The presentation contains information about Strategic Planning, Levels of Strategy like Corporate Level Strategy, Business Level Strategy and Functional Level Strategy. The presentation also has many examples and a case study on diversification strategy.

1. STRATEGIC PLANNING
PROF. C. SURENDHRANATHA REDDY
HEAD, DEPARTMENT OF MANAGEMENT
KRISTU JAYANTI COLLEGE, BENGALURU

2. UNIT 3: STRATEGIC PLANNING
1.Meaning of Strategic plan, levels of strategies, and process of
strategic management
2.Corporate level strategies
3.Business level strategies Part – Definition of business, SBU,
Examples of Business strategies, Cost leadership,
Differentiation, and focus
4.Functional and operational level strategies

3. Strategic Planning
Strategic planning means planning for strategies and implementing
them to achieve organisational goals.
Strategic planning helps in knowing what we are and where we want
to go so that environmental threats and opportunities can be
exploited, given the strengths and weaknesses of the organisation.

4. Strategic Planning Process
The goal of the strategic planning process is to ensure everyone in
the business is aligned when it comes to your small business’s goals
and objectives, as well as to create a formal strategic plan document.
When it comes to the strategic planning process, there are three
phases
1) Discussion,
2) Development and
3) Review and updating.

5. Strategic Planning Process
Discussion Phase:
The discussion phase is meant to gather as much information,
opinions, and input as possible.
Set up a regularly scheduled meeting with the employees and any
other staff in your business who will be involved with strategic
planning.
Make sure you have an agenda and clear expectations of what you
want to accomplish in each meeting.
You can also conduct a SWOT analysis.

6. Strategic Planning Process
Development Phase:
After you’ve collected all of the information, it’s time for the
development phase. This is when you’ll start putting together your
business’s strategic plan.
A strategic plan consists of five key components: a vision statement,
a mission statement, goals and objectives, an action plan, and details
on how often the strategic plan will be reviewed and updated.
Decide with your employees what you will use to create the strategic
plan.

7. Strategic Planning Process
Review and Updating Phase:
A critical part of the strategic plan should address how often it will be reviewed
and updated. Designate someone to be responsible for reviewing, updating, and
sharing any changes with the rest of the company.
The strategic plan is meant to be a fluid document; don’t fall into the trap of
creating the document and letting it sit on a shelf for years. If you developed
meaningful objectives and action plans, they should help with regularly checking
the strategic plan.
For example, if your action plan requires you to put in sales numbers every
quarter to track revenue, you could take that time to review the rest of the plan.
You can also set an alert to check the strategic plan on a regular basis.

8. Levels of Strategy
Strategy is operated at three in an organisation for
the purpose of achieving the objectives and goals.
1) Corporate Level
2) Business Level
3) Functional Level

9. Levels of Strategy

10. Corporate Level
Corporate level strategy defines the business areas in which your firm will
operate. It deals with aligning the resource deployments across different
sets of business areas, in which the company operates or plans to operate.
Strategy formulation at this level involves integrating and managing the
different businesses and realizing synergy at the corporate level. The top
management team is responsible for formulating the corporate strategy.
For example, your firm may have four distinct lines of business
operations, namely, automobiles, steel, tea, and telecom. The corporate
level strategy will outline whether the organization should compete in or
withdraw from each of these lines of businesses, and in which business
unit, investments should be increased, in line with the vision of your firm.

11. Example
ITC Ltd. has adopted diversification strategy, which is applicable to
entire organisation. They have diversified into Hotel business, food
products, FMCG, paper business, confectionary etc.

12. Business Level
Business level strategies are formulated for specific strategic business units and
relate to a distinct product-market area. It involves defining the competitive
position of a strategic business unit.
The business level strategy formulation is based upon the generic strategies of
overall cost leadership, differentiation, and focus.
For example, your firm may choose overall cost leadership as a strategy to be
pursued in its steel business, differentiation in its tea business, and focus in its
automobile business. The business level strategies are decided upon by the heads
of strategic business units and their teams in light of the specific nature of the
industry in which they operate.

13. Example
ITC Ltd. Is following differentiation strategy as they make different variety of biscuits to cater to
the needs of different segments

14. Functional Level
Functional level strategies relate to the different functional areas which a strategic
business unit has, such as marketing, production and operations, finance, and human
resources.
These strategies are formulated by the functional heads along with their teams and are
aligned with the business level strategies.
The strategies at the functional level involve setting up short-term functional
objectives, the attainment of which will lead to the realization of the business
level strategy.
For example, the marketing strategy for a tea business which is following the
differentiation strategy may translate into launching and selling a wide variety of tea
variants through company-owned retail outlets

15. Example
ITC Ltd. market their FMCG with the help of advertising through
mass media like TV, Internet, News Paper and radio.

16. Corporate Level Strategy
Stability
strategies
Expansion strategies Retrenchment strategies
Combination
strategies
No change
strategies
Pause/proceed
with caution
strategies
Profit strategies
Concentration
Integration
Diversification
Cooperation
Internationalization
Digitalization
Turnaround
Divestment
Liquidation
Simultaneous
Sequential
Combination
of both
Restructuring strategies
Financial
Restructuring
Organisational
Restructuring

17. Stability Strategy
A firm pursues stability strategy when
1. It continues to serve the public in the same product or service,
market, and function sectors as defined in its business definition.
2. Its main strategic decisions focus on incremental improvement of
functional performance.
Stability strategy is of three types
➢No change strategies
➢Pause/proceed with caution strategies
➢Profit strategies

18. No Change Strategies
➢Taking no decision sometimes, is a decision too!
➢This strategy is relevant in predictable and certain external
environment and stable organizational environment.
➢Small and medium sized firms rely on this strategy
E.g.: Fresh to Home is a delivery service that focuses on meat
and fish. The company was founded in March 2016, and has
grown so much that its aim to expand to 20 cities throughout
2017

19. Profit Strategies
➢Things do change. It is assumed that the problem is short lived
➢Only motive is sustaining profitability for a temporary phase. It
works only if the problems are really short lived.
➢This strategy is used for a short period.
E.g.: Wow Momo is a food chain who are growing ever so fast in
India. You will find branches in Delhi, Chennai, Kochi, and many
other spots. Wow! Sell burgers, Tibetan food and just about anything
you can imagine. You will never go hungry when a Wow

20. Pause/Proceed With Caution Strategies
➢It is employed to test the ground before moving ahead with a full-
fledged corporate strategy
➢The purpose is to let the system adapt to the new strategies
➢It is deliberate and conscious attempt.
E.g.: Steel Authority of India has adopted stability strategy because
of over capacity in steel sector. Instead it has concentrated on
increasing operational efficiency of its various plants rather than
going for expansion.

21. Expansion/ Growth Strategies
The corporate strategy of expansion is followed when an organization aims at
high growth by substantially broadening the scope of one or more of its
business in terms of their respective customer groups, customer functions
and alternative technologies-singly or jointly-in order to improve its overall
performance.
Expansion Strategies are:
➢ Concentration
➢ Integration
➢ Diversification
➢ Cooperation
➢ Internationalization
➢ Digitalization

22. Concentration Strategy
A concentration strategy involves trying to compete successfully within
a single industry. Market penetration, market development, and
product development are three methods to grow within an industry.
Growing firms in a growing industry tend to choose these strategies
before they try diversifications.
The two basic concentration strategies are
1) Vertical concentration and
2) horizontal concentration strategies

23. Vertical Concentration
➢ Vertical growth can be achieved by taking over a function previously provided by a
supplier or by a distributor. The company, in effect, grows by making its own
supplies and/or by distributing its own products. This may be done in order to
reduce costs, gain control over a scarce resource, guarantee quality of key input, or
obtain access to potential customers.
➢ Eg: Cisco Systems, the maker of Internet Hardware, chose the external route to
vertical growth by purchasing Radiata Inc., a maker of chips sets for wireless
networks. This acquisition gave Cisco access to technology permitting wireless
communications at speeds, previously possible only with wired connections.

24. Horizontal Concentration
➢ Horizontal Growth can be achieved by expanding the firm’s products into other
geographic locations and/or by increasing the range of products and services
offered to current market. In this case, the company expands sideways at the same
location on the industry’s value chain.
➢ Eg: Ranbaxy Labs followed a horizontal growth strategy when it extended its
pharmaceuticals business to Europe and the company can grow horizontally
through internal development or externally through acquisitions or strategic
alliances with another firm in the same industry.

25. Diversification
When an industry consolidates and becomes mature, most of the surviving firms have
reached the limits of growth using vertical and horizontal growth strategies.
Unless the competitors are able to expand internationally into less mature markets, they
may have no choice but to diversify into different industries if they want to continue
growing.
The two basic diversification strategies are
1) Concentric diversification and
2) Conglomerate diversification

26. Concentric Diversification (Related)
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.
By focusing on the characteristics that have given the company its
distinctive competence, the company uses those very strengths as its
means of diversification.
The firm attempts to secure strategic fit in a new industry where the
firm’s product knowledge, its manufacturing capabilities, and the
marketing skills it used so effectively in the original industry can be
put to good use.

27. Example
Samsung has diversified into various products which are related to
each other. The products of Samsung include mobile phones,
laptops, computers, music systems, televisions etc.

28. Conglomerate Diversification (Unrelated)
It takes place when management realizes that the current industry is
unattractive and that the firms 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.
Rather than maintaining a common threat throughout their
organization, strategic managers who adopt this strategy are primarily
concerned with financials considerations of cash flow or risk
reductions.

29. Example
ITC Ltd. has adopted diversification strategy, which is applicable to
entire organisation. They have diversified into Hotel business, food
products, FMCG, paper business, confectionary etc.

30. Integration
Integration refers to combining activities related to the present
activities of a firm, on the basis of the value chain.
Recall that a value chain is a set of interrelated activities an
organization performs right from the procurement of basic raw
materials to the marketing of finished products to the ultimate
consumers.
Integration as an expansion strategy results in a widening of the
scope of the business definition of a firm. Integration strategies are
two types.

31. Vertical Integration
Vertical integration is a competitive strategy by which a company takes
complete control over one or more stages in the production or
distribution of a product.
A company opts for vertical integration to ensure full control over the
supply of the raw materials to manufacture its products. It may also
employ vertical integration to take over the reins of distribution of its
products.
It is two kinds
1. Backward vertical integration
2. Forward vertical integration

32. Backward Vertical Integration
It occurs when a company decides to buy another company that makes
an input product for the acquiring company's product.
For example, a car manufacturer is undergoing a backward integration if
it acquires a tire manufacturer. This ensures the manufacturer it has a
steady supply of tires in order to keep making its cars.
E.g.: An example of backward integration would be if a Levi Strauss
owned its own cotton farms in Uzbekistan (one of the world's major
suppliers of cotton).

33. Forward Vertical Integration
It occurs when a company decides to take control of the post-production process. So
that car manufacturer from the example in previous slide may acquire an
automotive dealership through forward integration the process of acquiring a
business ahead of its own supply chain. This not only gets the manufacturer closer
to the consumer, but it also gives the company more revenue.
E.g.: Amazon’s purchase of whole foods is one of the highest-profile examples of
forward integration strategy in the current years. Amazon was already in the grocery
business in a small way, but this acquisition made Amazon a top player in the
market.

34. Horizontal Integration
Horizontal integration is the acquisition of business activities that are at the same
level of the value chain in similar or different industries.
Companies may choose to undergo horizontal integration in order to increase their
size, diversify product or services offerings, achieve economies of scale, or reduce
competition.
E.g.: Tata Steel's acquisition of Corus, which made Tata Steel a new steel giant. The
acquisition helped Tata Steel to tap European mature market; and the cost of
acquisition was lower than setting up of greenfield plant and marketing and
distribution channel.

35. Cooperation Strategy
Corporate strategies could consider the possibility of competition co-existing
with cooperation. The term ‘co-opetition’ explains the idea of simultaneous
competition with cooperation among rival firms for mutual benefit.
The strategic alternatives based on cooperation among firms could take the
following forms:
1. Mergers
2. Takeover or Acquisitions
3. Joint Ventures
4. Strategic Alliances

36. Mergers
Mergers are a way for companies to expand their reach, expand into new segments,
or gain market share. A merger is the voluntary fusion of two companies on broadly
equal terms into one new legal entity.
Mergers are most commonly done to gain market share, reduce costs of operations,
expand to new territories, unite common products, grow revenues, and increase
profits.
E.g.: Vodafone India and Idea Cellular, two of India top wireless carriers, are
merging operations in the country to create an entity that will be equally owned by
UK’s Vodafone Group and India’s diversified Aditya Birla Group.

37. Takeover or Acquisitions
An acquisition is when one company purchases most or all of another company's
shares to gain control of that company.
Purchasing more than 50% of a target firm's stock and other assets allows the
acquirer to make decisions about the newly acquired assets without the approval of
the company’s shareholders. Acquisitions, which are very common in business, may
occur with the target company's approval, or in spite of its disapproval. With
approval, there is often a no-shop clause during the process.
E.g.: Walmart acquired 77% Flipkart for $16 billion, making it the
largest acquisition involving an Indian company, in 2018.

38. Joint Ventures
A joint venture (JV) is a business arrangement in which two or more parties
agree to pool their resources for the purpose of accomplishing a specific task.
This task can be a new project or any other business activity.
In a joint venture (JV), each of the participants is responsible for profits,
losses, and costs associated with it. However, the venture is its own entity,
separate from the participants' other business interests
E.g.: Joint Venture between Indian corporate giant Tata Sons and Singapore
Airlines (SIA) Vistara is a popular example where Tata Sons holds a 51% stake,
SIA controls the rest 49% in the carrier airlines.

39. Strategic Alliances
A strategic alliance is an arrangement between two companies to
undertake a mutually beneficial project while each retains its
independence.
The agreement is less complex and less binding than a joint venture, in
which two businesses pool resources to create a separate business entity.
E.g.: ICICI Bank, India's largest private sector bank and Vodafone India,
one of India's largest telecom service providers, entered into a strategic
alliance to launch a unique mobile money transfer and payment service
called 'm-pesa'.

40. Internationalisation
Internationalisation strategy refers to the plan of action leading towards the
comprehensive integration of international, intercultural or global dimensions
throughout the purpose, function and delivery of the University's research,
education and engagement.
E.g.: The fifth largest IT company in India has almost offices in 31 countries
worldwide. During 1991 when IT industry was starting to bloom in the Indian
market, the parent company HCL Enterprise formed the IT division HCL
Technologies after R&D research. It operates across a number of sectors
including aerospace and defense, automotive, consumer electronics, energy
and utilities, financial services, government, industrial manufacturing, life
sciences.

41. Digitalisation
'Digitalisation strategy' is a strategic plan formulated to achieve specific
goals through a digital medium. Marketers and salespeople will see
a digital strategy as meaning increased leads and sales, whereas IT and
operations employees would look for cloud-based system and data
analytics
E.g.: Reliance industries has adopted digital strategy as they move to
digital platforms to market their products. reliancedigital.com, ajio.com
etc. are the results of digital strategy.

42. Restructuring Strategies
Corporate restructuring is the process of redesigning one or more aspects of a
company. Corporate restructuring is an action taken by the corporate entity to modify
its capital structure or its operations significantly.
The process of reorganizing a company may be implemented due to a number of
different factors, such as positioning the company to be more competitive, survive a
currently adverse economic climate, or poise the corporation to move in an entirely
new direction.
Restructuring strategies are two types
1) Financial restructuring
2) Organisational restructuring

43. Financial Restructuring
Financial restructuring is the reorganization of the financial assets and
liabilities of a corporation in order to create the most beneficial financial
environment for the company.
The process of financial restructuring is often associated with corporate
restructuring, in that restructuring the general function and composition of the
company is likely to impact the financial health of the corporation. When
completed, this reordering of corporate assets and liabilities can help the
company to remain competitive, even in a depressed economy.
E.g.: The restructuring plan for Air India would include a proposal for
converting its high interest debt to low interest ones and the issuance of a
letter of comfort for its lenders (i.e. banks and financial institutions).

44. Organisational Restructuring
In organizational restructuring, the focus is on management and internal corporate
governance structures.
Organizational restructuring has become a very common practice amongst the firms
in order to match the growing competition of the market.
This makes the firms to change the organizational structure of the company for the
betterment of the business.
E.g.: Over 94,000 employees of state-run BSNL and MTNL have so far applied for the
recently announced Voluntary Retirement Scheme (VRS) with eight more days to go
for its closure, as per the reports.

45. 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.
These strategies are three types
1) Turnaround strategy
2) Divestment strategy
3) Liquidation strategy

46. Turnaround strategy
Emphasizes the improvement of operational efficiency and is probably most
appropriate when a corporation’s problems are pervasive but not yet critical.
Analogous to a weight reduction diet, the two basic phases of a turnaround strategy
are contraction and consolidation.
Contraction: It is the initial effort to quickly “stop the bleeding” with a general
across the board cutback in size and costs.
Consolidation: It implements a program to stabilize the now-leaner corporation. To
streamline the company, plans are developed to reduce unnecessary overhead and to
make functional activities cost justified.
E.g.: After the Satyam scam, the company was taken over by Mahindra and
Mahindra and revived the financial position of the company.

47. Divestment Strategy
If a corporation with a weak competitive position in its industry is unable either to
pull itself by its bootstraps or to find a customer to which it can become a captive
company, it may have no choice to Sell Out.
The sell out strategy makes sense if managements can still obtain a good price for its
shareholders and the employees can keep their jobs by selling the entire company to
another firm.
E.g.: Shares of BALCO (Bharat Aluminium Company) are sold to Sterlite Industries

48. Liquidation Strategies
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.
Because no one is interested in buying a weak company in an
unattractive industry, the firm must pursue a bankruptcy or
liquidation strategy.

49. Bankruptcy: It involves giving up management of the firm to the courts in return for
some settlement of the corporation’s obligations.
Eg: GTB (Global Trust Bank) was promoted as a private sector bank in 1993, in
2004, it became bankrupt under the pressure of bad loans and merged with a public
sector bank, Oriental Bank of Commerce.
Liquidation: It is the termination of the firm. Because the industry is unattractive and
the company too weak to be sold as a going concern, management may choose to
convert as many saleable assets as possible to cash, which is then distributed to the
shareholders after all obligations are paid.
E.g.: Essar Steel Ltd. went for liquidation as the company incurred continuous losses
and final Arcelor acquired the company.

50. Combination Strategies
It is the combination of stability, growth & retrenchment strategies adopted by an
organisation, either at the same time in its different businesses, or at different times
in the same business with the aim of improving its performance.
For example, it is certainly feasible for an organization to follow a retrenchment
strategy for a short period of time due to general economic conditions and then
pursue a growth strategy once the economy strengthens.

51. Combination Strategies
The obvious combination strategies include (a) retrench,
then stability; (b) retrench, then growth; (c) stability, then
retrench; (d) stability, then growth; (e) growth then retrench,
and (f) growth, then stability.
Combination strategies can be sequential and simultaneous
For example: Tata Iron & Steel Company (TISCO) had first
consolidated its position in the core steel business, then
divested some of its non-core businesses.

52. Business Level Strategies
A Business-Level Strategy can help your organization achieve a competitive
advantage in the marketplace. They provide a way to provide value to customers
by exploiting your organization’s core competencies.
According to the Business-Level Strategies theory, there are two types of
competitive advantage that an organization must choose between:
Cost Leadership: ensuring you cost less than your competitors.
Differentiation: ensuring you are different from your competitors

54. Cost Leadership
This strategy is for organizations that want to compete for a broad customer base
based on price. A misconception about this strategy is that returns are lower. That is
not the case. To maintain above-average returns and provide the lowest price, the
organization must focus on internal efficiencies continually.
Common mechanisms to drive down costs include establishing rigid cost controls,
building state-of-the-art facilities to produce at scale at a low cost and to be effective,
this strategy requires your product or service to be standardized.
Example: Amazon is an example of a business using a cost leadership strategy. It
focuses on attracting a large number of customers. It keeps prices low by using its
vast buying power to buy products cheaply. This is then combined with no physical
stores and state of the art distribution facilities to pass these savings on to consumers
but still keep margins high.

55. Amazon Product Range

57. Differentiation Strategy
This strategy is for firms that want a broad customer base based on their
uniqueness. Typically, firms with this strategy will focus on building unique features
to win in the marketplace. They also usually charge a higher price to their
customers, to offset the cost of being unique.
Common mechanisms to differentiate include superior quality, customer service,
design and uniqueness.
Example: Apple is an example of a firm operating a differentiation strategy to sell its
laptops to a broad market. Their unique design and engineering allow them to stand
out in the marketplace. This enables them not only to charge a premium price but
also to combat competitors

58. Apple Unique Product Lines

60. Focused Cost Leadership
These organizations compete on price but also stand out because they focus on
serving a niche market. Common mechanisms to adopt a focused cost leadership
strategy include focusing on serving a small group of customers and by
understanding the needs of your smaller target market, you can uniquely cut costs to
serve the needs of that market.
Example: Checkers is a US-based fast-food company that operates on a drive-in only
basis. It saves money versus its competitors because it doesn’t offer customers
anywhere to sit, and its buildings are cheaper to construct. Checkers targets the
cheaper end of the market. However, despite this, Checkers can still achieve high-
margins because it has lower overheads.

63. Focused Differentiation Strategy
This strategy is very similar to that of a differentiation strategy except that it is
focused on a very narrow segment of the market.
These firms compete by offering unique features to a small market segment.
Common mechanisms to focus include select a profitable narrow subset of the
market, focus on areas where competition is weakest and focus on a segment where
product substitution is difficult.
Example: Rolls Royce cars is an example of a company using a focused
differentiation strategy. Their cars are synonymous with prestige, quality, and
engineering excellence. They are premium priced and focused on a tiny subset of
the global car market.

65. Integrated Cost and Differentiation Strategy
This strategy involves producing low-cost products with differentiated features. This strategy
is about simultaneously focusing on two drivers of competitive advantage: cost and
differentiation. This type of strategy is often called a hybrid strategy. To understand the
appeal of a hybrid strategy, realize that a mid-priced product that distinguishes itself in some
way can be more appealing to customers than a cheap generic product.
Example: IKEA is a great example of a business with an integrated cost leadership and
differentiation strategy. It sells unique products that you can’t get elsewhere. It invests in its
own designers to achieve this. It also sells its products at a low price. It invests in automation
and logistics to do this.

67. FUNCTIONAL LEVEL STRATEGIES
Functional level strategies are the actions and goals assigned to
various departments that support your business level strategy and
corporate level strategy.
These strategies specify the outcomes you want to see achieved from
the daily operations of specific departments (or functions) of your
business.
Some of the functional strategies are marketing, human resource,
production, financial and research and development.

68. Marketing Strategies
Marketing involves all the activities concerned with the identification
of customer needs and making efforts to satisfy those needs with the
product and services they require, in return for consideration.
The most important part of a marketing strategy is the marketing mix,
which covers all the steps a firm can take to increase the demand for
its product. It includes product, price, place, promotion, people,
process and physical evidence.
E.g.: Reliance Jio has launched telecom services at no cost in Indian
market to face competition in the market.

69. Financial Strategies
All the areas of financial management, i.e. planning, acquiring,
utilizing and controlling the financial resources of the company are
covered under a financial strategy.
This includes raising capital, creating budgets, sources and
application of funds, investments to be made, assets to be acquired,
working capital management, dividend payment, calculating the net
worth of the business and so forth.
E.g.: BSNL has launched VRS for their employees to reduce the
overheads on salaries.

70. Human Resource Strategies
Human resource strategy covers how an organization works for the development of
employees and provides them with the opportunities and working conditions so
that they will contribute to the organization as well.
This also means to select the best employee for performing a particular task or job.
It strategizes all the HR activities like recruitment, development, motivation,
retention of employees, and industrial relations
E.g.: IT companies conducting campus selection drive to select best talent at less
cost.

71. Production Strategies
A firm’s production strategy focuses on the overall manufacturing system,
operational planning and control, logistics and supply chain management.
The primary objective of the production strategy is to enhance the quality, increase
the quantity and reduce the overall cost of production.
E.g.: Toyota follows Just in Time (JIT) inventory technique to place an order for
components after receiving order for car.

72. Research and Development Strategies
The research and development strategy focuses on innovating and developing
new products and improving the old one, so as to implement an effective
strategy and lead the market.
Product development, concentric diversification and market penetration are
such business strategies which require the introduction of new products and
significant changes in the old one.
E.g.: Samsung has a rigorous research and development programme to develop
new models of mobile phones to face competition in the market.

73. CASE STUDY- ITC Diversification Strategy
In February 2001, the Government of India (GoI) announced a ban on advertising by
cigarette companies and restrictions on the sale and consumption of tobacco
products.
The proposed Tobacco Products (Prohibition of Advertisement and Regulation) Bill
2001 prohibits smoking in public places and the sale of tobacco products to people
under the age of 18. According to the Bill, no tobacco related business would be
allowed to advertise in any type of media.

74. ITC Diversification Strategy
The rising excise duties and competition from smuggled products has impacted the
cigarette manufacturing companies in the country.
In fact, the number of cigarettes sold declined between 1997 and 2002, and major
cigarette companies saw a decline in sales volumes
The declining sales of cigarettes, the proposed ban on advertising and the increasing
anti-tobacco campaigns have made cigarettes would no longer be a profitable
business in the future.

75. ITC Diversification Strategy
This made ITC decided to diversify into non tobacco business. Since
then the company has diversified into a variety of other businesses like
sportswear, greeting cards, ready to serve packaged foods, confectionery
and branded staples to reduce its dependence on its cigarette business.

76. ITC Diversification Strategy
The company aimed at generating 40 percent of its total revenues from such
diversified businesses. To achieve this, it planned to invest around Rs. 26 billion to
Rs. 28 billion in various ventures by 2006. .

77. ITC Diversification Strategy
ITC has also been growing the FMCG portfolio through acquisitions. In 2014, it
acquired B Natural from south Indian juice maker Balan Natural. In 2015, it acquired
Shower to Shower and Savlon brands from Johnson & Johnson and in 2017, Charmis
from Colgate-Palmolive.
The company wanted to achieve FMCG turnover of Rs 1 lakh crore by 2030. In
2016-17, ITC’s FMCG arm had clocked a turnover of Rs 10,000 crore, and in the
nine months ended December 31, 2017, it crossed Rs 8,000 crore. To compare,
FMCG major Hindustan Unilever reported a revenue of Rs 34,487 crore in 2016-17.

78. ITC Diversification Strategy
ITC already has 25 “mother brands” (Sunfeast, Ashirvaad, etc) in its FMCG portfolio
targeted at market segments, and expansion plans will involve filling in the sub-
segments covered by these brands with sub-brands and product variations.
A look at segment-wise revenues and profits in the October-December 2017 quarter
shows why FMCG profits are important. The FMCG segment revenue at Rs 2,871
crore was 62 per cent of cigarette segment revenue, at Rs 4,629 crore. FMCG profit,
at Rs 47 crore, was way smaller than cigarette profit of Rs 3,269 crore.
The agri and paperboards businesses, though much smaller than FMCG, turned in a
profit in excess of Rs 200 crore each. Clearly, FMCG is not contributing enough yet.

79. ITC Diversification Strategy
Almost taking a cue, at the July annual general meeting of ITC, shareholders passed
a resolution to allow the conglomerate to start a hospital or a chain of hospitals.
The company has not yet decided how to go about starting this new line of business.
But the intent of entering healthcare makes it clear that ITC can go the distance to
achieve its desired avatar.
Questions:
1. Do you think ITC has made a right strategy in the form of diversification? Why?
2. How can ITC get rid of Cigarette business as it has negative impact on other
businesses?
3. Suggest any other new business to ITC that it can sustain in the long run.