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STRATEGIC PLANNING

Corporate strategy is the game plan that actually steers the firm towards success. Formulation of corporate

strategy forms the crux of the strategic planning process. Corporate strategy is basically the growth design of

the firm, the growth objective of the firm. It also spells out the strategy for achieving the growth. Corporate

strategy is basically concerned with the choice of business, products and markets.

Features of Corporate strategy:

1. It can also be viewed as the objective strategy design of the firm.

2. It is the design for filling the firms strategic planning gap.

3. It is concerned with the choice of the firms products and markets.

4. It ensures that the right fit is achieved between the firm and its environment.

5. It helps build the relevant competitive advantages of the firm.

6. Corporate objectives and corporate strategy together describe the firms concept of business.

Success of Corporate strategy

In the first place it ensures the growth of the firm, and also ensures the correct alignment of the firm

with its environment.

It is the design for filing the strategic planning gap.

It also helps build the relevant competitive advantage.

The purpose of corporate strategy is to harness the opportunities available in the environment,

countering the threats in the environment.

It is to match unique capabilities of the firm with the promises and threats of the environment that it

achieves the task.

The responding to environment is part and parcel of the firms existence. Strategy is the opposite of ad hoc

responses to the changes in the environment. Strategy is partly proactive and partly reactive. Strategy is a

blend of proactive actions on the part of managers to improve the companys market position and financial

performance, and as needed reactions to unanticipated developments and fresh market conditions.

Dealing with strategic uncertainty

The external analysis will emerge with dozens of strategic uncertainties. Sometimes the strategic uncertainty is

represented by a future trend or event that has inherent unpredictability. Information gathering and analyzing

the information will not be useful. In such a situation scenario analysis can be employed. Scenario analysis

accepts the uncertainty as given and uses it to derive a description of two or more scenarios. Strategies are

developed for each scenario.

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Impact of strategic Uncertainty

Each strategic uncertainty involves potential trends or event that could have an impact on present, proposed

or even potential strategic business units (SBUs).

Corporate strategy formulation implementation process is a five- stage process:

Stage I: Developing a strategic vision

The company must determine what directional path the company should take and what changes in the

companys product should be made so that the current market position would improve. Top managements

views and conclusions about the companys direction and the product customer market technology constitute

a strategic vision of the company. Managers need to be clear about what they see as the role of their

organization, and this is expressed in terms of a statement of mission or strategic intent. The managers of the

subsidiary also need to be clear where they fit into the corporate as a whole. The importance of strategic

intent can help galvanize motivation. If strategic intent is absent, different levels of management pull the

organization in different directions.

Stage II: Setting objectives

Corporate objectives flow from the mission and growth ambition of the corporation. Basically, corporate

objectives represent the quantum of the growth of the firm seeks to achieve in a given time frame. The

purpose of strategic planning is to convert the strategic vision into specific targets. Managers have to use the

objective- setting exercise as a tool for achieving the objectives. While setting up the objectives the balance

scorecard approach should be adopted. This requires setting both financial and strategic objectives and

tracing their achievements. When the company is in a sound financial position, the managers should put more

efforts on emphasizing strategic objectives than on achieving financial objectives. Better financial results from

operations are possible when competitiveness and market strength are increased.There is a need for both long

term objectives and short term objectives. The long term objectives are established in the following 7 areas:

Profitability

Productivity

Competitive position

Employee development

Employee relations

Technological relations

Public responsibility

Long term objectives represent the results expected from pursuing certain strategies. Strategies represent

the actions to be taken to accomplish long- term objectives. The time frame is normally 2- 5 years.

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Characteristics of long term objectives

1. Acceptable

2. Flexible

3. Measurable

4. Motivating

5. Suitable

6. Understandable

7. Achievable

The objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical,

obtainable and congruent among organizational units. Clearly established objectives offer many

advantages. They provide direction, allow synergy, aid in evaluation, establish priorities, reduce

uncertainty, minimize conflicts, stimulate exertion, and aid in both allocation of resources and the design

of jobs. Objectives are normally stated in the form of:

Growth in assets

Degree and nature of diversification

Growth in sales

Degree and nature of vertical integration

Profitability

Earnings per share

Market share

Social responsibility

Short range objectives can be identical to long- range objectives. Short range objectives serve as stair steps

or milestones.

Strategic Intent: a company exhibits strategic intent when it relentlessly pursues ambitious strategic

objectives and concentrates its full resources and competitive actions on achieving those objectives. The

objectives should be set up for all levels of the management. It is a team effort to achieve the objectives.

Stage III: Crafting a strategy to achieve the objectives and vision

The companys strategies will be at full strength only when all the plans are capable of being executed.

Plans should be made by those persons who have understood the organizations requirements in full.

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Mid- level and front line managers cannot achieve good strategy- making without understanding the

companys long term directions and higher- level strategies. However, the frontline managers will be able

to provide new ideas for the growth of the organization.

The strategic plans should be made after taking into account the following:

1. Organizational strength and weakness( internal factors)

2. Competitors strength and weakness

3. Market needs, customer needs and product requirement

Stage IV: Implementing and executing the strategy

The entire policy should be converted into performance action by carrying out the required procedures.

The following aspect should be considered for converting the policies into performance actions:

Staffing the organization with the needed skills and expertise

Developing a budget to allocate the resources

Making out a list of all the available resources and providing optimum utilization

Proper motivation to employees

Proper operating environment

Performance based incentives

Good company culture and work climate.

Stage V: Monitoring developments, evaluating performance and making corrective adjustments.

The set of policies have to be monitored on a regular basis to find out the deficiency or loopholes in the

system. Sometimes, the policy may require some corrective actions due to developments and unforeseen

circumstances. The fine- tuning in the plans will provide the required outcome for the policy.

MICHAEL PORTERS GENERIC STRATEGY

According to Porter, Strategies allow organizations to gain competitive advantage from three different bases,

viz. cost leadership, differentiation and focus.

Cost leadership emphasizes producing standardized products at a very low cost per unit for the consumers

who are price- sensitive.

Differentiation is a strategy aimed at producing the products and services considered unique industry- wide

and directed at consumers who are relatively price- insensitive.

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Focus means producing the products and services that fulfill the needs of small group of consumers.

Porters strategy implies the need for different organizational arrangements, control procedures and incentive

systems. Larger firms compete on a cost leadership and / or differentiation basis, whereas smaller firms focus

on a competence basis.

Porter stresses on the need for strategies to perform cost- benefit analysis to evaluate sharing opportunities;

sharing activities and resources enhance competitive advantage by lowering the cost and raising

differentiation. He also insists on the firms to transfer skills and expertise among autonomous business units

effectively in order to gain competitive advantage. Depending upon factors such as type of industry, size of

firm and nature of competition, various strategies could yield advantages in cost leadership, differentiation

and focus.

Cost leadership strategies

These strategies should be in such a manner that the cost of production is reduced and the organization is able

to provide the product at a lesser selling price. A number of cost elements should be looked into which may

include the skills and resources required.

If the market is composed of price-sensitive buyers, the product should be manufactured at low cost, taking

into account the following plans:

Capital investment

Process engineering skills

Proper supervision of labour

Low- cost distribution system

Easy way of manufacturing the products.

Differentiation strategies

These offer different degrees of differentiation, but do not guarantee competitive advantage. Successful

differentiation can mean greater product flexibility, greater compatibility, lower costs, improved services, less

maintenance, greater conveniences, more features, etc. Product development is an example of a strategy

which offers the advantage of differentiation.This should be pursued only after careful study of buyers needs

and preferences. A successful differentiation strategy allows a firm to charge a higher price for its products and

to gain customer loyalty because customers may become strongly attached to the differentiation features.

Special features may include:

Superior service

Availability of spare parts

Engineering design

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Product performance

Useful life

Ease of use.

Focus strategy

This is the combination of above two strategies to cater to the need of a particular group of people who are

able to appreciate the brand name and also the organization. Strategies such as market penetration and

market development offer substantial focusing advantages. Focus strategies are most effective when

consumers have distinctive preferences or requirements and when rival firms are not attempting to specialize

in the same target segment. The risk is that the competitors may follow the same strategy and consumers may

shift to another brand of the same product.

The comparative skills and resource requirements for different strategies:

Generic Strategy Commonly required skills and resources Organizational requirements

Overall cost leadership strategy Sustained capital investment and access to

capital., Process engineering skills, Intense

supervision of labour, Products designed for

ease in manufacture, Low-cost distribution

system

Tight cost control, Frequent, detailed control

reports, Structured organization and

responsibilities, Incentive based on meeting

strict quantitative targets.

Differentiation Strategy Strong marketing abilities.

Product engineering

Creative fair, Strong capability in basic

research, Corporate reputation for quality or

technological leadership.

Long tradition in the industry or unique

combinations or skills drawn from other

business

Strong cooperation from channels.

Strong coordination among functions in R&D,

product development, and marketing.

Subjective measurement and incentives

instead of quantitative measures.

Amenities to attract highly skilled labor,

scientists or creative people.

Focus Combination of the above policies directed at

the particular strategic target.

Combination of the above policies directed at

the particular strategic target.

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Best- cost provider Strategy

This is a new model strategy which is a development over Michael Porters Generic strategy. In this strategy,

cost is reduced to the extent possible without deteriorating the quality of the product, keeping in mind

customers requirement. When the products are offered at a low price it is easy to capture the market to

increase the market share.

Strategy Alternatives

Stability strategy: The firm stays with its current businesses and product markets, maintains existing level of

effort and it is satisfied with incremental growth.

A firm opting for stability strategy stays with the same business, same market position, and functions

maintaining the same level of efforts as at present.

The effort is to enhance the functional efficiencies in an incremental way, through better deployment

and utilization of resources.

The assessment is that the desired income and profits would be forthcoming through such incremental

improvements in functional efficiencies.

Stability strategy doesnt involve redefinition of the business of the corporation. It is basically a safety-

oriented and status quo strategy. It doesnt require fresh investments.

The risk is also less; so it is frequently- employed strategy. With the stability strategy, the firm has the

benefit of concentrating its resources and attention on the existing businesses/ products and markets.

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This strategy doesnt permit fresh investments and new products and markets of the firm.

Stability strategy is adopted because: It is less risky, involves less changes and people feel comfortable

as they are.

The environment faced is relatively stable

Expansion may be perceived as being threatening

Consolidation is sought through stabilizing after a period of rapid expansion.

Expansion Strategy: The firm seeks significant growth in the current business; entering into new businesses

that are related to existing business or sometimes entering into new businesses which are unrelated to existing

business.

This is the opposite of stability strategy. The rewards are limited in stability strategy, but they are high

in expansion strategy; even in risk factors they are opposite to each other.

This is the most frequently employed generic strategy, as a true growth strategy.

It involves a redefinition of the business of the corporation. It is a renewal of the firm through fresh

investments and new businesses. It is a highly versatile strategy.

It offers several permutations and combinations for growth.

Two types of strategy routes are intensification and diversification.

In Intensification, the firm pursues its growth by working with its current businesses. Intensification

has 3 alternative approaches viz. market penetration, market development and product development.

Expansion is adopted because: It may become imperative when environment demands increase in the

pace of activity

Psychologically, strategists may feel more satisfied with the prospects of growth from expansion, and

chief executives may take pride in presiding over organizations perceived to be growth- oriented.

Increasing size may lead to more control over the market vis-a-vis competitors.

Advantages from the experience curve and scale of operations may accrue.

Diversification Strategy: involves expansion into new businesses which are outside the current businesses and

markets. This can be related or unrelated to existing business. There are four broad types of diversification, as

follows:

1. Vertically/Horizontally Integrated diversification

Vertical Integrated diversification: In the, the firms opt to engage in businesses which are related to

the existing business of the firm. The firm remains vertically within the same process sequence, it

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moves either forward or backward, in the chain, and enters specific product/ process steps with the

intention of improving the business.

Horizontally Integrated diversification: through the acquisition of one or more similar business

operating at the same stage of production; for e.g. a marketing chain which is going into

complementary products, by- products or taking over the competition products.

2. Concentric diversification This amounts to related diversification. The new business is linked to the

existing businesses through process, technology or marketing.

3. Conglomerate diversification- This amounts to related diversification. The new business is linked to the

existing businesses through process, technology or marketing.

Retrenchment: The firm retrenches some of the activities in a given business or drops the business as such

through sell-out or liquidation.

Retrenchment is adopted because:

1. The management no longer wishes to remain in business either partly or wholly due to

continuous losses or non- viability.

2. The environment faced is threatening. Stability can be ensured by reallocation of resources

from unprofitable to profitable business.

Combination: The firm combines the above strategic alternatives in some permutation and combination so as

to suit the specific requirements of the firm.

Combination strategy is adopted because-

1. The organization is large and faces a complex environment.

2. The organization is composed of different businesses each of which lies in a different industry

requiring different responses.

Divestment strategy: This involves retrenchment of some of the activities in a given business of the firm, or

selling out some of the businesses as such. It is viewed as an integral part of corporate strategy without any

stigma attached.

This strategy is adopted when turnaround strategy is found to be unsuccessful.

Compulsions for Divestment:

1. Business becoming unprofitable

2. High competition

3. Industry over capacity

4. Failure of strategy

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5. Technological up- gradation is required, but organization is unable to invest further capital

6. Continuous cash problems.

Expansion strategy (Growth strategy): This can either be through intensification or diversification. Igor Ansoff

gave a framework, which describes the intensification option available to a firm.

Market penetration- The most common expansion strategy is market penetration/ concentration on the

current business. The firm directs its resources to the profitable growth of a single product, in a single market

with single technology.

Market development- This consists of marketing present products to customers in related market areas by

adding different channels of distribution or by changing the content of advertising or the promotional media.

Product development: this involves substantial modification of existing products or creation of new but related

items that can be marketed to current customers through established channels.

Turnaround Strategy: Retrenchment may be done either internally or externally. When internal efficiency is

improved, it is known as internal retrenchment or turnaround strategy. Sometimes, internal retrenchment is

required if the organization has to survive.

The danger signs which require retrenchment strategies are:-

Persistent negative cash flow

Negative profits

Declining market share

Deterioration in physical facilities

Over- manning, high turnover of employees and low morale.

Uncompetitive products or services

Mismanagement

For turnaround strategies to be successful, the focus is required on short- term and long-term financing

needs as well as on strategic issues. The plan which is required for turnaround strategy consists of:

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Clear thinking about the product, production logic, market.

Analysis of the product, market, production processes, competition and market segment positioning.

Implementation of the plans by target setting, feedback and remedial action.

Ten elements which contribute to turnaround are:

1. Changes in top management

2. Building actions

3. Neutralizing external pressures

4. Initial control

5. Identifying quick pay- off activities

6. Quick cost reductions

7. Revenue generation

8. Asset liquidation for generating cash

9. Better internal coordination

10. Mobilization of the organizations.

Liquidation Strategy: This is one of the retrenchment strategies and it is unattractive because it involves

closing down of the business units. This is considered as a last resort action. Many small units like partnership

firms liquidate very frequently, but large size companies may not prefer to go for liquidation.

Creditors, shareholders, banks, trade unions and employees may not be interested in going for liquidation. The

liquidation process is also difficult because buyers may not be available to take over the company. Under the

Companies Act, 1956, winding up may be up the Court, voluntary, or subject to the supervision of the court.