Corporate strategies

Corporate Strategies
Dr. Joju C. Akkara, Nirmala College of Management Studies, Chalakudy

Corporate Strategies
 The Grand strategy of a company is also known as the corporate strategy or
the master strategy.
 It provides the general plan by which the company intends to achieve its long-
term goals.
 This strategy is concerned with the company’s scope and the direction in
which it is headed.
Dr. Joju C. Akkara, NCMS

The Questions Addressed in Corporate
Strategies
 What should be the growth objective of the company?
 What strategy should it adopt to achieve those objectives?
 What are various lines of business of the company?
 How these businesses work in coordination with each other?

Objectives of Corporate Strategies
 To make decisions regarding the number of business lines to pursue and the
positions needed to be reached in each of these businesses.
 Find out the appropriate strategies or a mix of various sub-strategies for each
of the business line.
 To explore ways to get strategic fit between the various business lines and
hence turn these into sources of competitive advantage for the company.
 To prioritize investment into the most profitable lines of business.

Importance of Corporate Strategies
 To achieve company’s long term goals and objectives.
 It gives the company the capability to direct its multiple resources to a single
objective.
 It provides the company a yardstick or benchmark against which it can
measure its progress or failure.
 It allows the company to manage through periods of ups and downs.
 It channelises the distribution of scarce resources.
 It shares the corporate vision with the employees and motivate them to work
hard.
 It empowers the management to tackle unseen market contingencies.
 It helps the management to plan about the uncertain future.
 It allows the management to choose the best course of action.

Limitations of Corporate Strategies
 Complex process
 Requires huge expenditure
 Uncertain estimates (future)
 Difficulty in achieving desired results
 Useful only for long range problems

Various Corporate Strategies

Growth Strategy (Expansion Strategy)
 Growth is considered as the most common long term goal of every enterprise
in order to sustain their existence.
 In order to grow successfully, the organisation has to ensure that the
considerations for expansion are met.
 Growth strategies are those strategies which are meant to expand the
activities to achieve growth in terms of products, manpower, technology,
sales, profits, assets, etc…
 Growth strategy creates economics of scale and scope in the organisation.
 This brings down the cost of operations and also increases the earnings of an
organisation.

Reasons to Pursue Growth Strategy
 Creates strength
 Necessary for survival
 Employee satisfaction
 Increases productivity

Issues Involved in Growth Strategy
 Growing too fast have to suffer the consequences in order to achieve success.
 Expansion capital
 Variety of personnel is required for different organisation ooperations.
 Organisations generally lack in customer service
 Disagreements among ownership

Types of Growth Strategy
1. Concentration strategy
2. Diversification strategy
3. Integration strategy
4. Internationalisation strategy
5. Cooperation strategy

1. Concentration Strategies
 Another name for concentration strategy is intensive strategy.
 These strategies trying to compete successfully within only a single industry.
 Concentration Strategies are those strategies which are about concentration
of resources on those product lines/business units – which show real growth
potential

Types of Concentration Strategies
a) Market penetration
b) Market Development
c) Product Development

a) Market Penetration
 It involves trying to gain additional share of a firm’s existing markets using existing
products.
 Often firms will rely on advertising to attract new customers within existing markets.

b) Market Development
 It involves taking existing products and trying to sell them within new markets.
 One way to reach a new market is to enter a new retail channel

c) Product Development
 It involves creating new products to serve existing markets
 This strategy encashes organisation’s existing competencies and extends a
new product line.

Advantages of Concentration Strategies
 It applies fewer changes in the organisational structure.
 It becomes comfortable to continue with the persent business.
 The decision making process is easy and predictable.
 It helps the organisation to gain in depth knowledge of its business and
become an expert.
 The organisation can gain from its past experience.

Disadvantages of Concentration
Strategies
 Concentration strategies can be counter productive when the external
environment of the company is uncertain and prone to rapid change.
 This can impact the performance of the company till the time it launches a
new product or create a new market.
 It is not able to launch new products or satisfy new customer needs in the
market.
 External influences like government policy can also create negative impact in
the company’s growth.
 It may also lead to cash flow problems for the company.
 It also suffers because it causes monotony among managers as they keep on
repeating the same set of activities.

2. Diversification Strategies
 Diversification refers to entry into a new business line or new industry other
than traditional industry – in which the company presently deals in.
 It calls for a new set of capabilities and competencies from existing ones.
 Diversification always lead to growth in sales and profits.

Types of Diversification
Types
Unrelated
Diversification
Related
Diversification

Related Diversification
(Concentric Diversification)
 Related diversification is diversification into a new business activity that is
linked to a company’s existing business activity, or activities, by commonality
between one or more components of each activity

Unrelated Diversification
(Conglomerate Diversification)
 Unrelated diversification is diversification into a new business area that has
no obvious connection with any of the company’s existing areas

Advantages of Diversification Strategy
 Limited risk
 Maximizing returns
 Stabilizing influence

Disadvantages of Diversification Strategy
 Excessive acquisition of companies
 Lack of expertise
 Cost
 Reduced innovation

3. Integration Strategies
 An organisation performs many functions write from sourcing the raw
materials converting the same into a finished product and finally marketing
the finished product to the customer. The entire set of these activities
comprises the value chain of the organisation.
 Integration strategies denote efforts by the company to move up or down its
value chain and adding to the percent activities of the organisation.
 This helps the organisation to increase its business and service customers’
needs in a far more effective manner.

Types of Integration Strategies
Horizontal
Integration
Vertical
Integration

Vertical Integration
 Vertical integration means that a company is producing its own inputs
(backward or upstream integration) or is disposing of its own outputs (forward
or downstream integration).

Benefits of Vertical Integration Strategy
 It enables the company to build barriers to new competition
 It facilitating investments in specialized assets
 It protects product quality
 It results in improved scheduling
 It reduces the cost
 Gains control over scarce resources
 Obtain access to potential customers
 The firm increases its profitability

Arguments Against Vertical Integration
 This can create a situation of conflicts
 It can lead to problems due to differences in technology, processes,
distribution
 It increases business risk (demand uncertainty)
 A slight interruption in one process may dislocate the entire production
system
 The resource constraints adversely affect this strategy
 It can invite cost disadvantage

Horizontal Integration
 Horizontal integration is the process of acquiring or merging with industry
competitors in an effort to achieve the competitive advantages that come
with large scale and scope

Benefits of Horizontal Integration
 Reducing costs
 Increasing the value of the company’s product offering through differentiation
 Managing rivalry within the industry to reduce the risk of price warfare
 Increasing bargaining power over suppliers and buyers
 Help the business firms to repeat the business model in new market segments

Disadvantages of Horizontal Integration
 Destroys existing value system
 High chances for conflict
 Many times organisations do not look at the aspect of synergy

4. Internationalisation Strategy
 International strategy is a type of expansion in which the firm markets its
products and services beyond the geographical and national market.,

International Corporate Level Strategies

a) Global Company Strategy
 Views the world as a single market
 Tightly controls global operations from headquarters to focus on
standardization.

b) International Company Strategy
 Uses existing core competence to exploit opportunities in foreign markets

c) Transnational Company Strategy
 Flexible value chain enables local responsiveness
 Complex coordination mechanism enable global integration

d) Multidomestic Company Strategy
 Foreign subsidiaries operate autonomous units to customise products and
processes to local markets’ needs

5. Cooperation Strategy
 It is the process by which the companies combine companies their resources
in such a manner that the greatest amount of value is created for the
stakeholders of the company.
 By cooperating with the competitors the company is able to provide value to
its customers at a lower cost.

Types of Cooperation Strategy
Mergers
and
acquisition
Strategic
alliances
Joint
ventures

Merger
 A merger is an agreement between equals to pool their operations and
create a new entity
 It involves establishment of a single corporate body by merging resources ,
technologies to achieve a higher growth
 It occur usually between firms of similar size and of friendly nature
eg: HP – Compaq
Spentex – Indo Rama Textiles Ltd.

Types of Mergers
Conglomerate
Mergers
Vertical
Mergers
Horizontal
Mergers

Horizontal Mergers
 Horizontal merger occurs between two companies which are operating in the
same industry and often in the same market space.
 It is beneficial because of the Synergy created and also the gains in the
market share that can be realised.

Vertical Mergers
 Vertical managers do not aim to increase sales or revenue, but instead to
bring in greater efficiency in management or reduction in costs.
 A vertical merger ocurs when two companies which were earlier engaging as
customers and sellers, merge with one another.
1. Forward integration: The firm acquires a customer.
2. Backward integration: The firm acquires a supplier.

Conglomerate Mergers
 A conglomerate merger is “any merger that is not horizontal or
vertical; in general, it is the combination of firms in different
industries or firms operating in different geographic areas".
 Conglomerate mergers can serve various purposes, including
extending corporate territories and extending a product range.
 Because a conglomerate merger is one between two strategically unrelated
firms, it is unlikely that the economic benefits will be generated for the target or
the bidder.

Advantages of Mergers
 Economics of scale
 International competition
 Greater investment in research and development
 Greater efficiency

Disadvantages of Mergers
 Integration difficulties
 Inadequate evaluation of target
 Large debt burden
 Inability to achieve synergy
 Too much diversification
 Increased size

Acquisition/Takeover Strategies
 Acquisition means the purchase of a company by bigger company
 Acquisition means a company’s entire stock of shares are purchased by
other big company so that it acquires all these asset, liabilities, markets,
products which can readily improve the growth
 It takes place between two firms of different sized and they can be
friendly or rivals

Why Acquisitions Fail?
 Companies often experience difficulties when try to integrate divergent
corporate cultures
 Companies overestimate the potential economic benefits from an acquisition
 Acquisitions tend to be very expensive
 Companies often do not adequately screen their acquisition targets

Types of Acquisition/Takeover Strategies
Hostile
Takeovers
Friendly
Takeovers
Back-Flip
Takeovers
Reverse
Takeovers

Friendly Takeovers
 In this type of takeover the acquiring company notifies the target company’s
board of directors of their bid.
 In case the shareholders decide to sell the company, then the board of
directors already has instructions to accept the friendly bid request.

Hostile Takeovers
 In this the acquiring company tries to acquire the target company in the face
of opposition from the target company.
 In this, the acquiring company actively continues with its acquisition efforts
even after the board of directors has rejected its bid offer or the acquiring
company makes the bid without informing the board of directors of the target
company.

Reverse Takeovers
 A reverse takeover is the acquisition of a public company by a private
company so that the private company can bypass the lengthy and
complex process of going public.
 The transaction typically requires reorganization of capitalization of
the acquiring company.

Back-Flip Takeovers
 A backflip takeover is an unusual type of takeover in which a
company which is acquiring a target company becomes a subsidiary
of the acquired or target company once the deal is completed.
 The two entities that merge (the acquiring company and the
acquired) become one and the name of the acquired company is
retained.

Advantages of Acquisition or Takeover
 Assets acquisition
 Gain experience
 Eexcite the shareholders
 Combining organisation cultures
 Reducing costs and overheads
 Accessing funds or valuable assets for new development

Disadvantages of Acquisition or Takeover
 Very expensive
 Reallocation of employees
 Problems related with Integration of two workplaces
 Loss of confidentiality
 The method of valuation of the combined entity is critical.
 Duplication

Differences between Merger and
Acquisitions

Strategic Alliance
 Strategic Alliances run the range from formal joint ventures, in which two or
more companies have an equity stake, to short-term contractual agreements,
in which two companies may agree to cooperate on a particular problem
(such as developing a new product)
eg: Joint venture between Bharti Enterprises & AXA in general insurance business

Advantages of Strategic Alliances
 It may be a way of facilitating entry into a foreign market
 Many companies enter into strategic alliances to share the fixed costs and
associated risks
 It can be seen as a way of bringing together complementary skills and assets
 It helps the company to set technological standards for its industry

Disadvantages of Strategic Alliance
 Hold up may take place
 As the partners share risk and cost, they also share profits.
 Changing circumstances

Joint Ventures
 A joint venture is any kind of cooperative arrangement between two or more
independent companies which leads to the establishment of a third entity
organizationally separate from the parent companies.
 It is usually based on the premise that two or more companies can contribute
complementary expertise or resources to the joint company, which, as a
result, will have a unique competitive advantage to exploit.

Advantages of Joint Ventures
 Widening economic scope fast
 Sharing the economic risk with co-venturer
 Additional financial resources

Stability Strategy
 Stability strategies are mainly concerned with continuation of current
activities at current level without any directional change
 Stability strategy is very popular strategy for small business owners with
limited capital base and limited manpower
 Stability strategies are usually useful in short run

Reasons to Adopt Stability Strategy
 When firms does not want to take additional risk.
 Management often do not want to change when the performance of the
business is satisfactory.
 When there is no big opportunity.
 When there is no no risk in the present situation.
 Strategic advantage in the present situation.

Types of Stability Strategies
Types
Pause
Strategies
Profit
Strategies
No Change
Strategies

Pause Strategies
(Proceed Strategies)
 They are strategies to rest before a growth strategy is adopted. It is
deliberate attempt to make only incremental improvement until a particular
situation exist.
eg: In the recession period, the production is cut down by the firm

No Change Strategies
 No Change Strategies are strategies to do
nothing new to the present level of
sales/profit/production.

Profit Strategies
 Profit strategies are decision to
artificially support profits when
company’s sales are declining by reducing
investment and cutting avoidable
expenses

Retrenchment Strategies
(Reduction Strategies)
 Retrenchment strategies are strategies adopted to cut down the sales,
production and investments to reduce the losses. Such strategies are adopted
when company loses its competitive position in industry in respect of some or
all of its products

Reasons to Adopt Retrenchment Strategy
 Poor performance
 Threat to survival
 Redeployment of resources (excellent investment opportunities exist
elsewhere)
 Inadequate resources
 For securing better management and improved efficiency

Types of Retrenchment Strategies
Turnaround
Strategy
Divestment
Strategy
Liquidation
Strategy
Captive
Company
Strategy

Turnaround Strategies
 Turnaround strategy is basically a strategy of cuts combined with strategy of
growth identified and adopted at proper time
 Turnaround strategy is a strategy which emphasizes on the improvement of
operational efficiency

Features of Turnaround Strategies
 Cuts in profit/sales/production
 Cuts in costs including manpower
 Identify and stabilize at new level of profit/sales/production
 Improvement of operational efficiency
 Adopt growth strategies from new stabilized level

Steps in Turnaround Strategies
 Concentration:
 It is a phase of cuts. In this strategies to cut down the production, cut down
the manpower to result into cuts of profit/sales.
 Consolidation:
 It begins with realization of new objective of restructured
production/sales/profit subsequent to cuts.

Types of Turnaround Strategies
Types
Efficiency
Turnaround
Strategies
Entrepreneurial
Turnaround
Strategies

Entrepreneurial Turnaround Strategies
 They are the turnaround strategies adopted at the level of entrepreneur who
forms the sole person taking all decisions

Efficiency Turnaround Strategies
 They are the turnaround strategies formulated with a stress on efficiency
building at consolidation level, while the cuts are made on the basis of
inefficiencies. But at the same times efficiency is build up at all the levels in
consolidation phase to achieve newly set objectives of restructured
production/sales/profit

Captive Company Strategy
 It is a strategy of giving up the independence in exchange for security
 A company with very weak competitive position may not be able to engage in
turnaround strategy. In such situation the company offers itself to be in
captivity of one of the valuable customer in order to guarantee the company’s
continued existence

Divestment Strategy
(Sell Out Strategy)
 It is a decision to sell its shares to other companies
 The divestment strategy is adopted when turnaround and captive strategies
are not possible due to weak competitive position

Liquidation Strategy
 The Liquidation Strategy is the most unpleasant strategy adopted by the
organization that includes selling off its assets and the final closure or winding
up of the business operations.
 It is the most crucial and the last resort to retrenchment since it involves serious
consequences such as a sense of failure, loss of future opportunities, spoiled
market image, loss of employment for employees, etc.

Combination Strategy
(Mixed or Hybrid Strategy)
 Combination Strategy is designed to combine growth, retrenchment, and
stability strategies and apply them across a corporation’s business units.
 A firm adopting the combination strategy may apply the combination either
simultaneously (across the different businesses) or sequentially.
 Combination strategies aimed at achieving two or more goals (such
as consolidation, growth, stability) simultaneously.

Nature of Combination Strategy
 Stability in some part of the business and growth in another.
 Stability in some business and retrenchment in some other part.
 Growth in some businesses and retrenchment in another.
 Stability, growth and retrenchment in various businesses.

Reasons to Adopt Combination Strategy
 Different products in different stages of life cycle
 Different stages of business cycle
 Unmanageable number of business/size of the firm

Types of Combination Strategy
1. Simultaneous Combination
2. Sequential Combination
3. Combination of both

Simultaneous Combination
 Simultaneous combination strategy is mixture of grand strategy like:
expansion, growth, retrenchment which are applied at the same time in its
different businesses simultaneously.

Sequential Combination Strategy
 Firms may choose to start off with a rapid growth strategy then followed by a
period of stable growth then again pursue a rapid growth strategy in
sequence.

Corporate strategies

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