Gaurav kumar (SEC. A) Grand Strategies Strategy Formulation is a strategic planning or long range-planning. This process is primarily analytical, not action oriented. This process involves scanning external and internal environmental factors, analysis of the strategic factors and generation, evaluation and selection of the best alternative strategy appropriate to the analysis. Identification of various alternative strategies is an important aspect of strategic management as it provides the alternatives which can be considered and selected for implementation in order to arrive at certain result. At this stage, the managers are able to complete their environmental analysis and appraisal of their strengths and they are in a position to identify what alternatives strategies are available for them in the light of their organizational mission. In this there are four main strategies: 1) Stability strategy 2) Growth/Expansion Strategy 3) Retrenchment strategy 4) Combination strategy 1. Stability strategy The basic approach is maintain present course: steady as it goes. In an effective stability strategy, companies will concentrate their resources where the company presently has or can rapidly develop a meaningful competitive advantage in the narrowest possible product-market scope consistent with the firms resources and market requirement's. Reasons for adopting Stability Strategies: Managers of small business desire a satisfactory level of profits rather than increased profits. Maintenance of status quo involves less risk than a more growth strategy. Change may upset the smooth operations and result in poor performance especially, if the firm considers itself successful with the present level of operations. Changing operations to pursue a more aggressive growth strategy usually requires an increased investment and managerial support. Firms, which cannot provide resources, may continue with the stability strategy. Some executives maintain with the stability strategy due to inertia for change. In some cases, firms are forced to adopt stability strategy, if they operate in a low-growth or no-growth industry. Sometimes, firms may find that the cost of growth is more than the benefits of the same. Firms that dominate its industry through their superior size and competitive advantage may pursue stability to reduce their chances of being prosecuted for engaging in monopolistic practices. Smaller firms that concentrate on specialized products or services may choose stability because of their concern that growth will result in reduced quality and customer service. Examples of Stability Strategies adopted by companies: Steel Authority of India has adopted stability strategy because of over capacity in steel sector. Instead it has concentrated on increasing operational efficiency of its various plants rather than going for expansion. Others industries are heavy commercial vehicle, coal industry. Apart from over capacity, regulatory restrictions in some industries have forced companies to adopt stability strategy. Cigarette, liquor industries fall in this category because of strict control over capacity expansion. Both these industries require license under the provisions of Industries (Development and

regulations) Act, 1951. Many companies in public sector have been forced to adopt stability strategy because of governments policy of cutting the role of public sector and budgetary support for expansion of these companies has been withdrawn.

2. Growth/Expansion Strategies A growth strategy is one that an enterprise pursues when it increases its level of objectives upward in significant increment, much higher than an exploration of its past achievement level. The most frequent increase indicating a growth strategy is to raise the market share and or sales objectives upward significantly. If we look at the corporate performance in the recent years, we find how the various organizations have grown both in terms of sales and profit as well as assets. For example: Reliance Industries Limited, Nirma Limited. Organizations may select a growth strategy to increase their profits, sales and/ or market share. They also pursue growth strategy to reduce cost of production per unit. Growth Strategies involve a significant increase in performance objectives. These strategies are adopted when firms remarkably broadens the scope of their customer groups, customer functions and alternative technologies either singly or in combination with each other. Reasons for adopting Growth Strategies: In the long run, growth is necessary for the very survival of the organizations themselves, particularly when the environment is quite volatile. Growth offers many economies because of large scale operations. Growth Strategy is taken up because of managerial motivation to do so. Managers with high degree of achievement and recognition always prefer to grow. There are certain intangible advantages of growth. These may be in the form of increased prestige of the organization, satisfaction to employees and social benefits. Example: Growing companies have high level of prestige in the corporate world, e.g., Reliance, Infosys, Hindustan Unilever, etc. Types of Growth / Expansion Strategies: (i)Concentric Expansion Strategy: The first route of growth is to expand the present line of business. It can be aimed at market penetration, market development and / or product development. Market Penetration: The organization tries to capture market share in the existing product and aims at expanding its business at a rate higher than the industry growth. Example: Reliance has captured substantial market share in textile yarn and intermediaries Example: ITC has captured substantial market share in cigarettes. Market Development: Attempt is made to increase sales by developing new markets either geography-wise or segment-wise. Example: Many companies which find that the urban market is saturated and there is little scope for expansion, opt for developing new market in rural areas. Some of the companies which have made keen attempt to develop rural market are HUL (personal products), Colgate (oral care products), LG (TV), Videocon (Consumer durables), etc. Product Development: Efforts are attempted at to achieve growth through product

innovation so as to penetrate in new segment. Example: SAMSUNG (TV) may offer slim line TV, Plasma TV, etc. Benefits of Concentric Expansion Strategy: A firm that is familiar with an industry would naturally like to invest more in known business rather than unknown ones. Eg. Bajaj Auto It involves minimal organizational changes. It enables the firm to master one or a few businesses and enable it to specialize by gaining an in depth knowledge of these businesses. Managers face fewer problems when dealing with known situations. Past experience is valuable as it is replicable. Limitations of Concentric Expansion Strategy: Putting all ones eggs in one basket has its own problems these are as followsConcentration strategies are heavily dependent on the industry. Factors like product obsolescence, fickleness of markets, and emergence of newer technologies are threats to concentrated firms. Concentration strategies may result in doing too much of a known thing. This may create an organizational inertia; managers may not be able to sustain interest and find the work less challenging and less stimulating. Concentration strategies may lead to cash flow problems that may pose a dilemma before a firm. Large cash inflows are required for building up assets while the businesses are growing. But when these businesses mature, firms often face a cash surplus with little scope for investing in the present businesses. (ii) Integration Strategy: When firms use their existing base to expand in the direction of their raw materials or the ultimate consumers, or, alternatively they acquire complimentary or adjacent businesses, integration takes place. Integration basically means combining activities related to the present activity of a firm. Types of Integration Strategy: Vertical Integration: When an organization starts making new products that serve its own needs, vertical integration takes place. Any new activity undertaken with the purpose of either supplying inputs (such as raw materials) or serving as a customer for outputs (such as, marketing of firms product) is vertical integration. Backward Integration: retreating to the source of raw materials. Example: Reliance started its business with textiles and went for backward integration to produce PFY and PSF, critical raw materials for textiles, PTA and MEG-raw materials for PSF and PFY, paraxylene -raw materials for PTA and MEG, and finally naphtha for producing paraxylene. NaphthaParaxylenePTA + MEGPSf(fibres) and PFY yarns Textiles Forward Integration: moves the organization nearer to the ultimate customer Example: Expansion strategies at Modern Group, consisting of five companies having a combined turnover of Rs.115 crore in 1989, involved diversification in the form of backward and forward integration. Forward integration took place at Modern Suiting when it diversified into worsted suiting. With an investment of Rs.7 crore, it acquired sulzer looms, sophisticated fabric processing facilities and other sophisticated equipments to manufacture a premium terry wool suiting with the brand name Amadeus. Backward integration at Modern Woolens involved collaboration with Schild of Switzerland for wool processing, combing, and woolen tops which are necessary for the production of woolen textiles. In this manner, a number of backward and forward linkages were being attempted within the Modern Group with the objective of raising the turnover to Rs.250 crore by 1992. Horizontal Integration: When an organization takes up the same type of products at the same level of production or marketing process, it is said to follow a strategy of horizontal integration For Example: When a luggage company takes over its rival luggage company Horizontal Integration strategy may be frequently adopted with a view to expand geographically by buying a competitors business, to increase the market share or

to benefit from economies of scale. Solidaire India Ltd. is a prominent manufacturer of TVs and has a sizeable presence in the market in southern India. It started with the name of Hi Beam Electronics Ltd. in 1974. Subsequently, this unit was merged with two other units to form a consortium called TriStar Electronics. In 1978, the brand name Solidaire was adopted. In this manner the growth strategy of the company started with Horizontal Integration. Takeover of Neyveli Ceramics and Refractories Ltd. (Neycer) by Spartek Ceramics India Ltd. in the early 1990s. Both the companies were in sanitary ware and tile production. By acquiring Neycer, Spartek became the largest ceramic tile manufacturer in the country. (iii) Expansion through Diversification: Diversification is the process of entry into a business which is new to an organization either marketwise or technology wise or both. Diversification may involve internal or external, related or unrelated, horizontal or vertical, and active or passive dimensions------ either singly or collectively. Example: Kesoram Cotton Mills into textiles, cellophane paper, firebricks, castiron pipes, and cement & ITC Ltd. (a cigarette major) into hotel, paper and packaging; edible oils,etc. Types of Diversification Strategy: Horizontal Integration Vertical Integration Concentric Diversification Conglomerate Diversification Concentric Diversification: When an organization takes up an activity in such a manner that it is related to the existing business definition of one or more of a firms business, either in terms of customer groups, customer functions or alternative technologies, it is called Concentric Diversification. For example: a company in the sewing machine business diversifies into kitchenware and household appliances, which are sold to housewives through a chain of retail stores. Conglomerate Diversification: When an organization adopts a strategy which requires taking up those activities which are unrelated to the existing business definition of one or more of its business, either in terms of their respective customer groups, customer functions or alternative technologies. For Example: ITC, a cigarette company diversifying into the hotel industry. Essar Group in shipping, marine construction, oil support services, and iron and steel. Shriram Fibres Ltd. In nylon industrial yarn, synthetic industrial fabrics, nylon tyre cords, fluorochemicals, fluorocarbon refrigerant gases, ball and needle bearings, auto electrical, hire-purchase and leasing, and financial services. (iv) Expansion through Cooperation: This can be done through simultaneous competition and cooperation among rival firms for mutual benefit. Types of Cooperative Strategies: Merger Strategy: A merger is a combination of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and the assets and liabilities are combined and new stock is issued. Example: Nirma Detergents Ltd., Nirma Soaps and Detergents Ltd., and Shiva Soaps and Detergent Ltd. With Nirma Ltd. Acquisition or Takeover Strategy: Acquisition or Takeover is the attempt of one

firm to acquire ownership or control over another firm against the wishes of the latters management. But in practice it can be hostile or friendly. Example: Tata Teas takeover of Consolidated Coffee (a grower of coffee beans) and Asian Coffee (a Processor) Joint Venture Strategy: Joint Ventures are partnerships in which two or more firms carry out a specific project or corporate in a selected area of business. It can be temporary; disbanding after the project is finished, or long-term. Ownership of the firms remains unchanged. Even a successful joint venture may not last forever. Nor does the collapse of a joint venture always imply failure. Actually, corporate partnerships are formed for specific and time bound objectives which, once achieved, leave little reason for the alliance to be continued. Joint Ventures that last longer do so because their objectives have been redesigned. Examples: IBM World Trade Corporation and Tata Industries Ltd. Created joint venture to form Tata Information Systems Ltd. The stated purpose was to make it Indias top information technology company Cummins Engine Company and TELCO formed a joint venture to manufacture Telco Engines Reliance Industries and Nynex Corporation Tata Industries and Bell Canada Ashok Leyland and Singapore Telecom Strategic Alliances: Strategic Alliance is a combination of the efforts of two or more organizations to develop competitive advantage In Strategic Alliance, two or more partners join hands together for certain specified objectives, generally, for certain specific period. When these objectives are achieved, partners terminate their alliance. Examples: Oberoi group of Hotels has entered into Strategic Alliance with Lufthansa Airlines, Hong Kong Bank, and Mercury Travels. All these four organizations undertake promotional activities jointly. Any person who stays in Oberoi hotels gets bonus point. His bonus point increases if he travels by Lufthansa, uses Hong Kong Bank facilities, and engages Mercury Travels services. On the basis of his accumulated bonus points, he gets various prizes including free air ticket to New York (v) Internationalization Strategy: International Strategy is a type of expansion strategy that requires firms to market their products or services beyond the domestic or national market. Firm would have to assess the international environment, evaluate its own capabilities, and devise strategies to enter foreign markets. Types of International Strategies: International Strategy: Firms adopt International Strategy when they create value by transferring products and services to foreign markets where these products and services are not available. International firm, by maintaining a tight control over its overseas operations, offers standardized products and services in different countries with little or no differentiation .Like IBM, Kellogg, Proctor & Gamble, Microsoft, etc adopt this strategy for the different countries they operate in. Multidomestic Strategy: Firm adopts a Multidomestic Strategy when they try to achieve a high level of local responsiveness by matching their products and services offerings to the national conditions operating in the countries they operate in. Multidomestic firm attempts to extensively customize their products and services according to the local conditions operating in the different countries. Like Coca Cola, McDonald, Pizza Hut, etc. Global strategy: The global firms try to focus intensively on a low cost structure by leveraging their expertise in providing certain products and services, and

concentrating the production of these standardized products and services at a few favourable locations around the world. These products and services are offered in an undifferentiated manner in all countries the global firm operates in, usually at competitive prices. Transnational Strategy: Firms adopt a Transnational strategy when they adopt a combined approach of low-cost and high local responsiveness simultaneously for their products and services. 3. Retrenchment Strategy: When a firms position is disappointing or, at the extreme, when its survival is at stake, then Retrenchment Strategy may be appropriate Types of Retrenchment Strategies: Turnaround Strategy: If the firm chooses to focus on ways and means to reverse the process of decline, it adopts a turnaround Strategy. Approaches of Turnaround Strategy: Surgical Approach: It is mostly mechanic and requires tough attitude of the top executive. The executive issues direction for change, fire employees, close down divisions/plants, drops the product lines, replaces the machinery, issues production, marketing and finance controls, fixation of accountability for results. This approach continues until the firm is turned around. Later the chief executives relax the tough environment and controls. Human Resources Development Approach: It involves Chief Executive conducts a series of meetings, encourages the managers to be open, understand each other, understand the problems and diagnose the root cause for poor performance of the firm He encourages the employees to suggest methods of turning around He encourages the managers and employees to implement the solutions offered by them in a highly coordinated, committed team spirit Example: Metal Box India Ltd. a reputed company in the packaging industry, turned sick due to its wrong strategic move of diversifying into bearings manufacture in the early eighties. Eight of its nine units closed down as results of which the BIFR and the ICICI formulated a rehabilitation package for the turnaround of the company. Captive Company strategy: This strategy is pursued when a firm sells the majority of its products to one customer (Wholesaler/retailer) who in turn perform some of the functions normally done by an independent firm. The customer, in this strategy, provides the product design to the captive manufacturer, who in turn produces according to the design and supplies the product to the customer. The firm need not involve the cost o product design and marketing. Divestment Strategy: It involves the sale or liquidation of a portion of business, or a major division, profit centre or SBU. This strategy is usually adopted when the company is performing poorly or when it no longer fits the companys strategic profile. Examples: Tata group is a highly-diversified entity with a range of businesses under its fold. They identified their non core businesses for divestment. TOMCO was divested and sold to Hindustan Levers as soaps and detergents was not considered a core business for the Tatas. VST Natural Products, the food business company of VST, the tobacco firm, was divested to the Global Green Company of the Thapar group. The reasons for divestment were: non availability of raw materials and inadequate working capital infusion. VST, the parent company, could not invest more as it was itself running under a loss. Liquidation Strategies: This involves closing down a firm and selling its assets. It is considered as a last resort because it leads to serious consequences such as loss of employment for workers and other employees, termination of opportunities where a firm could pursue any future activities, and stigma of failure Example: On May 14, 1986, the Bombay High Court appointed a provisional liquidator in the petition for the voluntary liquidation of Empress Mills at Nagpur. Empress

Mills was a 113-years-old mill owned by the Tatas. Behind the liquidation petition lay a host of reasons. The major strategic cause for liquidation lies in the fact that for nearly 50 years, Empress Mills did not invest in modernization or keep pace with competition. In the wider context, the government policies did not prove favourable for the cotton textile industry. The management of the mill carried the blame for neglect and delayed action. After Mr.Ratan Tata took over as chairman of the company in 1977, some efforts were made for modernization but these proved to be grossly insufficient. A proposal to merge the mill with other textile units of the Tatas could not materialize. Rationalization of the product-mix across these units also proved to be a non-starer owing to resistance offered by executives. Efforts to negotiate a voluntary retirement scheme to cut down on the 6000 workers-employees strength also failed. Ultimately, the banks and financial institutions delayed the formulation of a rehabilitation package that could turn the mill around. The state government apparently did not provide the much needed political support that could have helped save the jobs of the workers. 4. Combination Strategies: Combination Strategies are a mixture of stability, expansion or retrenchment strategies applied either simultaneously (at the same time in different businesses) or sequentially (at different times in the same business). It would be difficult to find any organization that has survived and grown by adopting a single pure strategy. The complexity of doing business demands that different strategies be adopted to suit the situational demands made upon the organization. Example: The Tube Investments of India (TI), a Murugappa group company, has created strategic alliances in its three major businesses: tubes, cycles, and strips. In cycles, it has entered into regional outsourcing arrangements with the UP-based Avon (which we could term as co-opetition, as Avon is TIs competitor in the cycle industry) and Hamilton Cycles in the western region. In steel strips, TI has entered into a manufacturing contract with Steel Tubes of India, Steel Authority of India, and the Jindals.