Corporate level strategies

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Corporate level strategies

  1. 1. “Strategic alternatives revolve around the question of whether to continue or change the business enterprise is currently in or improve the efficiency and effectiveness with which the firm achieves its corporate objectives in its chosen business sector.” The major four Grand Strategies are: Stability Strategy Growth Strategies Retrenchment Strategies Combination Strategies
  2. 2. Stability Strategies: Some firms adopt stability strategy instead of using growth strategies. This strategy can be of two types- maintenance of status quo and sustainable growth. Reasons adopting Stability Strategies: Satisfactory level of Profit from current operations, less risk, lack of investment and managerial knowhow, executives- inertia for change, operating in low growth or no-growth strategy, small firms more focused on quality and customer service.
  3. 3. Growth Strategies: To increase profit, sales and/or market share. Growth Strategies involve a significant increase in performance objectives. These strategies are adopted when firm remarkably broadens the scope of their customer groups, customer functions and alternative technologies either singly or in combination with each other. Internal Growth: Internal Growth is achieved through increasing the firm’s production capacity, employees and sales.
  4. 4. Concentration Strategies: Concentrating on specific customer group, product or market, specific technology. Strategic Alternatives available to the Firms Pursuing Concentration Strategies Focus on Customer: Increase usage by present customers Increase purchase size or frequency Improve product location Expand product line (size, options, styles)
  5. 5. Attract Competitors Customer: Increase promotional efforts Initiate price cuts Attract Nonusers of the product: Advertise new uses Offer special prices and promotions Increase product availability (new geographic uses) Focus on Product: Differentiate product from its competitors Increase Rate of Product Obsolescence Change Styles, Change options, Change colors Develop the new uses for the product Improve product servicing
  6. 6. Focus on Technology: Develop new Equipment to improve efficiency Develop new products Final uses for by-products Improve quality Some Problems: Putting all eggs in one basket Substitute product can make a firms product obsolete May also affected by disruption in the supply of essential and crucial raw material.
  7. 7. Why some firms Change from Concentration Strategies Temptation of Diversification, Need-to meet short term goals, Underestimation of present opportunities, Impatience to grow, Overconfidence, Misjudging success requirements, Pressure to use idle capacity, Siren song of Integration, Dangers of pride Merger Strategy: “ A merger is a combination of two or more businesses in which one acquires the assets and liabilities of the other in exchange for stock or cash or both. Types of mergers: Horizontal, Vertical, Concentric and Conglomerate
  8. 8. Reasons/Motives for merger: Availability of readymade or built-in manufacturing facilities, well known brand or brand loyalty, captive market share, loyal customers, advanced technology, efficient distribution channel, financial soundness etc. Critical issues in Merger: Strategic, Financial, Managerial, Legal issues Takeover/ Acquisitions Strategy: Takeover is defined as “The Attempt of one firm to acquire ownership or control over another firm against the wishes of the latter’s management.”
  9. 9. Advantages of Takeover: Takeover ensure management accountability Takeover provide easy growth opportunities They create mobility of resources from one activity to another activity. They avoid gestation periods and problems involved in new projects. They provide the chance of survival to the sick units and provide alternatives to the disinvestment strategy. Disadvantages of Takeover: Professionalization of management may be replaced by money power. Takeover do not create any real assets to the society They result in monopoly and concentration of economic power They are detrimental to the society Interests of the minority shareholders are not protected
  10. 10. Horizontal Integration: Many companies expand by creating other firms in their same line of business. The reasons areto increase market share, reduce cost of operations and better EOS, to get greater leverage to deal with the customers and suppliers. Conglomerate Diversification: Expanding by creating other firms in different line of business. Reasons for thisPutting eggs in different baskets, opportunity in other industry is more attractive than expansion in current business,
  11. 11. Vertical Integration: Backward and Forward Integration or both Advantage of Both: Suppliers? Customers? Disadvantages of Both: Suppliers? Customers? Joint Ventures: Joint ventures are partnerships in which two or more firms carry out a specific project or corporate in a selected area of business. Ownership of the firms remains unchanged. Reasons for the formation of JV: Barrier to entry in some the countries, big size projects where different technical as well as financial and other specialized core competencies required.
  12. 12. Retrenchment Strategies: When a firms position is disappointing or, at the extreme, when its survival is at stake then retrenchment strategies may be appropriate. Retrenchment strategies include: Turnaround strategies, Captive company strategy, divestment strategy, transformation strategy and liquidation strategy. Turnaround Strategy: Turnaround means reverse the negative trend. Indicators of adopting Turnaround Strategy Incurring losses continuously, Decline demand for products Increasing cash outflow and/ or declining cash inflow, declining sales and declining market share, declining production/ productivity, continuous problem of working capital, high rate of employees turnover and employee job dissatisfaction, significant decrease in market price of the share.
  13. 13. Approaches of Turnaround Strategy: Surgical approach and Human Resource Development (HRD) Approach: Activities of Turnaround Process: Diagnosing the problem accurately Understanding Customer, Product and Competition Analyzing financial position, cost of capital and cost control etc. Feedback of information to various decision areas and control areas. Take up activities systematically feedback and control the deviations immediately through action research
  14. 14. Captive Company Strategy: This strategy is pursued when a firm sells the majority of its products to one customer (wholesales/ dealer) who in turn performs some of the functions normally done by an independent firm. The major limitation of this strategy is that the company is limited by the activities of its captor. Transformation Strategy: A transformation occurs when a firm makes a major change in its outlook and operations, usually including moving from one kind of business to another. Companies may undertake this strategy when: Returns on current operations are lower then desired Opportunities in other areas are attractive A strong flexible management team exists The firm has a strong financial base to support its transformation
  15. 15. Divestment Strategy: Company Sells or ‘spins off’ one of its business units under the divestment strategy. Causes for Adopting Divestment Strategy: High cash outflow than inflow, competition, technological change, financial position, divestment of unprofitable wings is necessary as part of the merger agreement Liquidation Strategy: This strategy involves closing down a business organization and selling its assets. This is the last alternative strategy as its consequence are severe. The consequences include: loss of jobs of all employees and termination of the opportunities of the firm. Adoption of this strategy implies the total failure of the firm.
  16. 16. Combination Strategy or Portfolio Restructuring: This strategy is the combination of stability, growth and retrenchment strategies. Combination strategies may involve implementation of two or more strategies. This strategy is common for large scale organizations with multiple units, diversified products and national or global markets.

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