4 E’s to Addressing Corporate Strategy

ExtendExpandExitEnhance

The 4 E’s to Addressing Corporate Strategy

Extend. It means extending the business by going beyond its current business model by adopting a new business model or entering into new business.

Expand. This option takes the form of adding products and/or services within the context of the company’s existing business concern or present area of operation.

Exit. This option takes the form of making some sacrifice by dropping some product lines and services or business units deemed uncompetitive or unprofitable or less profitable to operate.

Enhance. This option takes the form of adding functionally or improving a product or service that is currently being offered.

Key Issues is Corporate Level Strategy

Directional Strategy: The firm’s overall orientation towards growth, stability or retrenchment

Portfolio Strategy: The industries or markets in which the firm competes through its products and business units.

Parenting Strategy: The manner in which management coordinates activities, the transfers resources, and cultivates capabilities among product lines and business units

Strategic Choices at Corporate LevelBusiness Closure: This is an undesired act of folding

up or shutting down non profitable business units to control or avoid further losses.

Business Disposal: This calls for disposing or unloading some of the members, subsidiaries, affiliates or investments in other business concerns deemed unprofitable or less profitable and/or deemed a burden to the mother organization.

Business Acquisition: This is an option of business establishments meant to expand their size and make their presence felt in whatever area they want to do business.

Strategic Choices at Corporate LevelBusiness Reorganization: This option may or may

not lead to ownership changes among members of the organization or the conglomerate nor it may result to business acquisition or disposal option.

Business Start up: This option means purposely organizing another business concern instead of simply acquiring an existing business organization or investing in it.

The impact of doing nothing different: Sounding weird and uncalled for, status quo can be an option if after a thorough study and analysis such situation is deemed appropriate.

Basic Model for Integration and Diversification Options

VERTICAL

INTEGRATION

The Compa

ny

Horizontal

integration

Forward integration

Backward integration

Horizontal diversificati

on

Horizontal integration/diversification

Customers/End Users

Suppliers

Vertical integrationVertical integration

It iIt is the degree to which a firm owns its upstream suppliers and its downstream buyers.

The term VI describes a style of management control.

Involves engaging in business activities to the level of sources of supply or forward in the direction of final consumers.

Vertical integrationVertical integration

Three (3) varieties:Backward (upstream) vertical integration: the firm

engages in business activities in the area of distribution and retailing of the product or services directly to the customer

Forward (downstream) vertical integration: the business concentrating the efforts at the stage of raw materials production or close the source of raw materials.

Balanced (both upstream and downstream) vertical integration: the firm engages in adding new product or services.

Full Integration: The firm internally makes 100 percent of its key supplies and completely controls its distributors.

Taper Integration: A firm internally produces less than a half of its own requirements and buys the rest from outside suppliers.

Quasi- Integration: The company does make any of its key suppliers but purchases most of its requirements from outside suppliers that are under its partial ownership or control.

Long-term Contracts: The company signs an agreement or contact with another firm providing agreed upon goods and services for a specified period of time.

Horizontal integrationHorizontal integrationIt is a strategy where a company acquires, mergers or takes over another company in the same industry value chain.

Merger is the joining of two similar sizes, independent companies to make one joint entity. 

Acquisition is the purchase of another company.

Hostile takeover is the acquisition of the company, which does not want to be acquired.

Horizontal DiversificationGenerally perceived as a strategy that evolvesaround the idea of seeking ownership or increased control over the direct and indirect competitors of the business.

Direct and Indirect competitors Direct competitors can be classified as:Offering the same products and/or services as

you are offering to your clients and/or customers.Having the same targeted field of clients,

customers and/or demographics.Using the same tactics in advertising or

bringing news/informations of products/services to your targeted demographics.

Indirect competitors can be classified as “wanting to have a share of the pie”

Hierarchy of Strategy

Functional Strategy

Corporate Strategy

Business(Division level strategy)

Corporate strategy —this strategy seeks to determine what businesses a company should be in or wants to be in. Corporate strategy determines the direction that the organization is going and the roles that each business unit in the organization will plan in pursuing that direction.

Business strategy —this strategy seeks to determine how an organization should compete in each of its businesses.

Functional strategy —this strategy seeks to determine how to support the business strategy.

• Conglomerate Diversification: Involves in dealing with product s or services that have nothing to do or not related to the kind of product or services it is presently dealing with.

• Concentric Diversification: involves in dealing with the product or services that are somehow related with what the firm is presently handling

Situations favouring conglomerate diversification In an effort to extend growth beyond its turf, large companies dream of expanding their image beyond profit objectives .

Fame and corporate image beyond the boundaries of the industry or sector they are known for are among the motivations that drive corporate giants to go into conglomerate diversification.

Concentric Diversification It is a corporate diversification option that

involves engaging or dealing with products or services that are somehow related to or associated with what the firm is presently handling.

Situations favouring concentric diversification

When an organization competes in a no-growth or a slow-growth industry;

When adding new, but related products significantly would enhance the sales of current products;

When new, but related, products could be offered at highly competitive prices;

When new, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valley;

When an organization’s products are currently in the decline stage of the product life cycle; and

When an organization has a strong management team.

The Need for Strategic Fit Product Fit: Is achieved when distribution

channels, sales forces, promotion techniques, or customers can be handled at the same time for more than one product or service.

Operating Fit: Involves economies being realized in certain areas like purchasing, warehousing, production and operations, research and development, or personnel from more than one product or services.

Management Fit: Occurs when managers are given responsibility over areas of accumulated exposure from one line of business to another.

Directions of Corporate Level Strategies

Growth Strategy expands the company’s activities

Stability Strategies make no chance to the company’s current activities

Retrenchment Strategies reduce the company’s level of activities

Growth Strategy OptionsMerger- Involves a transaction involving two or more

corporations in which a stock is exchanged or swapped among independent business organizations from which only one company services

Acquisition- Is an option that involves the purchase of a company then completely absorbed as in operating subsidiary or division of the acquiring corporation.

Strategic alliance- is another option involving a partnership among two or more corporations or business units to achieved strategically significant objectives that are mutually beneficial.

Stability Strategies

Pause/proceed with caution: This is in effect, a sort of time out. It is an opportunity to rest before continuing a growth or retrenchment strategy.

No change strategy: It involves a decision to do nothing new.

Profit strategy: It involves a decision to do nothing new in a worsening situation and instead, to act as though the company’s problems are only temporary.

Retrenchment strategiesTurnaround strategy: This strategy emphasizes on the

improvement of operational efficiency and is probably most appropriate when a corporation’s problems are pervasive but not yet critical.

Contraction ConsolidationSell-out/Divestment strategy: This strategy is resorted to

when a company has a weak competitive position in its industry.Bankruptcy strategy: Involves giving up management of the

firm to the courts in return for some settlement of the corporation’s obligations.

Liquidation strategy: Is the termination of the firm’s business operation.