The document discusses various aspects of corporate strategy formulation. It defines corporate strategy as dealing with a company's overall growth orientation, portfolio of industries/markets, and coordination across business units. The key elements discussed include: 1. The 6 steps to effective strategy formulation: defining the organization, mission, objectives, competitive strategy, implementation, and evaluation. 2. Types of directional strategies like growth, stability, and retrenchment and the concentrations, diversifications, and portfolio analysis used within them. 3. Methods for managing strategic alliances, business units, resources, and capabilities across a corporation.

1. Bushra Iram

2. Strategy formulation:
Corporate Strategy

3. Strategy formulation:
O Strategy formulation 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 a framework for the actions that will lead to the
anticipated results.
O Strategy formulation requires a defined set of six steps for effective
implementation. Those steps are:
O 1. define the organization,
O 2. define the strategic mission,
O 3. define the strategic objectives,
O 4. define the competitive strategy,
O 5. implement strategies, and
O 6. evaluate progress.

4. What is corporate strategy
O A corporate strategy entails a clearly defined, long-term
vision that organizations set, seeking to create corporate
value and motivate the workforce to implement the proper
actions to achieve customer satisfaction.
O Corporate strategy deals with three key issues facing the
corporation as a whole:
O 1. The firm’s overall orientation toward growth, stability, or
retrenchment (directional strategy)
O 2. The industries or markets in which the firm competes
through its products and business
O units (portfolio analysis)
O 3. The manner in which management coordinates activities
and transfers resources and cultivates
O capabilities among product lines and business units
(parenting strategy)

5. Directional Strategy
 Directional strategy is the game plan a company
decides on and implements to grow business, increase
profits, and accomplish goals and objectives.
 Small businesses to large corporations can create their
own types of directional strategies that work for the
focus and scope of each individual business. For
example, certain companies may find that a directional
portfolio strategy works best, while other businesses
may choose to follow a parenting directional strategy.

6. Corporate Directional
Strategies
GROWTH
 Concentration
Vertical Growth
Horizontal Growth
 Diversification
Concentric
Conglomerate
STABILITY
 Pause/Proceed
with Caution
 No Change
 Profit
RETRENCHMENT
 Turnaround
 Captive
Company
 Sell-
Out/Divestment
 Bankruptcy/Liqui
dation

7. Corporate Directional
Strategies
A corporation’s directional strategy is composed of
three general orientations (sometimes called grand
strategies):
 Growth strategies expand the company’s activities.
 Stability strategies make no change to the company’s
current activities.
 Retrenchment strategies reduce the company’s level
of activities.

8. Growth strategies
Expand the company’s activities.
The two basic growth strategies are:
 Concentration
 Diversification

9. 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.

10. Vertical growth
O Vertical growth can be achieved by taking over a
function previously provided by a supplier or by a
distributor.
O Vertical growth results in vertical integration
Full
Integration
Tapper
Integration
Long-Term
Contract
Quasi-
Integration

11.  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
time.

12. 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.

13. 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.

14.  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.

15.  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 lower-
cost 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.

16. 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.

17.  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.

18. 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.

19. STABILITY STRATEGIES
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.

20. 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.

21.  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.

22. 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:

23.  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.

24. 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.

25. GE BUSINESS SCREEN
O 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.

26. 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.

27. 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.
 It is not always clear what makes an industry attractive
or where a product is in its life cycle.

28. MANAGING A STRATEGIC
ALLIANCE PORTFOLIO
Managing groups of strategic alliances is primarily the job
of the business unit. Its decisions may escalate, however,
to the corporate level.
1) Developing and implementing a portfolio strategy
for each business unit and a corporate policy for
managing all the alliances of the entire company.
2) Monitoring the alliance portfolio in terms of
implementing business unit strategies and
corporate strategy and policies.
3) Coordinating the portfolio to obtain synergies and
avoid conflicts among alliances.
4) Establishing an alliance management system to
support other tasks of multi-alliance management.

29. Corporate Parenting
 Corporate parenting, in contrast, views a
corporation in terms of resources and capabilities
that can be used to build business unit value as
well as generate synergies across business units.
 corporate strategy involves three analytical steps:
1. Examine each business unit (or target firm in
the case of acquisition) in terms of its strategic
factors.
2. Examine each business unit (or target firm) in
terms of areas in which performance can be
improved.
3. Analyze how well the parent corporation fits
with the business unit (or target firm).

30. HORIZONTAL STRATEGY AND
MULTIPOINT COMPETITION
 A horizontal strategy is a corporate strategy that
cuts across business unit boundaries to build
synergy across business units and to improve the
competitive position of one or more business units.
 In multipoint competition, large multi-business
corporations compete against other large multi-
business firms in a number of markets. These
multipoint competitors are firms that compete with
each other not only in one business unit, but also
in a number of business units.

31. Thank you