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04 Strategic Management, Chapter 4 Complete, And Clean

The document outlines various business strategies employed by conglomerates, categorized into corporate, business unit, and functional levels. It discusses strategies at different stages of the business life cycle, including stability, expansion, and retrenchment, along with specific approaches like cost leadership and differentiation. Additionally, it highlights the importance of aligning strategies with market demands and internal capabilities to optimize growth and manage risks.

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Yaman Agarwal
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0% found this document useful (0 votes)
6 views17 pages

04 Strategic Management, Chapter 4 Complete, And Clean

The document outlines various business strategies employed by conglomerates, categorized into corporate, business unit, and functional levels. It discusses strategies at different stages of the business life cycle, including stability, expansion, and retrenchment, along with specific approaches like cost leadership and differentiation. Additionally, it highlights the importance of aligning strategies with market demands and internal capabilities to optimize growth and manage risks.

Uploaded by

Yaman Agarwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Different types of Strategies followed by Business

strategies on the conglomerates


basis of their
classification

Level of the Stages of Business


Competition oriented
organization Life Cycle
having multiple products and
businesses formulate strategies In this chapter we will study
at different levels, viz., corporate, Corporate Level Strategy
business unit and functional.
Competitive
Entry/Introduction
Strategies - Cost
Corporate Level Stage - Market Leadership,
Penetration Strategy Differentiation, Focus

Collaboration
Growth Stage - Strategies - Joint
Business Level Growth/Expansion Venture, Merger & CORPORATE BUSINESS FUNCTIONAL
Strategy Acquisition, Strategic
Alliance

Maturity Stage -
Functional Level
Stability Strategy For implementation of the
corporate and business strategies,
Business level strategies are functional strategies are
Corporate level strategies are
formulated for each formulated in business areas like
meant to provide ‘direction’ to product/process division known as
the company. production/operations,
strategic business unit. marketing, finance, human
Decline Stage -
resources etc.
Retrenchment/
Turnaround Strategy

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Basic Features of
grand strategies and meant for Corporate
providing direction to the company. Strategies

Sometimes they are also called


Also known as
“directional” strategies.
Stability Expansion Retrenchment Combination

Generic
Strategies
Stays with its seeks significant The firm
growth- The firm
current retrenches some combines the
These strategies were initially discussed by businesses and above strategic
William F Glueck and Lawrence R Jauch. of the activities
product markets; in some business alternatives in
maintains the (es), or) or drops some
Discussed by existing level of permutation/com
maybe within the the business as
They are also known with name effort; and is current such through sell- bination so as to
of - Glueck and Jauch satisfied with businesses; suit the specific
Strategies out or liquidation.
incremental requirements of
growth. NOT a do the firm.
Corporate level nothing strategy.
strategies It ensures the correct alignment
of the firm with its maybe by
Introduction correct entering new
environment. It also serves as
alignment the design for filling the business that are
strategic planning gap. related to
existing
businesses;
Helps the managers to handle
Help to environmental uncertainties and
managers complexities. or by entering
new businesses
that are
Competitive It helps build the relevant competitive unrelated to
Corporate strategy advantages advantages for the firm. existing
ensures the growth of businesses.
the firm because of
the following It is to harness the opportunities available
arguments: Harness the in the environment, countering the threats
opportunities embedded therein.

Stability

Expansion
Basic Corporate
Strategies
Retrenchment

-Combinan
Horizontal

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A firm opting for stability
strategy stays with the same
Stability Strategy business, same product
SAME market posture and functions,
maintaining same level of
effort as at present.

Stability strategy is
Meaning & Concept not a ‘do nothing’ The endeavour is to enhance
strategy. functional efficiencies in an
INCREMENTAL WAY incremental way, through
better deployment and
utilization of resources.
One of the important
goals of a business keeping track of new
enterprise is stability developments For Whom? Small Orgs.
– Stability strategy does not
NO REDFINITION involve a redefinition of the
business of the corporation.

to safeguard its continues to serve in Small organizations


It involves keeping the same or similar may also follow a
existing interests and track of new It is basically a safety-
strengths, markets and deals in stability strategy to SAFETY ORIENTED – STATU oriented, status quo oriented
developments to same or similar consolidate their QUO
ensure that the strategy.
products and market position and
strategy continues to services. prepare for the
make sense. launch of growth
strategies. Characteristics of Stability
to continue in the It does not warrant much of
chosen business path, Strategy FRESH INVESTMENT fresh investments.
for those firms whose
products have
reached the maturity
stage of the product
life cycle. It involves minor improvements
to consolidate the MINOR IMPROVEMENT in the product and its
commanding position packaging.
already reached, and

RISK The risk is also less.


to optimise returns
on the resources
committed in the
business. Major Reasons for
Stability Strategy With the stability strategy,
the firm has the benefit of
concentrating its resources
BENEFIT and attention on the existing
businesses/products and
markets.

LESS RISK, LESS EXPANSION IS


MATURITY STAGE CHANGES THREATENING CONSOLIDATION STABLE ENVIRONMENT
The growth objective of firms
GROWTH OBJECTIVE employing this strategy is
quite modest.

It is less risky as it Consolidation is sought


A product has reached involves less changes and Expansion may be
the maturity stage of the
product life cycle.
the staff feels
comfortable with things
as they are.
perceived as being
threatening.
through stabilizing after
a period of rapid
expansion.
The environment faced is
relatively stable www.edu91.org
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Expansion strategy is the
OPPOSITE opposite of stability strategy.

It may become imperative when


Expansion strategy involves a Demand of Environment environment demands increase in
REDEFINITION redefinition of the business of pace of activity.
the corporation.

While in stability strategy, Strategists may feel more


rewards are limited, in satisfied with the prospects of
REWARDS expansion strategy they are growth from expansion; chief
very high. Satisfaction executives may take pride in
presiding over organizations
perceived to be growth-oriented.
Major Reasons for
In the matter of risks, too, the Growth/Expansion Strategy
RISK two are the opposites of each
other.
Expansion may lead to greater
Greater control control over the market vis-a-vis
A firm with a mammoth competitors.
growth ambition can meet its
GROWTH OBJECTIVE objective only through the
expansion strategy.
Advantages from the experience
EXPANSION - Characteristics Experience curve
curve and scale of operations may
of Growth/Expansion Strategy benefits accrue.
Fresh investment is required
FRESH INVESTMENT for expansion strategy.

Expansion strategy is a highly


versatile strategy; it offers
VERSATILE several permutations and
combinations for growth.

can generate many


alternatives within the
strategy by

MANY ALTERNATIVES
altering its propositions
regarding products, markets
and functions and pick the
one that suits it most.

Expansion strategy holds


within its fold two major
strategy routes:
Intensification Diversification.
TWO MAJOR ROUTES
Both of them are growth
strategies; the difference lies
in the way in which the firm
actually pursues the growth. www.edu91.org
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Type of growth
or expansion

Internal Growth
Strategy External

Mergers and Strategic


Intensification Diversification
Acquisition Alliance

Market Concentric Conglomerate Horizontal


Penetration Diversification Diversification Innovation Merger Meaning

Vertically Horizontal
Market Integrated Integrated
Development Vertical Merger Advantage
Diversification Diversification

Forward and
Product Backward Co-generic
Development Merger Disadvanatge
Integration

Conglomerate
Merger

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Expansion or growth
through Intensification and
Igor Ansoff Product –
market Expansion grid

Diversification
Intensification involving new
products and
new markets

Market Product Market


Penetration Development Development Related /
Unrelated.

Commonly
followed Focus Approach Other points Focus Methods Other points Focus: Methods

Markets
Utilizes Increase Targets
Concentrates company Involves Add product existing Includes using
market share. current features, products to
on growing resources to significant customers different
existing enhance the changes to product new customer distribution
using refinement. groups or
products in the profitability existing established channels, modifying
current products or regions. advertising content,
and market Increase distribution
market. share of creating new, channels. or changing
product usage. promotional media.
current related items.
Develop a new-
offerings. generation
Increase the product.
frequency
used. Expand
Develop new geographically
product for Target new
the same segments.
Increase the market.
quantity used.

Find new
application for
current users.

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Growth by Diversification
Strategy Overview

Nature of Reasons for


Definition Characteristics Focus Diversification Diversification: Major Types

Effective Utilizing
Entering new utilization of resources like Synergistic
Innovative, Greater growth products, Concentric
Expansion into entrepreneurial, and profitability excess capacity manufacturing advantages
various products services, or or capabilities.
seeking new prospects facilities, funds,
or fields, using markets with marketing
internal opportunities compared to different skills,
and challenges. intensification. channels,
resources. technology, and prestige, and
knowledge. Improving sales
manpower. Conglomerate
and profits by
adding related or
new products,
leveraging
technology or
market linkages. Expansion though
Innovation

Expansion or
Growth through
Diversification -
overview

Concentric Conglomerate
Diversification Diversification Innovation
(Related) (Unrelated)

Vertically Horizontal Helps to solve


Integrated Integrated complex
Diversification Diversification problems

Forward and
Backward Increases
Productivity
Integration

Gives
Competitive
Advantage:

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Concentric
Diversification

Understood in
Related Linked Spin off Benefits two directions,

In concentric
diversification, The new Vertical
the new product is a there are integration
amounts to spin-off from benefits of
related business is
linked to the the existing synergy with
diversification. facilities and the current
existing
businesses products/proc operations. Horizontal
through esses. integration

process,
technology or
marketing.

Vertically
Integrated
Diversification

SAME DOES NOT


RELATED TYPES
PROCESS JUMP

The
engage in remains characteristic Forward
Backward Integration Integration
businesses vertically feature of
that are within the vertical
related to the same process integrated
existing sequence and diversification
business of moves forward is that the Purpose For example Definition Application Example
the firm. or backward in Strategy
firm does not
the value chain jump outside
the vertically
linked product To create an A large Moving
process chain. supermarket Includes A coffee bean
effective Enhance profits and forward in the entering into
supply chain chain considers manufacturer
control over product value chain to distribution
by becoming production through to purchase a enter merging with
number of channels or or establishing
an input establishment of businesses related retail
provider. businesses that farms that that utilize a coffee café
would provide it sectors. chain.
improve supply existing
capability or reduce a significant
products.
production costs. amount of fresh
produce.

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Forward Integration
Strategy

Definition Application Example

Moving forward in the A coffee bean


value chain to enter Includes entering into manufacturer merging
businesses that utilize distribution channels or with or establishing a
related retail sectors. Conglomerate
existing products. coffee café chain.
Diversification Strategy
Overview

Nature Characteristics Distinctiveness Example

No linkages in product, The new ventures are A cement manufacturer


Diversification into market, or technology entirely separate in terms diversifying into steel and
completely unrelated between the new and of process, technology, or rubber product
businesses or products. existing businesses. function. manufacturing.

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Acquisitions and mergers (two
or more companies combines).
Innovation

Instant Means Attractive & Synergy Synergy? Definition and


Tempting Differences

Meaning Advantages The positive


of achieving it circumvents Another main
Synergy from effects of the Merger Acquisition
the expansion. (reduces) objective. merged

the time, risks Synergy may One company


Innovation is the resources are A union of two (usually
Problem-Solving and skills result from or more
process of creating Enhancing Competitive greater than stronger
Through involved such bases companies to
and implementing Innovation: Productivity: Advantage: the financially)
new ideas, methods, form a new
takes over
or products that entity, another,
lead to significant in screening as Physical
positive change internal facilities, effects of the
Addresses complex Innovations simplify individual often in
societal issues with and automate tasks, Innovation distances growth
a company from its opportunities, resources usually on situations like
customer-centric boosting before merger friendly terms, economic
competitors. Technical and
solutions. productivity. or acquisition. with shared recession or
Innovation improves Managerial profits and declining
product lines or skills, goals. profits.
processes, enhancing seizing them
market share, Example: Example: MS Excel Innovative products
revenues, Environmental automates financial naturally attract Can be
tasks, leading to Distribution
profitability, and challenges tackled customers, reducing unfriendly,
increased efficiency. the need for channels, General
customer by renewable energy administration, with the
satisfaction. innovations. extensive dominant
marketing. company
absorbing the
Research and weaker one.
development
Initial high costs are Helps in retaining and so on.
offset by long-term existing customers
economic and and attracting new
environmental ones.
sustainability.

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Expansion Through
Different Types of Strategic Alliances
Mergers

Definition of Strategic Advantages of Strategic Disadvantages of


Horizontal Merger Vertical Merger: Co-generic Merger: Conglomerate Merger: Alliance: Alliances: Strategic Alliances:

Definition - Union of Definition: Merger of Definition: Combination Sharing Risks:


Definition - Merger of Organizational: Learning Requirement of sharing
companies at different companies related in of companies that are A collaboration between
companies in the same two or more businesses to new skills, enhancing resources, profits,
stages of production or some aspects of completely unrelated in capacity, extending supply
industry, often direct distribution in the same production, market, or terms of customer achieve strategic knowledge, and skills,
competitors. chains, and adding which can include
industry. technology. groups, functions, or objectives. legitimacy to new
technologies. sensitive trade secrets.
ventures through
respected partners.
Objective - Achieve Purpose: Extend product
economies of scale, Backward Integration - lines or acquire needed Entities remain
Company acquires its Characteristics: No Legal and Compliance
reduce duplication, components, based on significant independent but share
suppliers or raw material benefits, control, and Economic: Cost and risk Risks: Potential issues
expand product lines, shared resources or commonalities in reduction, achieving with enforcing agreements
reduce competition. producers. strategic requirements. contributions to the
production, marketing, economies of scale, and to protect trade secrets.
R&D, or technology, alliance.
co-specialization (e.g.,
though some overlap may bundling products from
exist. different companies).
Example - Merger of Forward Integration - Example: A refrigerator
Lipton India and Brook Company acquires its manufacturer merging Future Competition: Risk
Common in global
Bond to form Brook Bond distribution channels or with a kitchen appliance of an ally turning into a
marketplaces between Strategic: Collaboration competitor if the alliance
Lipton India Ltd. buyers. company. Implication: These companies from different with rivals, vertical dissolves or objectives
mergers are more diverse regions. integration in supply change.
and may not have chains, pooling resources
immediate synergies or for competitive
Benefits - Increases related business advantage, accessing new
synergies, creates an functions. technologies, and joint
advantageous market R&D efforts.
position by controlling
supplies or distribution.
Political: Gaining entry
into foreign markets
through local partners,
Example - A company overcoming legal barriers,
integrating backward and improving political
into raw material influence.
production and forward
into distribution.

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Strategic Exits –
Retrenchment Focuses on internal
Strategies retrenchment.
Nature of Turnaround
Strategy:
Aims to enhance
Types of internal efficiency of
Main focus Retrenchment the organization.
Strategies:
Persistent negative
cash flow from
Identifies problem business
areas and diagnoses Divestment (or
Turnaround Divestiture) Liquidation Turnaround Strategy
causes of business Strategy: Strategy:
issues. Strategy: Uncompetitive
products or services

Focuses on Involves shedding


Implements steps reversing decline loss-making units, Chosen when other
to address these and improving divisions, or strategies fail to Declining market share
problems. performance. Strategic Business rectify problems. Indicators
Units (SBUs). Necessitating a
Turnaround Strategy:
Deterioration in
Involves Results in total physical facilities
restructuring Includes curtailing abandonment or
business practices product lines or closure of business
and operations. reducing functions. activities. Over-staffing, high
turnover of employees,
and low morale

LIQUIDATION
Mismanagement

Definition of Consequences of Frequency and Challenges in Appropriateness Planned


Liquidation: Liquidation: Reluctance: Asset Sales: of Liquidation: Liquidation:

The process of When liquidation is


closing down a firm Loss of when a "dead evident,
employment for More common in Difficulty in finding
and selling its small-scale, buyers. business is worth abandonment plan
assets. workers and staff. more than alive", it is desirable.
proprietorship, and
partnership firms. is a good
proposition.
Considered the Involves a
Termination of systematic
most extreme and
unattractive future business Assets often sold approach to
strategy. opportunities. Rare in medium and at a value much maximize benefits
lower than their For instance, the
large-sized real estate owned for shareholders
companies in India worth, sometimes during the
only as scrap. by a firm may
due to reluctance fetch it more liquidation
Associated stigma from management, money than the process.
of failure. government, actual returns of
banks, trade doing business
unions, suppliers,
creditors, and

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stakeholders.

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persistent -ve cash flow se business ke market share mei decline aaya,
uncompetitive product or service and physical facilities deteriorate hogyi,
mismanagement ke chalte overstaffing, high turnover and low morale of
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