Strategy

Formulations
Corporate Strategies

Strategies

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Corporate Strategy Talks about …..

 Growth, Stability and Retrenchment – Directional

Strategies
 The Industries or markets in which the firm competes
through its products and business units - Portfolio
Analysis
 Coordination of activities and transfers resources and
cultivates capabilities among product lines and business
units – Corporate Parenting

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

 Expand , Cutback, Continue, Unchanged

 Concentrate on existing or Diversifying

 Expand nationally or globally

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Corporate Directional Strategies
(Three Grand Strategies)

Growth Stability Retrenchment

Concentration Pause/Proceed with • Turnaround
• Vertical Growth Caution No Change profit • Captive Company
• Horizontal Growth • Sell-out/Divestment
• Bankruptcy/Liquidation
Diversification
• Concentric
• Conglomerate

Growth Strategies Stability Strategies Retrenchment Strategies

expand the make no change to reduce the company’s
company’s activities the company’s level of activities
current activities

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies
Growth Strategies:
 Most widely pursued strategies
 External mechanisms:
 Mergers
• Transaction involving two or more firms in which stock is
exchanged but only one firm survives.

 Acquisition
• Purchase of a firm that is absorbed as an operating
subsidiary of the acquiring firm.

 Strategic Alliance
• Partnership of two or more firms to achieve strategically
significant objectives that are mutually beneficial.

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Mergers and Acquisition

Merger
Two firms agree to integrate their operations on a
relatively co-equal basis

Acquisition
One firm buys a controlling, 100 percent interest in
another firm with the intent of making the acquired firm
a subsidiary business within its portfolio

Takeover
Special type of acquisition strategy wherein the target
firm did not solicit the acquiring firm's bid
Unfriendly acquisition
Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Directional Strategies
Reasons

To increase market power firms use

Overcoming entry barriers

Cost of new product development and increased speed to

market

Lower risk compared to developing new products

Increased diversification

Reshaping firm’s competitive scope

Learning and developing new capabilities

Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Directional Strategies
Mergers and Acquisition

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Basic Growth Strategies:

 Concentration - Current product line in one industry

 Vertical growth
 Horizontal growth

 Diversification - Into other product lines in other industries

 Concentric Diversification
 Conglomerate Diversification

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Basic Growth Strategies:

 Concentration - Current product line in one industry

 Vertical growth

 Vertical integration

 Full integration.
• Completely controls its distributors.
 Taper integration.
• Internally produces less than half of its requirements.
 Quasi-integration.
• Purchases most of its requirements from outside.
 Long-term Contract.
• Backward integration
• Forward integration
Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Directional Strategies

Basic Growth Strategies:

 Concentration - Current product line in one industry

 Vertical growth

• Backward integration
 Vertical integration • Forward integration

Full Integration Taper Quasi Long-Term

Integration Integration Contract
100% Makes it Less than a half Purchases most of its Contract for a
internally, Shell and Apple sales - Best Buy requirements and specified period
BP Partial control

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Basic Growth Strategies:

 Concentration - Current product line in one industry

 Horizontal growth / Horizontal Integration

 Exporting  Turnkey operations

 Licensing  BOT Concept (Build, Operate,
Transfer)
 Franchising
 Management Contracts
 Joint Venture
 Acquisitions
 Green-field Development
 Production sharing -
Outsourcing
Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Directional Strategies

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Basic Growth Strategies:

 Diversification Strategies – When the attractiveness of

industry is low

 Concentric (Related) Diversification

 Growth into related industry
 Search for synergies

Bombardier:
1980s the company expanded beyond snowmobiles into making
light rail equipment, 1986 it entered into aircraft business by
purchasing Canadair.

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Basic Growth Strategies:

 Diversification Strategies – When the attractiveness of

industry is low

 Conglomerate (Unrelated) Diversification

 Growth into unrelated industry
 Concern with financial considerations

General Electric and Berkshire Hathaway:

BH has interests in furniture retailing, razor blades, airlines, paper,
broadcasting, soft drinks and publishing.

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Stability Strategies: - Proceed with caution

Stability Strategies

An organisation may choose stability over growth by continuing its current

activities without any significant change indirection

 Pause/Proceed with caution

 No change

 Profit strategies

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Directional Strategies

Retrenchment Strategies: - Proceed with caution

 Turnaround
• Indian Railways

 Captive Company Strategy - Giving up independence in

exchange of security
• Simpson Industries agreed to let a special team from GM inspect its
engine parts facilities and books and interview its employees. In return
nearly 80% of the company’s production was sold to GM through long-
term contracts.

 Selling out/Divestment Strategy

• In 2008 Ford sold its Jaguar and Land Rover units to Tata Motors in
2008 for $2 billion.

 Bankruptcy / Liquidation
Prof. Vijay K S, MBA Programme`-BIET, Davangere
Corporate Strategy:

1. Directional Strategy
2. Portfolio Analysis
3. Parenting Strategy

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

Portfolio Analysis

How much of our time and money should we spend on our

best products to ensure that they continue to be
successful?

How much of our time and money should we spend

developing new costly products, most of which will never
be successful?

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

Portfolio Analysis Techniques:

 BCG (Boston Consulting Group) Matrix

(One of largest strategic consulting companies in U.S)

 GE Business Screen

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

BCG Share - Growth Matrix

Product life cycle and funding decisions:

• Question marks
• Stars
• Cash cows
• Dogs

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis
BCG Matrix

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis
BCG Matrix
 Question Marks ?
• Low Market share, Hi Growth
 Use intensive strategies such as market penetration, market
development, product development
 Stars
• High Industry Growth Rate
 Use backward and forward integration, horizontal integration, market
penetration, market development, product development and joint ventures

 Cash Cows
• High Market Share, Low Industry Growth Rate
 Use Product Development or Diversification

 Dogs
• Low industry Growth Rate, and Low Market Share
 Use retrenchment, liquidation, divestment
Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Portfolio Analysis
BCG Matrix
 Question Marks ?
• Low Market share, Hi Growth
 Use intensive strategies such as market penetration, market
development, product development
 Stars
• High Industry Growth Rate
 Use backward and forward integration, horizontal integration, market
penetration, market development, product development and joint ventures

 Cash Cows
• High Market Share, Low Industry Growth Rate
 Use Product Development or Diversification

 Dogs
• Low industry Growth Rate, and Low Market Share
 Use retrenchment, liquidation, divestment
Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Portfolio Analysis

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

Prof. Vijay K S, MBA Programme`-BIET, Davangere

Portfolio Analysis

GE Business Screen

Long-term industry attractiveness

Business strength/competitive position

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis
GE Business Screen

C
Winners Winners
A Question
High B Marks

Winners
E Average
Businesses
Medium F
Losers

H
Losers
G
Low
Profit
Producers Losers

Strong Average Weak

Business Strength/Competitive Position Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Portfolio Analysis
GE Business Screen
To Plot Product line on the GE Business Screen, follow these our steps:
Select criteria to rate the industry for each product
line or business unit. Asses overall industry
attractiveness for each product line on a scale of 1
(very unattractive) to 5 (very attractive)

Select the key factors needed for success in each

product line. Assess business strength/competitive
position for each product line on a scale of 1(VW)
to 5 (VS)

Plot each product line’s current position on a matrix

Plot the firm’s future portfolio, assuming that present

corporate and business strategies remain unchanged. Is there
a performance gap between projected and desired portfolio?
If so, gap should serve as a stimulus to seriously review the
corporation’s mission, objectives, strategies and policies.
Prof. Vijay K S, MBA Programme`-BIET, Davangere
 Portfolio Analysis
GE Business Screen
Business Strengths / Competitive Position

Strong Average Weak

Growth Growth Retrenchment
Market/product Market/product
High Development Development Turnaround
Industry Attractiveness Concentration via Concentration via
Vertical Integration Horizontal Integration

Stability Growth Retrenchment

Medium Concentration via
Pause or Horizontal Integration Captive Company or
Proceed with Caution Stability Divestment
No Change in
Profit Strategy
Growth Growth Retrenchment

Low Concentric Conglomerate Bankruptcy or

Diversification Diversification Liquidation

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis
International Portfolio Analysis

Two Factors:

Country’s attractiveness
• Market size, Rate of growth, Regulation

Competitive strength
• Market share, Product fit, Contribution margin, Market support

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

Portfolio Matrix for Plotting Products by Country

Competitive Strengths

High Low

Invest/Grow Dominate/Divest
Joint Venture

Selective
Strategies

Harvest/Divest
Combine/License

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

Portfolio Analysis

Advantages:
 Top management evaluates each of firm’s businesses
individually.
 Stimulates use of externally-oriented data to supplement
management judgment.
 Raises issue of cash flow availability for use of growth and
expansion.
 Its graphic depiction facilitates communication

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Portfolio Analysis

Portfolio Analysis

Disadvantages:
 Difficult to define product/market segments
 Standard strategies can miss opportunities
 Illusion of scientific rigor
 Value-laden terms such as cash cow and dog can lead to
self-fulfilling.

Prof. Vijay K S, MBA Programme`-BIET, Davangere

Corporate Strategy:

1. Directional Strategy
2. Portfolio Analysis
3. Parenting Strategy

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Parenting Strategy

Creating value in the multibusiness company, contend that

corporate strategist must address two crucial questions:

• What businesses should this company own and why?

• What organizational structure, management processes, and
philosophy will foster superior performance from the
company’s business units?

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Parenting Strategy

Corporate Parenting

Views the corporation in terms of resources and capabilities

that can be used to build business unit value as well as
generate synergies across business units.

Prof. Vijay K S, MBA Programme`-BIET, Davangere

 Parenting Strategy

Three analytical steps involves in developing a corporate

parenting strategy:
1. Estimate each business unit in terms of the strategic factors.
• Center of excellence – explicitly recognized as am important source of
value creation.
2. Examine each business unit in terms of areas in which
performance can be improved.
3. Analyze how well the parent corporation fits with the
business unit.

Prof. Vijay K S, MBA Programme`-BIET, Davangere