The document outlines the process of corporate strategy formulation, emphasizing its critical role in achieving organizational goals through systematic steps. It discusses key concepts such as growth strategies (concentration and diversification) and various international entry options for expansion. Additionally, it highlights the importance of portfolio analysis tools like the BCG growth-share matrix and GE business screen in evaluating business performance and resource allocation.

1. Strategy
Formulation:
Corporate
Strategy
Mario P. Ponce Jr.

2. STRATEGY FORMATION
Is the process by which an
organization chooses the most
appropriate courses of action to
achieve its defined goals. This
process is essential to an
organization’s success, because
it provides the framework for the
action that will lead to the
anticipated results.

3. 01
05
03
04
Defined the organization
Defined the strategic
mission
Defined the competitive
strategy
Implement strategies and,
Strategy formulation requires a defined set of six steps
for effective implementation. Those steps are:
02
Defined the strategic
objective 06 Evaluate progress

4. WHAT IS A CORPORATE
STRATEGY?
A corporation strategy entails a
clearly defined, long-term vision that
organizations set, seeking to create
corporate value and motivate the
workforce implement the proper
actions to achieve customer
satisfaction.

5. Corporate strategy deals with three
key issues facing the corporation as
a whole:

7. CORPORATE
DIRECTIONAL
STRATEGIES:

9. GROWTH STRATEGIES
Expand the company’s activities. The
two basic growth strategies:
✔️ Concentration
✔️ Diversification

10. Concentration
✔️ If a company’s current product lines have real
growth potential, concentration of resources on
those product lines makes sense as a strategy for
growth.
The two basic concentration strategies are:
1) vertical growth
2) Horizontal growth.

12. ✔️ Full Integration: Under full integration, a firm
internally makes 100% of its key supplies and
completely controls its distributors.
✔️ Tapper Integration: With taper integration, a firm
internally produces less than half of its own
requirements and buys the rest from outside suppliers.
✔️Quasi-Integration: With quasi-integration, a
company does not make any of its key supplies
but purchases most of its requirements from outside
suppliers that are under its partial control.
✔️ Long-Term Contract: Are agreements between
two firms to provide agreed-upon goods and
services to each other for a specified period of

13. Horizontal Growth.
A firm can achieve horizontal growth by expanding its
operations into other geographic locations and/or by
increasing the range of products and services
offered to current markets.
Horizontal growth results in horizontal integration—the
degree to which a firm operates in multiple geographic
locations at the same point on
an industry’s value chain

14. International Entry Options for Horizontal Growth
🖤 Research indicates that growing internationally is
positively associated with firm profitability. Some of the
most popular options for international entry are as
follows:
🖤Exporting: A good way to minimize risk and
experiment with a specific product is exporting,
🖤Franchising: Under a franchising agreement, the
franchiser grants rights to another company to open a
retail store using the franchiser’s name and operating
system.

15. 🖤 Licensing: Under a licensing agreement, the licensing firm grants
rights to another firm in the host country to produce and/or sell a
product.
🖤 Joint Ventures: Forming a joint venture between a foreign
corporation and a domestic company is the most popular strategy used
to enter a new country.
🖤 Acquisitions: A relatively quick way to move into an international
area is through acquisitions purchasing another company already
operating in that area.
🖤 Green-Field Development: If a company doesn’t want to purchase
another company’s problems along with its assets, it may choose
green-field development and build its own manufacturing
plant and distribution system.

16. 🖤Production Sharing: Coined by Peter Dracker, the term
production sharing means the process of combining the higher labor
skills and technology available in developed countries with the
lowercost labor available in developing countries.
🖤 Turnkey operations: are typically contracts for the construction
of operating facilities in exchange for a fee. The facilities are
transferred to the host country or firm when they are complete.
🖤 BOT Concept: The BOT (Build, Operate, Transfer) concept is a
variation of the turnkey operation.
🖤 Management contracts offer a means through which a
corporation can use some of its personnel to assist a firm in a host
country for a specified fee and period of time.

17. DIVERSIFICATIO
N
SRATEGY

18. Diversification Strategies:
🟠According to strategist Richard Rumelt, companies
begin thinking about diversification when their growth
has plateaued and opportunities for growth in the
original business have been depleted.
🟠Concentric (Related) Diversification. Growth through
concentric diversification into a related industry may
be a very appropriate corporate strategy when a firm
has a strong competitive position but industry
attractiveness is low

19. 🟠Conglomerate (Unrelated) Diversification. When
management realizes that the current industry is
unattractive and that the firm lacks outstanding abilities
or skills that it could easily transfer to related products
or services in other industries, the most likely strategy
is conglomerate diversification—diversifying into an
industry unrelated to its current one.

20. CONTROVERSIES IN DIRECTIONAL
GROWTH STRATEGIES
🟠Research reveals that companies following a
related diversification strategy appear to be higher
performers and survive longer than do companies
with narrower scope following a pure concentration
strategy.42 Although the research is not in
complete agreement, growth into areas related to a
company’s current product lines is generally more
successful than is growth into completely unrelated
areas.

21. A corporation may choose stability over growth by continuing its current
activities without any significant change in direction.
✔️ Pause/Proceed with Caution Strategy: is, in effect, a timeout an
opportunity to rest before continuing a growth or retrenchment strategy.
✔️No-Change Strategy: is a decision to do nothing new a choice to
continue current operations and policies for the foreseeable future.
✔️ Profit Strategy: is a decision to do nothing new in a worsening situation
but instead to act as though the company’s problems are only temporary.
STABILITY STRATEGY

22. RETRENCHMENT STRATEGIES
✔️ A company may pursue retrenchment strategies when it
has a weak competitive position in some or all of its product
lines resulting in poor performance sales are down and
profits are becoming losses.
✔️ These strategies impose a great deal of pressure to
improve performance.
🟠Turnaround Strategy: emphasizes the improvement of
operational efficiency and is probably most appropriate when
a corporation’s problems are pervasive but not yet critical.

23. ✔️Captive Company Strategy: involves giving up
independence in exchange for security. A
company with a weak competitive position may not be able to
engage in a full-blown turnaround strategy.
✔️ Sell-Out/Divestment Strategy: If a corporation with a weak
competitive position in an industry is unable either to pull itself
up by its bootstraps or to find a customer to which it can
become a captive company, it may have no choice but to sell
out.
✔️ Bankruptcy/Liquidation Strategy: When a company finds
itself in the worst possible situation with a poor competitive
position in an industry with few prospects, management has
only a few alternatives all of them distasteful.

24. BCG GROWTH-SHARE MATRIX
✔️Using the BCG (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.
✔️ The BCG Growth-Share Matrix has a lot in common with
the product life cycle. As a product moves through its life
cycle, it is categorized into one of four types for the purpose
of funding decisions:

25. 🟠Question marks (sometimes called “problem children” or
“wildcats”) are new products with the potential for success,
but they need a lot of cash for development.
🟠 Stars are market leaders that are typically at the peak of
their 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 cows typically bring in far more money than is needed
to maintain their market share.
🟠Dogs have low market share and do not have the potential
(because they are in an unattractive industry) to bring in
much cash.

26. BCG Growth-Share Matrix limitations:
Unfortunately, the BCG Growth-Share Matrix also has some serious limitations:
✔️The use of highs and lows to form four categories is too simplistic.
✔️The link between market share and profitability is questionable.79 Low-share
businesses can also be profitable.80 For example, Olivetti is still profitably selling
manual typewriters through mail-order catalogs.
✔️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
position.

27. GE BUSINESS SCREEN
🟠 General Electric, with the
assistance of the McKinsey &
Company consulting firm, developed
a more complicated matrix. GE
Business Screen includes nine cells
based on long-term industry
attractiveness and business strength
competitive position.

28. ADVANTAGES OF PORTFOLIO ANALYSIS
Portfolio analysis is commonly used in strategy formulation
because it offers certain advantages:
✔️ 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 to supplement
management’s judgment.
✔️It raises the issue of cash-flow availability for use in expansion
and growth.
✔️ Its graphic depiction facilitates communication.

29. LIMITATIONS OF PORTFOLIO ANALYSIS
Portfolio analysis does, however, have some very real
limitations that have caused some companies to reduce their
use of this approach:
🟠Defining product/market 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.
🟠 Its value-laden terms such as cash cow and dog can lead to
self-fulfilling prophecies.

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