Grand Level Strategies

The Grand Strategic alternatives are

• Stability

• Retrenchment

• Expansion

• Combination

Dimensions of Grand StrategiesInternal/external;-When an organization adopts strategy independent to other

its internalIn association with other entity its externalRelated/unrelated;-Related or unrelated to existing business.Horizontal/vertical:-Serving additional CG or CF,Expansion or contraction of existing business startegy.AS Active/passive:-Offensive strategy in anticipation of environmental threat Defensive strategy as a reaction to the environment

Strategies are• Stability:-

–No change

–Pause/proceed with caution

–Profit strategies

• Expansion:-

–Through concentration

–Through integration

–Through diversification

–Through cooperation

–Through internationalization

Cont…

• Retrenchment:-

–Turnaround

–Divestment

–Liquidation

• Combination;-

–Simultaneous

–Sequential

–Combination of both

Stability Strategy• It is adopted by organization when it attempts at an incremental

improvements of its functional performance by marginally changing one or more of its business in terms of their respective

• customer group

• customer function and

• alternative technologies.

• The company stays with the current business & products , markets

• Maintains existing level of efforts

• Is satisfied with incremental growth

Major reasons for adopting stability are

• Less risky

• Fewer changes

• Environment faced is relatively stable

• Expansion may be perceived as threatening

• Better deployment & utilization of resources

• Not redefining business

• Safety oriented

• No fresh investments

• Does not nil growth, but it is incremental

Conditions Under Which Stability is Adopted

• Enjoys comfortable position

• Future is ensured

• Growth ambitions are modest

• Niche's prefer mostly

• E.g.:

• Copier machine provides better after sales service to its existing customer to improve its company image

No change strategy:-

• Continues with the same business definition

• The environment is predictable & certain

• No opportunities & threats in environment

• No major strength & weakness

• No new competitors

• No obvious threat of substitute

Profit strategy• No firm can identically continue with no change.

• Sometimes things do change & the firm has to face situation where it has to do something.

• When there occur temporary changes or problems the firm tries to maintain the profits

• The problems could be: economic recession, govt. attitude, industry downturn, competitive pressure.

• These problems are short run only

• If problem continues has to adopt another strategy

Pause/Proceed with Caution• Firms which wish too test the ground before moving ahead

with full fledged strategy.

• Or may have had a blistering phase of expansion & now wish to rest for a while before moving ahead.

• Purposes to let the strategic changes seep down the organization levels, allow structural changes to take place, and let the systems adopt new strategies.

• While profit strategies are enforced choices aimed at sustaining profitability

• Pause/proceed are deliberate and conscious attempt to adjourn major strategic changes to a more opportune time, or when the firm is ready to move on with rapid strides again

Expansion StrategyConditions:-

• Expansion becomes imperative when envt. Demands increase in the pace of activity.

• Increasing size may lead to more control over the market

• Advantages from experience curve & economies of scale

• High risk

• Redefinition of business

• Fresh investments new business/ product/ market

• Highly versatile strategy

Through concentration:-• Converging resources in one or more firm’ s business• 1st preferred strategy.• Involves investment of resources in product line for an

identified market.• Existing market New market• Existing product

• New product

Market penetration Market development

Product development diversification

• Applies to situation where the firm finds expansion worth while.

• It’s the 1st preferred strategy

• Entering into known business

Advantages:-

• Involve minimal org. change so there is less threatening

• Managers comfortable with present business

• enables the firm to master in business by the depth of the knowledge.

• Can develop competitive advantage.

• Past experience is valuable.

Limitations:-• Putting all eggs in one basket has his own problem• Heavily dependent on industry• If industry goes into recession firm finds difficult to

save itself• Its crowded with competitors its attractiveness

decreases.• Factors like product obsolescence, merging of new

technologies are threats to firm.• Lead to cash flow problems

Through IntegrationWorks in present set of CF & CG but the dimension of

business undergoes a changeIntegration is combining activities on the basis of value

chain A set of interlinked activities performed by firm right from

procurement of basic raw material to marketing of finished products.

Widening the scope of business.Petrochemicals steel hydrocarbons industry.Cost economicsForward or backward integration

Through diversification• Diversification may involve all dimensions of strategic alternatives• Internal – external, related – unrelated, horizontal – vertical.• Involves a substantial change in business definition.• Different types are :-– concentric diversification:-– Related to existing business definition either in terms of CG, CF

or AS ,is called concentric diversification.– May be of types:• Marketing related:-similar type of product is offered with

help of unrelated technology . sewing machines produces diversify into kitchenware & house hold appliances, sold to housewives through a chain of retail stores.

Technology related:- a leasing firm provides hire- purchase services.

Conglomerate:-Unrelated to existing business definition.ITC Essar (shipping, marine construction, oil support

services)Why are diversification strategies adopted;-To minimize risk by spreading it over several

businessCapitalize organizations strength & minimize

weakness.Only way out if growth is blocked because of

environmental or regulatory factors.

Advantages:-• Enables firm to attain synergy by exchange of

resources & skills.

• Avail economies of scale

• Reduction in risk by spreading risk

• Disadvantages:-

• Increase risk & commitment

• Diversion of resources & concentration to other areas.

Through Co-operationMergersTake oversJoint venturesStrategic alliances

Merger:-Combination of 2 or more than 2 entities involved in which

one acquires the assets & liabilities of other in exchange of cash or shares .

Or both the organizations are dissolved, assets & liabilities combined & new stock is issued.

Objectives of the firms are matched

Types of mergers

• Horizontal :- same business• Vertical mergers:-complementary in terms of

input or output• Concentric:-related CF,CG, AS• Conglomerate;- unrelated.

Reasons for mergers

• Increase value of firm’s stock

• Increase growth rate & make a good investment

• Improve stability of earning sales

• To balance, complete & diversify product lines.

• Reduce competition

• Take advantages of synergy

Takeover/ acquisition

How Take Over takes place:-• Spell objective• Indicate how they will be achieved• Assess managerial quality• Check compatibility of business style• Anticipate & solve problems early• Treat people with dignity & concern

ReasonsQuick growthReducing competitionIncreasing market shareCreating goodwill

Friendly & Hostile

Pros & cons:-GrowthMobility of resourcesSick units bettermentStress strain

Joint VentureTwo or more firm consolidation for temporary partnership

Conditions for JVOne cant do aloneRisk is to be sharedCompetitive advantage of both can be brought together.

Advantages:-Foreign technologyGovt. Policy & supportNew fieldsSynergistic effect

Disadvantages:-Coordination lackingForeign regulationsCultural & behavioral differences

Strategic Alliance• Two or more firms unite to pursue a set of agreed

upon goals but remain independent.

• Win -Win strategy

• Share strength

• Lend power to enterprise

• Pooling of resources

• Risk is mutual

• E.g. TVs Suzuki, Mahindra ford, bpl SANYO, Videocon Suzuki.

Types of strategic alliance

• Pro active (low interaction/low conflict)

• Inter industry, vertical value chain integration

• Non competitive(high interaction/low conflict)

• Intra industry , non competitive firms

• Competitive: (high interaction/high conflict)

• Rival firms to cooperation , inert/ intra industry

• Pre competitive: (low interaction high conflict)

• Unrelated industries, new product development.

Reasons

• Entering new markets

• Reducing manufacturing costs

• Developing & diffusing strategy

Diversification Through Internationalization

Competitive advantage of nationsFactor ConditionsDemand ConditionsRelated & Supporting IndustriesFirm strategy, Structure & RivalryBeyond Domestic MarketAsses EnvironmentEvaluate capabilitiesDevise strategy.Motives:-ExpansionMarket potentialGovt. policiesResources

Global strategy Transactional strategy

International strategy Multi domestic strategy

International:-• Where the products are not available like MCD,,

coca cola, IBM, Kellogg'sMulti domestic:-• Matching products to national conditions.

Customize products.Global;-• Standardized products , • Economies of scale• Undifferentiated product • Competitive price

Entry modes• Export entry mode– Direct– Indirect

• Contractual:-– Licensing– Franchising– Other forms (tech.)

• Investment– JV, strategic alliance– Independent ventures

Advantages:-• Sales profit• Expansion• Above average returns

Disadvantages:• Risk• Uncertainty of economic & political environment• Cultural diversity• Trade barriers

Retrenchment

• Reducing scope of activity• Demand Saturation• Government policies adverse• Substitutes Emerged• Changing Needs & Preferences• Poor Management• Wrong Strategies• Poor Quality

4 types of situation

• Realistic non recoverable• Temporary recovery• Sustained survival• Sustained recovery

Turn Around• Negative cash flow

• Negative Profits

• Mismanagement

• Declining market share

• Uncompetitive products

• High turnover

Approaches:-

• Surgical

• Non surgical

Divestment/Cutback

• Sale or liquidation of portion of business , or a major division, profit center or SBU

• Usually part of rehabilitation or Restructuring plan

Approach to Divestment: -

A part of company is divested

A firm may sell a unit outright

Reason for Divestment:

• Acquired & found a mismatch• Negative Catch flow• Inability to firm to cope with cause• Technological updating not possible for

survival• Company not able to survive• Inability to run large business

Liquidation strategies:-

• Closing down a firm & selling its assets

• Termination of employees

• Loss of employer

• Serious consequences.

Combination

• Mixture of all either applied simultaneously or sequentially

Process of strategic management• Establishing strategic intent:-

– Vision, mission, business definition & objectives

• Formulation of strategies:-

– Environment & organizational appraisal

– Swot analysis

– Corporate level strategies

– Business level strategies

– Strategic choice

– Strategic plan

• Strategy implementation:-

– Project, procedural, resource allocation, structural, behavioral functional & operational

• Strategic evaluation

• Strategic control