“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 Strategies: Some firms adopt stability
strategy instead of using growth strategies. This strategy
can be of two types- maintenance of status quo and
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
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
Internal Growth: Internal Growth is achieved through
increasing the firm’s production capacity, employees and
Concentration Strategies: Concentrating on specific
customer group, product or market, specific technology.
Strategic Alternatives available to the Firms Pursuing
Focus on Customer:
Increase usage by present customers
Increase purchase size or frequency
Improve product location
Expand product line (size, options, styles)
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
Focus on Technology:
Develop new Equipment to improve efficiency
Develop new products
Final uses for by-products
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.
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
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
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
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
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,
Vertical Integration: Backward and Forward Integration or
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
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.
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
Take up activities systematically feedback and control the
deviations immediately through action research
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
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
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.
Combination Strategy or Portfolio Restructuring:
This strategy is the combination of stability, growth and
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