LEARNING OBJECTIVES

1 Define corporate strategy

2 Understand when it makes sense for a firm to
own a particular strategy
3 Explain the corporate strategy implications of
the stable and dynamic perspectives

Corporate-Level
Corporate-Level
Strategy
Strategy

The
Theoverall
overallorganizational
organizationalstrategy
strategythat
that
addresses
addressesthe
thequestion
questionWhat
What
business(es)
business(es) are
are we
we inin or
or should
should we
we
be
bein?
in?

CORPORATE STRATEGY

Corporate Strategy deals with three issues:

1. Directional Strategy: The firms overall orientation towards growth,
stability, or retrenchment

2. Portfolio Strategy: The industries or markets in which the firm

competes through its products and business nits.

3. Parenting Strategy: The manner in which management coordinates

activities, transfers resources and cultivates capabilities among product
lines and business units.

DIRECTIONAL STRATEGY

Corporations decides its orientations towards growth by asking

following questions:

1. Should we expand, cut back or continue our operations

unchanged?
2. Should we concentrate our activities our current industry or
should we diversify into other industries.
3. If we want to grow and expand nationally and/or globally,
should we do so through internal development or through
external acquisition, merger or strategic alliances?

Corporations directional strategy is composed of three general orientations

known as GRAND STRATEGIES.
1. Stability Strategies: Make no change to the companys current
activities
2. Growth Strategies: Expand the companys activities
3. Retrenchment Strategies: Reduce the companys level of activities.
GRAND STRATEGIES
STABILITY
Pause/Proceed with Caution
No Change
Profit

GROWTH
Concentration
Diversification

RETRENCHMENT
Turnaround
Sell Out/Divestment
Liquidation

GRAND STRTEGIES

Stability
Stability
Strategy
Strategy

focuses
focuseson
onimproving
improvingthe
theway
waythe
the
company
companysells
sellsthe
thesame
sameproducts
products
or
orservices
servicesto
tothe
thesame
samecustomers
customers

Growth
Growth
Strategy
Strategy

focuses
focuseson
onincreasing
increasingprofits,
profits,
revenues,
revenues,market
marketshare,
share,or
ornumber
number
of
ofplaces
placesto
todo
dobusiness
business

Retrenchment
Retrenchment
Strategy
Strategy

focuses
focuseson
onturning
turningaround
aroundvery
verypoor
poor
company
companyperformance
performanceby
byshrinking
shrinking
the
thesize
sizeor
orscope
scopeof
ofthe
thebusiness
business
6

STABILITY STRTEGIES

A corporation may choose stability by continuing its current

activities without any significant change in direction.
Sometimes viewed as a lack of strategy, the stability
strategy can be appropriate for firms operating in reasonably
predictable environment.

II. GROWTH STRATEGIES

The most widely pursued corporate directional strategy are those

designed to achieve growth in sales, assets, profits or some
combination.

EXPANSION STRATEGY

This strategy aims at high growth by substantially broadening

the scope of one or more of its businesses. It aims at the
improvement of its overall performance in business.
There may be five types of Expansion Strategies.

Concentration
Integration
Diversification
Cooperation
Internationalisation

EXPANSIONS STRATEGY

a) Expansion through concentration:

It is also called as intensification, focus or specialization strategy. It involves
concentration of resources on one or more of a firm business so that it leads to
expansion.
b) Expansion through Integration:
Integration means combining activities related to present activity of a firm. It is
an expansion strategy which involves integrating to any business activity in the
value chain ahead or backwards existing business of an organisation.

Potato
Backward Integration

Chips
Existing business

Distribution
Forward Integration

INTEGRATION

Examples
General motors began operating steel plants
Dupont moved from gunpowder making onto
dynamite, nitro-glycerine, guncotton, and
smokeless power

Fed Ex acquired Kinkos Drop off and pick up

points for packages

INTEGRATION

Can a paper production plant be

shared?

P & G manufactures paper towels and

diapers.

INTEGRATION

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P & G STRATEGIC FIELD

14

VERTICAL INTEGRATION

Forward Integration
Or
Upstream Integration

Vertical
Vertical
Integration

Integration

Backward Integration
Or
Downstream Integration

It is expressed by the acquisition of a company or

addition of new capacity either further down the
supply chain, or further up the supply chain, or both.

VERTICAL & HORIZONTAL INTEGRATION

Textile producer

Textile producer

Shirt manufacturer

Shirt manufacturer

Clothing store

Clothing store

16

FULL & TAPER INTEGRATION

17

C) EXPANSION THROUGH DIVERSIFICATION

Diversification involves a substantial change in the business of the organisation.

Concrete Diversification:- When the new activity is related to existing business
activity.
Marketing Related, Technology Related, Marketing & Technology related
Levi Straus jeans for men - expanded to jeans for women
and children (exploits product manufacturing capacity)
Humana - hospitals and HMO's (exploits shared knowledge
of patient care)
IBM - mainframes and PC (exploits brand identity/technology
through shared marketing/production/distribution efficiencies)
Conglomerate diversification: A strategy that plans to enter into an unrelated
business activity for eg. Godrej locks/ Almirahs/ Referigerators/Soaps.

LEVELS & TYPES OF DIVERSIFICATION

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RELATED DIVERSIFICATION

Haircare Pantene, Head & Shoulders, Clairol

Household cleaning/care Flash, Febreze, Fairy
Laundry Daz, Ariel, Fairy, Bounce
Paper Bounty, Pampers, Allways
Beauty Oil of Olay, Max Factor
Beverages Sunny Delight
Snacks Pringles Petfood Iams

Related Diversification through acquisition and internal start-ups

Fits/Synergies
Same wholesale distribution
Common retail settings & shoppers
Advertised & promoted the same way
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UNRELATED DIVERSIFICATION

Virgin Travel (& Virgin Holidays)

Virgin Retail (Music & Entertainment)
Virgin Investments (computer products,
promotional blimps, property development)
Virgin Hotels Group (clubs & hotels in UK, Spain &
Virgin Islands)
Virgin Communications (Virgin Interactive
Entertainment, Publishing, Radio, TV)

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DIVERSIFICATION

Johnson & Johnson

Consumer - baby products (wipes, shampoos, cotton buds
etc); woundcare (bandaid); feminine hygiene (carefree,
stayfree); reach dental products
Medical - non-prescription drugs (Tylenol, Pepcid AC);
presecription durgs; surgical products; Accuvue contact
lenses

Gillette
- Grooming (Mach 3, Venus)
- Oral Care (Oral B, Braun)
- Portable Power (Duracell)

Philip Morris
-Cigarettes (Marlboro, B&H..)
-Miller Brewing co.
-Kraft Foods (Maxwell hse,
22

FORMS AND SCOPE OF DIVERSIFICATION

Geographic

Wal-Mart
expanded into
Europe

Horizontal
From one market
segment to another
From one industry
to another

Coke and
Pepsi expanded
into water

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EXAMPLE

24

EXAMPLE

25

DIVERSIFICATION

Company

Diversification process Types of businesses

Heavy reliance on
acquisition

Many seemingly unrelated businesses

Primarily organic

Many businesses
clustered in a few
related industries

Product extensions/
new product lines

Few related product

lines

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27

D) EXPANSION THROUGH COOPERATION

It is a strategy which works on the possibility of mutual cooperation

with competitors; with the competition also going at the same time.
Mergers:It is a strategy of two or more organisation in which one acquires the
assets and liabilities of the other in exchange of share or cash.
Conglomerate mergers (2 unrelated firms)
Horizontal mergers (2 firms in same business)
Concentric mergers (2 related firms)
Vertical mergers (2 firms creating complementary products)

Takeover
It is a strategy where an attempt is made by one firm to acquire
ownership or control over another firm against the wishes of the latters
management.
Joint venture
It is a strategy where two or more companies combine to form a new
company in order to make use of the strengths of the partners to gain
access to a new business. Eg. Maruti-Suzuki.
Strategic alliance
Two or more firms unite to pursue a set of agreed upon goals but remain
independent subsequent to the formation of the alliance.

E) EXPANSION THROUGH INTERNATIONALIZATION

These are the types of expansion strategies that require firms to market
their products beyond the national market.

High
Global
Strategy

Transnational
Strategy

International
Strategy

Multidomestic
Strategy

Cost
Pressures

Low
Low

High
Pressure for local Responsiveness

III. RETRENCHMENT STRATEGY

Retrenchment strategy is followed when organization aims at a contraction of the scope of
business. It may involve a total or partial withdrawal from an existing business. A firm may
adopt this strategy when faced with adverse external environment eg. Shrinking market
share, diminishing profitability, falling sales, emergence of substitute products, adverse
government policies, tougher competition, changing customer need & preferences etc.
It involves strategies like:
a) Turnaround Strategies:
It means devising a strategy to reversing the trend, negatively affecting the organization.
The strategy implemented internally focus on the ways and means of reversing the process
of decline.
b) Divestment:
It is a strategy which cuts-off the loss- making units or divisions, a product list or any of its
decline causing function etc. it involves a sale of a portion of business. It is adopted in case
a turn-around strategy is not successful.
c) Liquidation:
It is a strategy adopted to abandon all its activities completely. It involves closing down a
firm and setting its assets. It is considered to be the last resort for any strategist as it
involves both loss to employees as well as to the organisation.

 A firm may divest (sell) businesses that are not part of its core operations. For example,
Eastman Kodak, Ford Motor Company, and many other firms have sold various
businesses that were not closely related to their core businesses.

To obtain funds. For example, CSX Corporation made divestitures to focus on its core
railroad business and also to obtain funds so that it could pay off some of its existing
debt.

Firm's "break-up" value is sometimes believed to be greater than the value of the firm
as a whole. This encourages firms to sell off what would be worth more when liquidated
than when retained.

To create stability. Philips, for example, divested its chip division called NXP because
the chip market was so volatile and unpredictable that NXP was responsible for the
majority of Philips's stock fluctuations.

A division is under-performing or even failing.

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1999, revenues of Xerox Corp (Xerox), the world's largest

photocopier maker, began to fall, and in 2000 it reported a
loss of $273 million. Xerox also lost $20 billion in stock
market value (from April 1999 to May 2000).
In May 2000, he was replaced by his predecessor Paul
Allaire, and Anne Mulcahy (Mulcahy) was made COO.
Xerox revealed a Turnaround Programme in December
2000, which included cutting $1 billion in costs, and raising
up to $4 billion through the sale of assets, exiting non-core
businesses and lay-offs. Subsequently, in August 2001,
Mulcahy was made CEO.
Xerox continued to report losses in 2001, but it returned to
profit in 2002 and continued to report profits in 2003.

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STRATEGY SELECTION

34

IV. COMBINATION STRATEGIES:

It is strategy adopted by an organisation as a mixture of Stability, Expansion &

Retrenchment either at the same time in its different businesses or at different
times in the same business with the aim of improving its performance. In
practice it is very difficult to find any organization that has run its business on
a single strategy.

Types
Simultaneous
Sequential
Simultaneous & Sequential

DIMENSIONS OF GRAND STRATEGIES

Internal/external dimension
Related/Unrelated dimension
Horizontal/Vertical Dimension
Active (Offensive)/Passive (Defensive) Dimension

32 POSSIBILITIES
4 Grand Strategies , 4 Dimensions & 2 types

CONCLUSION:-

Thus, it shows that there exists various strategic alternatives

before a strategist. Depending on the:
Type and nature of business
Growth & future of business
Nature and number of competitors
External environmental variables
Overall philosophy of the top-management
Internal strengths & weaknesses etc;
a given strategy or a combination is adopted

INTENSIVE STRATEGIES

Market Penetration, Market Development and Product Development are

sometimes referred to as intensive strategies because they require intensive
efforts if firm wants to improve its competitive position with existing products.

Market
Penetration

Intensive
Strategies

Market
Development

Product
Development

Example

Market
Penetration

SABMiller Plc spent $500 million in

2010 on marketing its Miller brands
of beer

Market
Development

JetBlue is adding dozens of new

routes

Product
Development

GM developing hydrogen powered

automobiles or Pfizer developing a
new antismoking pill

ANSOFFS MATRIX

Selling more of an existing product to an

existing market. This is going deeper into

a market so it is called market
penetration (More Promotion)

Selling an existing product in a new

market, for instance bringing out different

bottle sizes to attract different buyers.
This is called market development.

Selling a new product to an existing

market.
This
is
called
product
development as it means making
changes to a product, for instance a new
flavour like Coca-Cola Vanilla.

Selling a new product to a new market.

This is called diversification. Coca-Cola

identified the need for a new sports drink
and launched Powerade.

COCA COLA

customers to drink orange juice on occasions when they might

otherwise consume milk.

 Why ?
How ?

To dominate market
To increase usage or get new customers; reduce price;
expand distribution or increase promotional activities
When ? When market is growing
What to look out for ? Competitive reaction; cost of conversion
Example: Airlines used reduced fares & promotion various family
travel packages to penetrate market

Guidelines for Market Penetration

Current

markets not saturated

Usage rate of present customers can be increased
significantly
Market shares of competitors declining while total
industry sales increasing
Increased economies of scale provide major
competitive advantages

Market Development Strategy

This strategy builds
upon the existing
product range, which
an organization has
established, but
seeks to find new
groups of customers
for it.

 Why ?
How ?

To venture into new markets

Sell existing products in new markets; modify product; use
different distribution; use different advertising/sales strategy
When ? Present market is saturated
What to look out for ? Competitive reaction; understand new buyers;
adaptability
Example: Hong Kong and China Gas (Towngas) is to invest HK$2 billion
in the transmission of natural gas in China in year 2011, in a continued bid
to expand away from its base in Hong Kong.

Introducing present products or services into new

geographic area

Guidelines for Market Development

New channels of distribution that are reliable, inexpensive,
and good quality
Firm is very successful at what it does
Untapped or unsaturated markets
Capital and human resources necessary to manage
expanded operations
Excess production capacity
Basic industry rapidly becoming global

An organization may choose to develop new products for its

existing markets.
Again referring to mobile phones, many companies have
developed innovative products to offer as additional accessories
to existing customers, including hands-free car kits, traffic
information services and on-line information services.

NIVEA Visage Soft Facial Cleansing Wipes show product

development. Women who bought NIVEA skincare products
were looking for new ways to clean and care for their skin.

 Why ?
How ?
product

To satisfy buyers need

New or improved product; innovate or augment

When ? Customer has a need or a problem

What to look out for ?
Market size/volume
competitor reaction
effect on existing products
resources to deliver new products
Examples: Acer; Soundblaster 1, 2, 3

Seeking increased sales by improving present products or

services or developing new ones
Guidelines for Product Development
Products in maturity stage of life cycle
Competes in industry characterized by rapid technological
developments
Major competitors offer better-quality products at comparable
prices
Compete in high-growth industry
Strong research and development capabilities

THANK YOU

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