Module 1

Amity Business School
Strategic Management
The Evolution
Some Questions
• How has the strategy field developed?

• How has the thinking in strategy evolved?
• How is the thinking in strategy moving towards?
• What are the questions in strategy that are not answered?
• What are the dilemmas and confusions in the field of strategy
• What have been the loop holes in strategy making?
• What are the potential models of sustainable strategy?
Major Timeline
1950s 1960s-early 70s Mid-70s-mid-80s Late 80s –1990s 2000s
Budgetary Corporate Positioning Competitive Strategic

DOMINANT
THEME
planning & planning advantage innovation
control
Financial Planning Selecting Focusing on Reconciling

MAIN control growth &- sectors/markets. sources of size with
ISSUES
diversification Positioning for competitive flexibility &
leadership advantage agility
Capital Forecasting. Industry analysis Resources & Cooperative

KEY budgeting. Corporate Segmentation capabilities. strategy.
CONCEPTS& Financial planning. Experience curve Shareholder Complexity.
TOOLS planning Synergy Portfolio analysis value. Owning
E-commerce. standards.
— Knowledge Management—
Coordination Corporate Diversification. Restructuring. Alliances &

& control by planning depts. Global strategies. Reengineering. networks
MANAGE- Budgeting created. Rise of Matrix structures Refocusing. Self-organiz
MENT systems corporate Outsourcing. ation & virtual
IMPLIC-
ATIONS
planning organization
Major Thought Schools

Alfred Chandler – Corporate Strategy
John Dunning – IB Strategy
C K Prahalad – Inclusive Strategy
Sumantra Ghoshal – Problems in T.C.E.

Historical development of Strategic

Management
Birth of strategic management
originated in the 1950s and 60s
 Alfred D. Chandler, Jr.,

 Philip Selznick,
 Igor Ansoff,
 Peter F. Drucker
Alfred Chandler
Strategy and Structure

“structure follows strategy”
Philip Selznick
Organization's internal factors with external

environmental circumstances
SWOT analysis
Igor Ansoff
market penetration strategies
product development strategies
market development strategies
horizontal and vertical integration
diversification strategies
Corporate strategy
Peter Drucker
stressed the importance of objectives
management by objectives (MBO)

Growth and portfolio theory
 Profit Impact of Marketing Strategies (PIMS)
 effect of market share
 Started at General Electric, moved to Harvard in the early

1970s, and then moved to the Strategic Planning Institute in
the late 1970s, it now contains decades of information on
the relationship between profitability and strategy
 "PIMS provides compelling quantitative evidence as to

which business strategies work and don't work" - Tom
Peters.
 The Japanese challenge:
• Higher employee morale, dedication, and loyalty;
• Lower cost structure, including wages;
• Effective government industrial policy;
• Modernization after WWII leading to high capital intensity and productivity;
• Economies of scale associated with increased exporting;
• Relatively low value of the Yen leading to low interest rates and capital costs,
low dividend expectations, and inexpensive exports;
• Superior quality control techniques such as Total Quality Management and other
systems introduced by W. Edwards Deming in the 1950s and 60s.
McKinsey 7S Framework
Strategy, Structure, Systems, Skills, Staff,

Style, and Supra-ordinate goals
The Mind of the Strategist was released in

America by Kenichi Ohmae
Tom Peters -In Search of Excellence

 Gaining competitive advantage

Gary Hamel and C. K. Prahalad
Strategic intent and strategic architecture
 Dave Packard and Bill Hewlett devised an active

management style that they called Management
By Walking Around (MBWA).
 Michael Porter
cost minimization strategies, product
differentiation strategies, and market focus
strategies
The Military Theorists
• Business War Games by Barrie James, 1984

• Marketing Warfare by Al Ries and Jack Trout, 1986
• Leadership Secrets of Attila the Hun by Wess Roberts ,
1987
Philip Kotler was a well-known proponent of marketing

warfare strategy
• Offensive marketing warfare strategies

• Defensive marketing warfare strategies
• Flanking marketing warfare strategies
• Guerrilla marketing warfare strategies
Strategic change
In 1968, Peter Drucker (1969) coined the phrase

Age of Discontinuity
In 2000, Gary Hamel discussed strategic decay
In 1978, Abell, D. described strategic windows and

stressed the importance of the timing (both
entrance and exit) of any given strategy
Clayton Christensen (1997)

1-disruptive technology
2-agnostic marketing (no one knows how in what
quantities a disruptive product will be used before
experiencing the product)
Henry Mintzberg (1988) – Strategy was much more

fluid and unpredictable than people had thought
• Strategy as plan - a direction, guide, course of action -

intention rather than actual
• Strategy as ploy - a maneuver intended to outwit a

competitor
• Strategy as pattern - a consistent pattern of past behaviour

- realized rather than intended
• Strategy as position - locating of brands, products, or

companies within the conceptual framework of consumers
or other stakeholders - strategy determined primarily by
factors outside the firm
• Strategy as perspective - strategy determined primarily by a

master strategist
Information and technology

driven strategy
• Peter Drucker had theorized the rise of the “knowledge worker” back in
the 1950s
• In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch
Shell, borrowed de Geus' notion of the learning organization
• People can continuously expand their capacity to learn and be

productive
• New patterns of thinking are nurtured
• Collective aspirations are encouraged, and
• People are encouraged to see the “whole picture” together.

Senge identified five components of a learning organization.

They are:
• Personal responsibility
• Self reliance
• Mastery of Mental models
• Team learning -“a spirit of advocacy to a spirit of enquiry”
• Systems thinking
The psychology of strategic

management
informal, intuitive, non-routinised, and

involving primarily oral, 2-way
communications
“feeling”, “judgement”, “sense”, “proportion”,

“balance”, “appropriateness”.
Criticisms of strategic
management
 marketing myopia
 In 2000, Gary Hamel coined the term strategic

convergence
 Ram Charan, aligning with a popular marketing

tagline, believes that strategic planning must not
dominate action. "Just do it!",
Journals/Magazines devoted primarily to

Strategic Management
• Strategic Management Journal

• Harvard Business Review
• Long Range Planning
• The Economist
• MIT Sloan Management Review
• Academy of Management Journal
Levels of Strategy
Functional Strategy supports Business Strategy which in turn

supports the Corporate Strategy
CORPORATE STRATEGY:
Overall Direction of Company and Management of Businesses
BUSINESS STRATEGY:
Competitive & Cooperative Strategies
It occurs at Business unit or Product level.
It emphasizes on improvement of competitive
position of Corporations product & services
FUNCTIONAL STRATEGY:
Maximize Resource Productivity
It is concerned with developing & nurturing a
distinctive competence to provide a company or
business unit with a competitive advantage
ORGANIZATIONAL STRUCTURE
&
LEVELS OF STRATEGY
Corporate Corporate
Strategy Head Office
Business
Strategy Div-A Div-B Div-C
Functional
Strategy Prod. HR Fin. Marketing
Corporate Level Strategy

• What businesses are we in? What
businesses should we be in?
• Four areas of focus
– Diversification management (acquisitions
and divestitures)
– Synergy between units
– Investment priorities
– Business level strategy approval (but not
crafting)
Business Level Strategy

• How do we support the corporate strategy?
• How do we compete in a specific business arena?
• Three types of business level strategies:
– Low cost producer
– Differentiator
– Focus
• Four areas of focus
– Generate sustainable competitive advantages
– Develop and nurture (potentially) valuable capabilities
– Respond to environmental changes
– Approval of functional level strategies
Functional / Operational Level Strategy
• Functional: How do • An example.

we support the • Business L.S.: Become the
low cost producer of
business level
widgets
strategy?
• Functional L.S. (Mfg.):
• Operational: How do Reduce manufacturing
we support the costs by 10%
functional level • Operational (Plant #1):
strategy? Increase worker
productivity by 15%
A Simple Organization Chart

(Single Product Business)
Business Business
Level
Strategy
Research and Human

Manufacturing Marketing Finance
Development Resources
Functional
Level
Strategy
A Simple Organization Chart

(Dominant or Related Product Business)
Corporate Multibusiness
Level Corporation
Business
Level
Business 1 Business 2 Business 3
(Related) (Related) (Related)
Functional
Level
Research and Human
Manufacturing Marketing Finance
Development Resources
An example of an Unrelated Product Business

(Note: By itself, an SBU can be considered a related
SBU: a single product business)
business or collection
of related businesses
that is independent A Ex.: G.E. (General
and formulates its (Multi-business) Electric Corp.)
own strategy Corporation
Strategic S.B.U.
Business Unit 1 2
Company 1 Co. 2 Co. 3 Division 1 Div. 2 Div. 3

Corporate Strategy
• Corporate Strategy
• Approach to future that involves
(1) examination of the current and anticipated factors
associated with customers and competitors
(external environment) and the firm itself (internal
environment),
(2) envisioning a new or effective role for the firm in
a creative manner, and
(3) aligning policies, practices, and resources to
realize that vision.
Industry
Attractiveness Corporate
Strategy
Which Industry
should we be in?
Rate of Return
above the Cost
of Capital
How do we
make money?
Competitive Business
Advantage
Strategy
How Should we
Compete?
Corporate Strategies
I. Directional
The firm’s overall direction toward growth, stability, or retrenchment
II. Portfolio
The industries or markets in which the firm compete through its products and
business units
III. Parenting
The manner in which management coordinates activities and transfers
resources and cultivates capabilities among product lines and business units
(Grand Strategies) Amity Business School
I. Directional Strategies
A. Growth Strategies i. Forward Integration
1. Concentration ii. Backward Integration
a. Vertical Growth
b. Horizontal Growth
2. New Product
3. New Market i. Exporting
4. Diversification ii. Licensing
iii. Franchising
a. Concentric iv. Joint Ventures
b. Conglomerate v. Acquisitions
B. Stability Strategies vi. Green Field Development
1. Pause vii. Production Sharing
2. No Change viii. Turnkey operations
3. Profit ix. Management contracts
C. Retrenchment Strategies x. Build, Operate, Transfer
(BOT)
1. Turnaround
2. Captive Company
3. Sell out or Divestment
4. Bankruptcy or Liquidation
II. Portfolio Strategy
III. Parenting Strategy
Growth Strategies
Related to expansion of company’s activities, such
as increasing sales or adding products
Concentration- within one product line or industry

Vertical Growth- Growth can be achieved through
vertical growth by taking over a function previously
provided by a supplier or by a distributor. This may
be done to reduce cost, gain control over a scarce
resource, guarantee quality of a key input, or obtain
access to a new customer. This is logical for a
corporation with a strong competitive position in a
highly attractive industry
Vertical Integration
• When a firm’s grand strategy is to acquire
firms that supply it with inputs (such as raw
materials) or are customers for its outputs
(such as warehouses for finished products),
vertical integration is involved
• The main reason for backward integration is
the desire to increase the dependability of
the supply or quality of the raw materials
used as production inputs
7-37
Horizontal Integration
• When a firm’s long-term strategy is based on
growth through the acquisition of one or
more similar firms operating at the same
stage of the production-marketing chain, its
grand strategy is called horizontal
integration
• Such acquisitions eliminate competitors and
provide the acquiring firm with access to
new markets
7-38
Vertical and Horizontal
Integration
7-39
• Full Integration
– Company produces all of a particular input
from its own operations.
– Disposes of all of its completed products through its own
outlets.
• Taper Integration
– In addition to company-owned suppliers, the company will
also use other suppliers for inputs or independent outlets
in addition to company-owned outlets.
Full and Taper Integration

Increasing Profitability Through Vertical Integration

A company pursues vertical integration to strengthen
the business model of its original or core business or to
improve its competitive position:
1. Facilitates investments in efficiency-enhancing
specialized assets
– Allows company to lower the cost structure or
– Better differentiate its products
2. Enhances or protects product quality
– To strengthen its differentiation advantage through either forward or
backward integration
3. Results in improved scheduling
– Makes it easier and more cost-effective to plan, coordinate, and
schedule the transfer of product within the value-added chain
– Enables a company to respond better to changes in demand
Problems with vertical Integration

Companies may disintegrate or exit industries adjacent to the industry
value chain when encountering disadvantages from the vertical integration:
• Cost structure is increasing.

– Company-owned suppliers develop a higher cost structure than those
of the independent suppliers
– Bureaucratic costs of solving transaction difficulties
• The technology is changing fast.
– Vertical integration may lock into old or inefficient technology
– Prevent company from changing to a new technology that could
strengthen the business model
• Demand is unpredictable.
• Creates risk in vertical integration investments.
Vertical integration can weaken business model when:
• Company-owned suppliers lack incentive to reduce costs
• Changing demand or technology reduces ability to be competitive
Alternatives to Vertical Integration: Cooperative Relationships

Strategic Alliances are long-term agreement between two or
more companies to jointly develop new products or processes
that benefit all companies concerned.
• Short-term contracts and competitive bidding
– May signal a company’s lack of commitment to its supplier
• Strategic alliances and long-term contracting
– Enables creation of a stable long-term relationship
– Becomes a substitute for vertical integration
– Avoids the problems of having to manage a company located in an adjacent industry
• Building long-term cooperative relationships
– Hostage taking – creating a mutual dependency
– Credible commitments – a believable promise or pledge
– Maintaining market discipline – power to discipline supplier
• Periodic contract renegotiation  Parallel sourcing policy
Strategic Outsourcing
Strategic Outsourcing allows one or more of a company’s
value-chain activities or functions to be performed by
independent specialized companies that focus all their
skills and knowledge on just one kind of activity.
• Company is choosing to focus on a fewer number of value-
creation activities
 In order to strengthen its business model
• Company’s typically focus on noncore or nonstrategic activities
 In order to determine if they can be performed more effectively
and efficiently by independent specialized companies
• Virtual Corporation
 Describes companies that have pursued extensive strategic
outsourcing
Strategic Outsourcing of Primary Value

Creation Functions
Benefits of Outsourcing
1. Reducing the cost structure
– The specialist company cost is less than what it would cost to perform the
activity internally.
2. Enhanced differentiation
– The quality of the activity performed by the specialist is greater than if the
activity were performed by the company.
3. Focus on the core business
– Distractions are removed.
– The company can focus attention and resources on activities important for
value creation and competitive advantage.
Strategic outsourcing may be detrimental when:
• Holdup – company becomes too dependent on specialist provider
• Loss of information – company loses important customer contact or
competitive information
Horizontal Integration
Single-Industry Strategy
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.
Staying inside a single industry

allows a company to:
• Focus resources
Its total managerial, technological, financial and functional
resources and capabilities are devoted to competing successfully
in one area.
• ‘Stick to its knitting’
Company stays focused on what it does best, rather than entering
new industries where its existing resources and capabilities add
little value.
Benefits of Horizontal Integration

Profits and profitability increase when horizontal
integration:
1. Lowers the cost structure
– Creates increasing economies of scale
– Reduces the duplication of resources between two companies
2. Increases product differentiation
– Product bundling – broader range at single combined price
– Total solution – saving customers time and money
– Cross-selling – leveraging established customer relationships
3. Replicates the business model
– In new market segments within same industry
4. Reduces industry rivalry
– Eliminate excess capacity in an industry
– Easier to implement tacit price coordination among rivals
5. Increases bargaining power
– Increased market power over suppliers and buyers
– Gain greater control
Problems with Horizontal Integration

A wealth of data suggests that the majority of mergers
and acquisitions DO NOT create value and that many
may actually DESTROY value.
• Implementing a horizontal integration is not an easy task.
– Problems associated with merging very different company cultures
– High management turnover in the acquired company when the
acquisition is a hostile one
– Tendency of managers to overestimate the benefits to be had in the
merger
– Tendency of managers to underestimate the problems involved in
merging their operations
• The merger may be blocked if merger is perceived to:
– Create a dominant competitor
– Create too much industry consolidation
– Have the potential for future abuse of market power
a. Vertical Growth
2. New Product
iii. Franchising
(BOT)
1. Turnaround
2. Captive Company
• Exporting- Shipping goods produced in the

company’s home country to other coutries
for marketing is a good way to minimize risk
and experiment with a specific product. The
company could choose to handle all critical
functions itself or it could contract these
functions to an export management
company
• Licensing- The licensing firm grant grants rights to

another firm in the host country to produce and/or
sell product. The licensee pays compensation to
the licensing firm in return for technical expertise.
This is especially useful strategy if the trademark
or brand name is well known, but the company do
not have sufficient funds to enter the country
directly.
• Heineken International a Dutch brewing company
uses this strategy to produce and market beer in
Singapore, USA, India and other countries
• Franchising- A franchiser grants rights to

another company to open a retail store
using a franchiser’s name and operating
system. In exchange, the franchisee pays
the franchiser a percentage of its sales as a
royalty.
• Franchising provide an opportunity to firms,
such as MacDonald's , to establish a
presence in number of countries .
Difference between Franchising and Licensing

All franchise agreements are licensing agreements but not all licensing agreements
are franchises.
The Federal Trade Commission (FTC) has outlined franchise rules and regulations
in the United States
Grant of License
• Both franchise agreements and licensing agreements have one main
commonality: they both grant a license from one party to another. The grant of
license typically involves a core product, service, technique, method, or name
brand.
• Royalties and Fees
• One of the three distinguishing characteristics that makes a license a franchise
is the payment of royalties by the franchisee to the franchisor. Any license
requiring a licensee to pay royalties of $500 or more in six months is typically
considered a franchise.
• Operating Model
• If the licensor provides the licensee with substantial operating instructions and
manuals then the license is typically considered a franchise; this is the second
component of franchising.
• Use of Trademarks and Name Brand
• The final component of defining a franchise is the use of trademarks and name
brands. If a licensee is allowed to use the name brand and trademarked logo,
then the licensee is also a franchisee.
• Joint Ventures- this strategy is used to

combine the resources and expertise
needed to develop a new product or
technologies. It also enables a firm to enter
a country that restrict foreign ownership.
The corporation can entre another country
with fewer assets at stake and thus lower
risk.
• Acquisitions- A relatively quick way to move into

another country is to purchase another firm
already operating in that area. Synergistic benefits
can result if the company acquires a firm with
strong complementary product lines and a good
distribution network.
• In some countries acquisitions can be difficult to
arrange, because of lack of available information
about potential candidates or Govt. restrictions on
ownership by foreigners
• Greenfield development- If a company

doesn’t want to purchase another
company’s problems along with its assets
(as the Japan’s Bridgestone did when it
acquired Firestone in the US) it may choose
to build its own manufacturing plant and
distribution system. This is afar more
expensive and complicated operation than
acquisitition, but it allows a company more
freedom in designing the plant, choosing
suppliers and hiring the workforce.
• Example: Toyota, Honda and Nissan in UK
• Production sharing- When labor cost are

high at home, the corporation can combine
the high labor skills and technology
available in the developed countries with
the lower cost labor available in developing
countries. The current trend is to move data
processing and programming activities
“offshore” to places such as Ireland, India,
Barbados, Jamaica, Philippines and
Singapore.
• Turnkey operations- These are typically

contracts for the construction of facilities in
exchange for a fee. The facilities are
transferred to the host country or the firm
when they are complete. The customer is
usually a government agency a country that
has decreed that a particular product must
be produced locally and under its control.
• Management contracts- Once a turnkey

operation is completed, the corporation
assists local management in operating the
firm for a specified fee and period of time.
Management contracts are common when
a host government expropriates part or all
of a foreign owned company’s holding in its
country. The contracts allow the firm to
continue to earn some income from its
investment and keep the operations going
until local management is trained.
• BOT (Build, Operate, Transfer) concept-

Instead of turning the facility (usually a
power plant or toll road) over to the host
country when completed (as with the
turnkey operations), the company operates
the facility for a fixed period of time during
which it earns back its investment, plus a
profit. It then turns the facility over to the
government at little or no cost to the host
country
a. Vertical Growth
2. New Product
iii. Franchising
(BOT)
1. Turnaround
2. Captive Company
Market Development
• Market development commonly ranks second
only to concentration as the least costly and
least risky of the 15 grand strategies
• It consists of marketing present products, often
with only cosmetic modifications, to customers
in related market areas by adding channels of
distribution or by changing the content of
advertising or promotion
• Frequently, changes in media selection,
promotional appeals, and distribution are used
to initiate this approach
7-64
Product Development
• Product development involves

the substantial modification of
existing products or the creation of
new but related products that can
be marketed to current customers
through established channels
7-65
Innovation
• These companies seek to reap the initially high profits
associated with customer acceptance of a new or
greatly improved product
• Then, rather than face stiffening competition as the
basis of profitability shifts from innovation to production
or marketing competence, they search for other original
or novel ideas
• The underlying rationale of the grand strategy of
innovation is to create a new product life cycle and
thereby make similar existing products obsolete
7-66
Diversification Strategies
• Diversification is a form of corporate strategy for a
company. It seeks to increase profitability through
greater sales volume obtained from new products and
new markets.
• Diversification can occur either at the business unit level
or at the corporate level.
• At the business unit level, it is most likely to expand into
a new segment of an industry which the business is
already in.
• At the corporate level, it is entering a promising business
outside of the scope of the existing business unit.
• Diversification usually requires a company to acquire
new skills, new techniques and new facilities
Concentric diversification
• When there is a technological similarity between
the industries, which means that the firm is able to
leverage its technical know-how to gain some
advantage.
• For example, a company that manufactures
industrial adhesives might decide to diversify into
adhesives to be sold via retailers. The technology
would be the same but the marketing effort would
need to change.
• Addition of tomato ketchup and sauce to the
existing "Maggi" brand processed items of Nestle
is an example of technological-related concentric
diversification.
Horizontal diversification
• The company adds new products or services that are
technologically or commercially unrelated (but not always)
to current products, but which may appeal to current
customer. For example company was making note books
earlier now they are also entering into pen market through
its new product.
• Horizontal diversification also occurs when a firm enters a

new business (either related or unrelated) at the same
stage of production as its current operations. For example,
Avon's move to market jewelry through its door-to-door
sales force involved marketing new products through
existing channels of distribution. An alternative form of that
Avon has also undertaken is selling its products by mail
order (e.g., clothing, plastic products) and through retail
stores (e.g., Tiffany's). In both cases, Avon is still at the
retail stage of the production process.
• Conglomerate diversification (or lateral

diversification)
• The company markets new products or services that
have no technological or commercial synergies with
current products, but which may appeal to new groups of
customers.
• The conglomerate diversification has very little
relationship with the firm's current business. Therefore,
the main reasons of adopting such a strategy are first to
improve the profitability and the flexibility of the
company, and second to get a better reception in capital
markets as the company gets bigger.
• Even if this strategy is very risky, it could also, if
successful, provide increased growth and profitability.
Rationale of diversification
• According to Calori and Harvatopoulos (1988), there are two

dimensions of rationale for diversification. The first one relates
to the nature of the strategic objective: diversification may be
defensive or offensive.
• Defensive reasons may be spreading the risk of market

contraction, or being forced to diversify when current product
or current market orientation seems to provide no further
opportunities for growth. Offensive reasons may be
conquering new positions, taking opportunities that promise
greater profitability than expansion opportunities, or using
retained cash that exceeds total expansion needs.
The second dimension involves the expected outcomes

of diversification:
• management may expect great economic value
(growth, profitability) or
• great coherence and complementary to their current
activities (exploitation of know-how, more efficient use
of available resources and capacities).
• In addition, companies may also explore
diversification just to get a valuable comparison
between this strategy and expansion.
Risks
• Diversification is the riskiest of the four strategies
presented in the Ansoff matrix and requires the most
careful investigation. Going into an unknown market with
an unfamiliar product offering means a lack of
experience in the new skills and techniques required.
Therefore, the company puts itself in a great uncertainty.
Moreover, diversification might necessitate significant
expanding of human and financial resources, which may
detracts focus, commitment and sustained investments
in the core industries. Therefore a firm should choose
this option only when the current product or current
market orientation does not offer further opportunities for
growth. In order to measure the chances of success,
different tests can be done:
• The attractiveness test

• The cost of entry test
• The better off test
Because of the high risks explained above, many companies
attempting to diversify have led to failure. However, there
are a few good examples of successful diversification:
• Virgin media moved from music to travel and mobile
phones
• Walt disney moved from producing animated movies to
theme parks and vacation properties
• Canon diversified from a camera manufacturing company
into producing an entirely new range of office equipments
a. Vertical Growth
2. New Product
iii. Franchising
(BOT)
1. Turnaround
2. Captive Company
Stability Strategies
• This strategy is essentially a continuation of
existing strategies. Such strategies are
typically found in industries having relatively
stable environments. The firm is often
making a comfortable income operating a
business that they know, and see no need
to make the psychological and financial
investment that would be required to
undertake a growth strategy.
Pause Strategy
• This strategy in effect, a time-out, an opportunity to rest
before continuing a growth or retrenchment strategy. It may
be a very appropriate strategy to enable a company to
consolidate its resources after prolonged rapid growth in an
industry that faces an uncertain future. It is typically a
temporary strategy to be used until the environment
becomes more hospitable or to enable a company to
consolidate its resources after prolonged rapiod growth.
This was the strategy Dell Computer Corporation followed
in the early 1990s after its growth strategy had resulted in
more growth than it can handle. Dell did not give up on its
growth strategy, but merely put it temporarily in limbo until
company could hire new managers, improve the structure,
and build new facility
No Change Strategy
• It is a strategic decision to do nothing new,
a choice to continue current operations and
policies for the foreseeable future. Rarely
articulated as a definite strategy, no change
strategy's success depends on a lack of
significant change in a corporation’s
situation. The corporation has probably
found a reasonably profitable and stable
niche for its products. Most small-town
businesses probably follow this strategy
before a Wal-Mart moves into their areas
Profit Strategy
• It is a decision to do nothing new in a
worsening situation, but instead to act as
though the company’s problems are only
temporary. It is an attempt to artificially
support profits when a company’s sales are
declining by reducing investment and short-
term discretionary expenditures.
a. Vertical Growth
2. New Product
iii. Franchising
(BOT)
1. Turnaround
2. Captive Company
Retrenchment Strategies
• Management may pursue retrenchment strategies
when the company has a weak competitive
position in some or all of its product lines resulting
in poor performance- when sales are down and
profits are becoming losses. These strategies
generate a great deal of pressure to improve
performance. The CEO is under extreme pressure
to do something quickly or be fired. In an attempt
to eliminate the weaknesses that are dragging the
company down, management my follow
turnaround or becoming a captive company to
selling out, bankruptcy or liquidation.
Turnaround Strategy
The firm finds itself with declining profits
• Among the reasons are economic recessions,
production inefficiencies, and innovative breakthroughs
by competitors
• Strategic managers often believe the firm can survive
and eventually recover if a concerted effort is made
over a period of a few years to fortify its distinctive
competences. This is turnaround.
• Two forms of retrenchment:
– Cost reduction
– Asset reduction
7-82
Elements of Turnaround
• A turnaround situation represents absolute and relative-
to-industry declining performance of a sufficient
magnitude to warrant explicit turnaround actions
• The immediacy of the resulting threat to company
survival is known as situation severity
• Turnaround responses among successful firms typically
include two stages of strategic activities: retrenchment
and the recovery response
• The primary causes of the turnaround situation have
been associated with the second phase of the
turnaround process, the recovery response
7-83
Captive Company
• This strategy involves giving up independence in exchange
for some security by becoming another company's sole
supplier, distributor, or a dependent subsidiary.
• Example- J B Mangharam now a captive company of

Britannia
• Simpson Industries of Birmingham, Michigan agreed to
have its engine parts facilities and books inspected and its
employees interviewed by a special team from GM. In
return, nearly 80% of the company’s production was sold to
GM through long term contracts.
Sell out or Divestment

• If a company in a weak position is unable or
unlikely to succeed with a turnaround or
captive company strategy, it has few
choices other than to try to find a buyer and
sell itself (or divest, if part of a diversified
corporation)
• When Monsanto realized that its well known
chemical business had been overshadowed
by advances in biotechnology and in
agricultural products such as Roundup, it
sold its chemical unit.
Bankruptcy or Liquidation
• When a company has been unsuccessful in
or has none of the previous three strategic
alternatives available, the only remaining
alternative is liquidation, often involving a
bankruptcy. There is a modest advantage
of a voluntary liquidation over bankruptcy in
that the board and top management make
the decisions rather than turning them over
to a court, which often ignores stockholders'
interests.
Corporate-Level Strategies
Valuable
strengths Concentric Diversification
Corporate (Economies of
growth Scope)
strategies
Conglomerate Corporate
Firm Diversification stability
Status (Risk Mgt.) strategies
Corporate
retrenchment
strategies
Can still go for business-level growth
Critical (economies of scale)
weaknesses
Abundant Critical
environmental Environmental Status environmental
opportunities threats

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Amity Business School

• How has the strategy field developed?

Budgetary Corporate Positioning Competitive Strategic

Financial Planning Selecting Focusing on Reconciling

Capital Forecasting. Industry analysis Resources & Cooperative

Coordination Corporate Diversification. Restructuring. Alliances &

Major Thought Schools

John Dunning – IB Strategy

C K Prahalad – Inclusive Strategy

Sumantra Ghoshal – Problems in T.C.E.

Historical development of Strategic

Birth of strategic management

originated in the 1950s and 60s

 Alfred D. Chandler, Jr.,

Strategy and Structure

Organization's internal factors with external

product development strategies

market development strategies

horizontal and vertical integration

stressed the importance of objectives

management by objectives (MBO)

Growth and portfolio theory

 Profit Impact of Marketing Strategies (PIMS)

 effect of market share

 Started at General Electric, moved to Harvard in the early

 "PIMS provides compelling quantitative evidence as to

 The Japanese challenge:

• Higher employee morale, dedication, and loyalty;

• Lower cost structure, including wages;

• Effective government industrial policy;

• Modernization after WWII leading to high capital intensity and productivity;

• Economies of scale associated with increased exporting;

Strategy, Structure, Systems, Skills, Staff,

The Mind of the Strategist was released in

Tom Peters -In Search of Excellence

 Gaining competitive advantage

 Dave Packard and Bill Hewlett devised an active

The Military Theorists

• Business War Games by Barrie James, 1984

Philip Kotler was a well-known proponent of marketing

• Offensive marketing warfare strategies

In 1968, Peter Drucker (1969) coined the phrase

In 2000, Gary Hamel discussed strategic decay

In 1978, Abell, D. described strategic windows and

Clayton Christensen (1997)

Henry Mintzberg (1988) – Strategy was much more

• Strategy as plan - a direction, guide, course of action -

• Strategy as ploy - a maneuver intended to outwit a

• Strategy as pattern - a consistent pattern of past behaviour

• Strategy as position - locating of brands, products, or

• Strategy as perspective - strategy determined primarily by a

Information and technology

• People can continuously expand their capacity to learn and be

• New patterns of thinking are nurtured

• Collective aspirations are encouraged, and

• People are encouraged to see the “whole picture” together.

Senge identified five components of a learning organization.

• Mastery of Mental models

• Team learning -“a spirit of advocacy to a spirit of enquiry”

The psychology of strategic

informal, intuitive, non-routinised, and

“feeling”, “judgement”, “sense”, “proportion”,

 In 2000, Gary Hamel coined the term strategic