The document discusses various strategic management concepts including strategy formulation, levels of strategy (corporate, business, functional), types of growth strategies (concentration, diversification), retrenchment strategies (turnaround, divestment, liquidation), and combination strategies. It also discusses Porter's Diamond Model of national competitive advantage and factors that influence a nation's competitiveness such as firm strategy/rivalry, factor conditions, demand conditions, and related/supporting industries. Mergers and acquisitions are defined as ways companies can combine, with mergers integrating two companies and acquisitions involving one company purchasing another.

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Unit 3 Strategic Management Strategy
Formulation

2. 2What is Strategy Formulation?
Definition: Strategy Formulation is an analytical process of selection of
the best suitable course of action to meet the organizational
objectives and vision. It is one of the steps of the strategic
management process. The strategic plan allows an organization to examine
its resources, provides a financial plan and establishes the most
appropriate action plan for increasing profits.
Steps of Strategy Formulation

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Levels of strategy formulation

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Corporate level strategy: This level outlines what you want to achieve:
growth, stability, acquisition or retrenchment. It focuses on
what business you are going to enter the market.
Business level strategy: This level answers the question of how you are
going to compete. It plays a role in those organization which have smaller
units of business and each is considered as the strategic business unit
(SBU).
Functional level strategy: This level concentrates on how an organization
is going to grow. It defines daily actions including allocation of resources to
deliver corporate and business level strategies.

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Retrenchment Strategy
The Retrenchment Strategy is adopted when an organization aims at
reducing its one or more business operations with the view to cut expenses
and reach to a more stable financial position. In other words, the strategy
followed, when a firm decides to eliminate its activities through a considerable
reduction in its business operations, in the perspective of customer groups,
customer functions and technology alternatives, either individually or
collectively is called as Retrenchment Strategy.
The firm can either restructure its business operations or discontinue it, so as
to revitalize its financial position. There are three types of Retrenchment
Strategies:

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Turnaround Strategy
Definition: The Turnaround Strategy is a retrenchment strategy followed by
an organization when it feels that the decision made earlier is wrong and
needs to be undone before it damages the profitability of the company.
Simply, turnaround strategy is backing out or retreating from the decision
wrongly made earlier and transforming from a loss making company to a profit
making company.
Example: Dell is the best example of a turnaround strategy. In 2006. Dell
announced the cost-cutting measures and to do so; it started selling its
products directly, but unfortunately, it suffered huge losses. Then in 2007, Dell
withdrew its direct selling strategy and started selling its computers through the
retail outlets and today it is the second largest computer retailer in the world.

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Divestment Strategy
Definition: The Divestment Strategy is another form of retrenchment
that includes the downsizing of the scope of the business. The firm is
said to have followed the divestment strategy, when it sells or liquidates
a portion of a business or one or more of its strategic business units or
a major division, with the objective to revive its financial position.
Example: Tata Communications is the best example of divestment
strategy. It has started the process of selling its data center business to
reduce its debt burden.
Liquidation Strategy
Definition: 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.
Generally, small sized firms, proprietorship firms and the partnership
firms follow the liquidation strategy more often than a company. The
liquidation strategy is unpleasant, but closing a venture that is in losses
is an optimum decision rather than continuing with its operations and
suffering heaps of losses.

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Combination strategies
Definition: The Combination Strategy means making the use of
other grand strategies (stability, expansion or retrenchment)
simultaneously. Simply, the combination of any grand strategy used by
an organization in different businesses at the same time or in the same
business at different times with an aim to improve its efficiency is called
as a combination strategy. Such strategy is followed when an
organization is large and complex and consists of several businesses
that lie in different industries, serving different purposes. Go through
the following example to have a better understanding of the
combination strategy:
A baby diaper manufacturing company augments its offering of diapers
for the babies to have a wide range of its products (Stability) and at
the same time, it also manufactures the diapers for old age people,
thereby covering the other market segment (Expansion). In order to
focus more on the diapers division, the company plans to shut down its
baby wipes division and allocate its resources to the most profitable
division (Retrenchment).

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Combination Strategies are of following 3
types:-
• Growth/Growth Strategy
• Stability Strategy
• Retrenchment strategies
Grand Strategies : The Grand Strategies are the corporate level
strategies designed to identify the firm’s choice with respect to the
direction it follows to accomplish its set objectives. Simply, it involves the
decision of choosing the long term plans from the set of available
alternatives. The Grand Strategies are also called as Master
Strategies or Corporate Strategies.
Stability Strategy : The Stability Strategy is adopted when the
organization attempts to maintain its current position and focuses only
on the incremental improvement by merely changing one or more of its
business operations in the perspective of customer groups, customer
functions and technology alternatives, either individually or collectively.

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Retrenchment Strategy- The Retrenchment Strategy is adopted when an
organization aims at reducing its one or more business operations with the
view to cut expenses and reach to a more stable financial position.
Competitive and Cooperative Strategies
A competitive strategy is defined as a company is looking for an advantage
over theircompetition. While a cooperative strategy, though having
similarities of a competitive strategy, itis defined as a business seeking to
“cooperate” with another firm to find the competitiveadvantage together
(Wheelen et al., 2015).

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Types of Growth Strategies

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Concentration Strategy- A strategic approach in which a business focuses
on a single market or product. This allows the company to invest more
resources in production and marketing in that one area, but carries the risk
of significant losses in the event of a drop in demand or increase in the level
of competition

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Diversification Strategies: Related and Unrelated Diversification
Diversification is the art of entering product markets different from those in
which the firm is currently engaged in. It is helpful to divide diversification into
‘related’ diversification and ‘unrelated’ diversification.
A related diversification is one in which the two involved businesses have
meaningful commonalties, which provide the potential to generate
economies of scale or synergies based upon the exchange of skills or
resources. In a related diversification the resulting combined business should
be able to achieve improved ROI because of increased revenues, decreased
costs, or reduced investment, which are attributable to the commonalties.
Unrelated diversification lacks commonality in markets, distribution channels,
production technology, and R&D thrust to provide the opportunity for synergy
through the exchange or sharing of assets or skills. Reliance entered into
retailing by allocating Rs25, 000 crore in a phased manner is a typical
example.

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Starbucks – Related Diversification
Starbucks is a global coffee chain, originating from the U.S. . The
business has been pursuing a long-term strategy of diversifying its
core offering beyond beverages; this is designed to help differentiate
the brand, which is very important considering coffee is almost a
commodity. The latest development is that Starbucks now plans to
increase its focus on food. In the U.S. Starbucks is now serving La
Boulange pastries – a bakery that the firm acquired for $100 million –
and Evolution Harvest granola bars – again acquired for a tasty $30
million. Across the sea in the U.K Starbucks has launched a new
food range, with the ‘Duffin’ doughnut/muffin hybrid serving as the
flagship product.
Reliance Industries- Unrelated Diversification
The company offers products and services in various outlines and
has made a niche in Telecom, Clothing, Retail, Grocery Etc.

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Porters Model of competitive advantage of
nations
Internationalization can refer to a company that takes steps to increase
its footprint or capture greater market share outside of its country of
domicile by branching out into international markets.
• Internationalization describes designing a product in a way that it
may be readily consumed across multiple countries.
• This process is used by companies looking to expand their global
footprint beyond their own domestic market understanding
consumers abroad may have different tastes or habits.
• Internationalization often requires modifying products to conform to
the technical or cultural needs of a given country, such as creating
plugs suitable for different types of electrical outlets.

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When a company produces goods for a wide range of customers in
different countries, the products that are internationalized often must
be localized to fit the needs of a given country's consumers.
For example, an internationalized software program must be localized
so that it displays the date convention as "November 14" in the United
States, but as "14 November" in England. Likewise, units in America
are measured in feet or miles, while in Europe and Canada they use
the metric system. This means that cars sold across these markets
must be able to quickly interchange between miles and kilometers.

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Porter’s Diamond Model: Why Some Nations Are Competitive
And Others Are Not
Michael Porter’s Diamond Model (also known as the Theory of National
Competitive Advantage of Industries) is a diamond-shaped framework that
focuses on explaining why certain industries within a particular nation
are competitive internationally, whereas others might not. And why is it
that certain companies in certain countries are capable of consistent
innovation, whereas others might not? Porter argues that any company’s
ability to compete in the international arena is based mainly on an
interrelated set of location advantages that certain industries in different
nations posses, namely: Firm Strategy, Structure and Rivalry; Factor
Conditions; Demand Conditions; and Related and Supporting
Industries. If these conditions are favorable, it forces domestic companies to
continiously innovate and upgrade. The competitiveness that will result from
this, is helpful and even necessary when going internationally and battling
the world’s largest competitors. This article will explain the four main
components and include two components that are often included in this
model: the role of the Government and Chance. Together they form
the national environment in which companies are born and learn how to
compete.

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Firm Strategy, Structure and Rivalry:
The national context in which companies operate largely determines
how companies are created, organized and managed: it affects their
strategy and how they structure themselves. Moreover, domestic
rivalry is instrumental to international competitiveness, since it
forces companies to develop unique and sustainable strenghts and
capabilities. The more intense domestic rivalry is, the more companies
are being pushed to innovate and improve in order to maintain their
competitive advantage. In the end, this will only help companies when
entering the international arena. A good example for this is the Japanese
automobile industry with intense rivalry between players such as Nissan,
Honda, Toyota, Suzuki, Mitsubishi and Subaru. Because of their own
fierce domestic competition, they have become able to more easily
compete in foreign markets as well.

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Factor conditions- Factor conditions in a certain country refer to the natural,
capital and human resources available. Some countries are for example very
rich in natural resources such as oil for example (Saudi Arabia). This explains
why Saudi Arabia is one of the largest exporters of oil worldwide. With human
resources, we mean created factor conditions such as a skilled labor force,
good infrastructure and a scientific knowlegde base. Porter argues that
especially these ‘created’ factor conditions are important opposed to ‘natural’
factor conditions that are already present.
Demand Conditions- The home demand largely affects how favorable
industries within a certain nation are. A larger market means more challenges,
but also creates opportunities to grow and become better as a company. The
presence of sophisticated demand conditions from local customers also
pushes companies to grow, innovate and improve quality. Striving to satisfy
a demanding domestic market propels companies to scale new heights and
possibly gain early insights into the future needs of customers across borders.
Nations thus gain competitive advantage in industries where the local customers
give companies a clearer or earlier picture of emerging buyer needs, and where
demanding customers pressure companies to innovate faster and achieve more
sustainable competitive advantages than their foreign rivals.

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Related and Supporting Industries -The presence of related and
supporting industries provides the foundation on which the focal industry
can excel. As we have seen with the Value Net, companies are often
dependent on alliances and partnerships with other companies in order
to create additional value for customers and become more
competitive. Especially suppliers are crucial to enhancing innovation
through more efficient and higher-quality inputs, timely feedback
and short lines of communication.
Government -The role of the government in Porter’s Diamond Model is
described as both ‘a catalyst and challenger‘. Porter doesn’t believe in a
free market where the government leaves everything in the economy up
to ‘the invisible hand’. However, Porter doesn’t see the government as
an essential helper and supporter of industries either. Governments
cannot create competitive industries; only companies can do that.
Rather, governments should encourage and push companies to
raise their aspirations and move to even higher levels of
competitiveness

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Chance - Even though Porter originally didn’t write anything
about chance or luck in his papers, the role of chance is often included in
the Diamond Model as the likelihood that external events such as war and
natural disasters can negatively affect or benefit a country or industry.
However, it also includes random events such as where and when
fundamental scientific breakthroughs occur. These events are beyond the
control of the government or individual companies. For instance, the
heightened border security, resulting from the September 11 terrorist attacks
on the US undermined import traffic volumes from Mexico, which has had a
large impact on Mexican exporters. The discontinuities created by
chance may lead to advantages for some and disadvantages for other
companies.

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Mergers and Acquisitions
Mergers and acquisitions (or M&A) are transactions of changing
ownership between two companies, wherein a merger is a combining
of two companies and an acquisition is one company buying another.
The end-goal of M&A is to create synergy, which essentially makes
the two combined companies worth more or more valuable than the
two separate companies.
Mergers- Two companies can initiate a merger by having the board
of directors approve and seek shareholders' approval for the
combination of the two separate companies into one company.
In general, both companies are typically of comparable size, and the
two merge into one company, often creating an entirely new
company.
Acquisitions- An acquisition occurs when one company "targets"
another company, generally called the target company, and typically
obtains a controlling interest in that company. The target
company usually ceases to exist once it has been acquired, and
there are several ways which a target company can be acquired -
both through hostile and friendly takeovers.

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Joint Venture- Joint Venture is a business preparation in which more than two
organizations or parties share the ownership, expense, return of investments,
profit, governance, etc. To gain a positive synergy from their competitors,
various organizations expand either by infusing more capital or by the medium
of Joint Ventures with organizations.
Strategic alliances are agreements between two or more independent
companies to cooperate in the manufacturing, development, or sale of
products and services, or other business objectives.
•For example, in a strategic alliance, Company A and Company B combine their
respective resources, capabilities, and core competencies to generate mutual
interests in designing, manufacturing, or distributing goods or services.
•Digital strategy focuses on using technology to improve business
performance, whether that means creating new products or reimagining current
processes. It specifies the direction an organization will take to create new
competitive advantages with technology, as well as the tactics it will use to
achieve these changes.

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What is the difference between a Merger,
Acquisition, and Joint Venture?
Merger: A merger is when two separate companies combine with
one another to create a newly formed organization.
Acquisition: An acquisition is when one business entity takes over
another, usually with the intent of adding the acquired entity as a
subsidiary to its business portfolio.
Joint Venture: A joint venture involves two separate entities
undertaking a company or business together, sharing its profit, loss
and control. The venture is maintained as its own entity, separate
from the other parties’ companies business interests.