfers
resources and cultivates capabilities among product lines and business
units.
• This types of issues are dealt with through directional strategy, portfolio
analysis and corporate parenting.
• They must constantly examine their corporation’s entire portfolio of products,
businesses and opportunities as they were planning to reinvest all of its
capital.2/26/2019 104

105. MCQ’s
1. Strategic management is mainly the
responsibility of
(A) Lower management
(B) Middle management
(C) Top management
(D) All of the above
• Ans: Top Management
2. The reasons for acquisition are
(A) Increased market power
(B) Increased diversification
(C) Increased speed to market
(D) All of the above
Ans: All of the above
3. Harvest strategy is used for
(A) Dogs
(B) Question marks
(C) both ‘A’ and ‘B’
(D) none of the above
Ans: Dogs and question mark
4. Vertical integration is concerned with
(A) supply chain
(B) production
(C) Quality
(D) planning
Ans: Supply chain
2/26/2019 105

106. MCQ’s
5. Niche marketing means
(A) End user specialist
(B) Specific customer specialist
(C) Geographic specialist
(D) all of the above
Ans: all of the above
6.Delay in ________ measurement defeats the purpose of evaluation.
(A) Time
(B) Quality
(C) Production
(D) All of the above
Ans; Time
2/26/2019 106

107. MCQ’s
7. What term is used for corporate development beyond current products and markets, but
within capabilities or the value network of the organization?
(A) Backward Integration
(B) Related Diversification
(C) Vertical integration
(D) none of the above
Ans: Related diversification
8 Which two of the following are most likely to be sources of conglomerate value creation?
(A) Exploiting dominant logics rather than concrete operational relationships
(B) Divestment
(C) Entering countries with underdeveloped markets
(D) Entering markets of high risk
Ans: Exploiting dominant logics rather than concrete operational relationships and
Entering countries with underdeveloped markets2/26/2019 107

108. MCQ’s
9. A corporation’s directional strategy is composed of ______
(A)Growth strategy
(B)Stability Strategy
(C)Retrenchment Strategy
(D)All of the above
Ans: All of the above
10.. A division with low growth potential, is called _____
(A)Divestment
(B)Sell out strategy
(C) Bankruptcy
(D)Liquidation
Ans: Divestment2/26/2019 108

109. 2/26/2019 109