Strategic Management 4

Strategies need to be formulated at multiple levels: Corporate , Business and Functional levels Strategic alternatives before a firm , exist at all 3 levels The firm has to exercise a choice at each of the levels

Corporate strategies
Are basically about decisions relating to: i) allocating resources among different businesses of a firm ii) transferring resources from one set of businesses to others iii) managing and nurturing a portfolio of businesses

 According to Gluek, there are 4 strategic alternatives: Expansion Stability Retrenchment Combination

Expansion strategy
When the environment demands an increase in the pace of activity Chasing growth through expansion Increasing size can lead to greater control over the market Possible advantages from the experience curve and economies of scale and scope

 Expansion can be in multiple dimensions: customer groups, customer functions (increase of scope) or alternative technologies i) A confectionery firm expands its customer base to cover additional segments ii) A stock broker / fund house offers additional services : trading, insurance, foreign exchange iii) A printing firm changes from the traditional letter press printing to desk top publishing to increase productivity

Stability
Less risky, status quo, people not threatened Relatively stable environment Need to consolidate after a period of rapid expansion

 A steel company modernizes its plant to improve efficiency A copier machine company offers some additional services to its customers Firms following a stability strategy offer essentially the same services to the same customer segments

Retrenchment
Unviable or non profitable businesses to be divested Environment faced is threatening Attempt to ensure stability by diverting resources from non profitable to profitable businesses

 A pharma firm pulls out from retail sales and decides to concentrate on the industrial/institutional segment A training institution pulls out from the corporate market to concentrate on the retail market A hospital decides to focus only on specialty treatment and do away with general medicine and surgery

Combination
Complex environment Organisation is composed of different businesses, each of which is in a different industry, which necessitates a different response

 A paints company augments its offerings of decorative paints to provide a wider variety to customers (stability) and expands its product range to include automotive paints (expansion). Simultaneously it decides to close down its painting contract services division (retrenchment)

 Not surprisingly expansion strategies are the most popular Expansion through concentration integration diversification cooperation internationalist ion digitalisation

Concentration
Stick to the knitting- focus on core competence Ansoff s Product-Market matrix gives us 3 types of concentration strategies Concentration strategies are less threatening; can leverage experience curve Focusing on core competence can lead to competitive advantage

Integration
Horizontal integration- acquisition, mergers Vertical integration- move forward or backward in the value chain

Diversification
Related diversification i) Marketing related ii) Technology related Can realize synergies (market, financial, HR) in related diversification Unrelated diversification Spread risk Take advantage of emerging opportunities early

PRO

DUCT Present New Product development Diversification

MARKET

Present New

Penetration Market development