Grand Strategy

Corporate Strategy
Grand Strategy
They are COPRPORATE Strategies/Master
Strategies of the firm

Usually they pose a question
Are we in the RIGHT INDUSTRY MIX?

It leads to major decisions such as
Expansion Organic & Inorganic
Major Production/Quality Initiative
Entry into New Market Territory
Innovation
Liquidation etc

Classification of Grand Strategies
1. Stability
2. Growth
3. Retrenchment
4. Combination

Stability Strategy What it is?
Firm intends and maintains a status quo
Applies very small marginal changes if
needed
Does not mean ZERO GROWTH, but it is
gradual and incremental on very small scale
e.g. to serve the same clients, offering the same
product or service, maintaining market share,
and sustaining the organization's return-on
investment


Stability Strategy Why and When?
Happy with current performance
Being in safe business, preferred by risk avoiding
managers
As the organization acquires critical mass; they worry
about maintaining the status quo
Just to reap the rewards of past growth strategy, stability
is preferred for some time
Lacking in sufficient resources to effect major changes in
business
The environmental factors such as govt. norms,
prohibition & restriction of certain products & process,
licensing etc. prevent other strategies to follow


Stability Strategy Why and When?
Firms Near saturation and expects growth in a
limited range
When working for a defined market and its
requirements
Environmental factors are steady and constant
(not showing any appreciable change)
Sees scope for only incremental improvement
until it gains certain competitive advantage
Product or group of products which is not
prestigious to it, its market share as well as
contribution to total sales is very small and its
market is declining, so before retrenchment firm
opts for whatever possible stability


For Example
SAIL:
Over capacity in steel sector.
Hence concentrated on increasing operational
efficiency of its various plants rather than going
for expansion



Bata: has not demonstrated a desire to diversity into
other apparels as have of its competitors

Stability Strategy Various Options
1.1 Holding Strategy:
When
(a) to rest, digest, and consolidate after growth or some turbulent
events - before continuing a growth strategy, or
(b) In an uncertain or hostile environment, it is prudent to stay in a
holding pattern until there is change in or more clarity about
the future in the environment.
c) Resource Constrains
d) Environment prohibits continuation in growth
How:
Continues at its present rate of development.
Retain current market share.
Current level of resource input and managerial effort will not be increased
Which means that the functional strategies will continue at previous levels.

Hindalco Industries
http://www.livemint.com/Companies/118rvkcWOUjMouWh6Eb4RI/Hindalco-looks-to-consolidate-existing-and-new-operations.html Wed, Aug 14 2013
Hindalco Industries Ltd, Indias second largest aluminium producer,
wants to consolidate its existing and new operations rather than rush
to buy mines overseas, a strategy that stands in contrast to plans of
other metal companies that believe that falling commodity prices
present a good opportunity for them to secure assets.
We have everything here...we have bauxite, we have coal. And that is
why we are going (with our projects) here with our greenfield
exercise, Debu Bhattacharya, managing director of Hindalco and vice-
chairman of Novelis Inc., Hindalcos US unit, said on the sidelines of a
conference on Tuesday to announce quarterly earnings.
Hindalco wants to first make sure the cash flows from new projects
start flowing in as expected, that investments are justified and risks put
behind which would take a couple of year, according to a person
familiar with the strategy, who declined to be identified.
Till then, Hindalco is unlikely to have a major appetite for any big
acquisition, the source said.

Stability Strategy- Various Options
1.2 Stable Growth:
Avoiding change - representing indecision(this/that) or
risk in making a choice for change.
Alternatively, it may be a comfortable, even long-term
strategy in a mature, rather stable environment,
e.g., a small business in a small town with few
competitors. It simply means that the firms strategy
does not include any bold initiatives. It will just seek to
do what it already does, but a little better.
In this approach, the firm concentrates on one product or
service line. It grows slowly but surely, increasingly its
market penetration by steadily adding new products or
services and carefully expanding its market.
Stability Strategy - Various Options
1.3 Harvesting Strategy:
When:
Firm has the dominant market share,
May seek to take advantage of this position and generate cash for
future business expansion.
Usually associated, with cost cutting and price increases to generate
extra profits.
Even market share may be sacrificed to earn profits and generate
funds.
Through:
Selective price increases and
Reducing costs without reducing price.
Thus selected products are milked rather than nourished and defended.
Example: Hindustan Levers Lifebuoy soap is an example in point. It
yielded large profits under careful management.
Stability Strategy - Various Options
1.4 Profit or Endgame Strategy:
Firm capitalizes on a situation in which old product or technology is yet
to be replaced by a new one.
Number of products based on older technologies in the market would
later create an aftermarket for spare parts that would last for years.
Firms adopting this strategy decide to follow the same technology, at
least partially, while transiting into new technological domains.
For example
Sylvania and GE decided to stay in the vacuum tube market
Bajaj in two stroke bikes
until the end of the game.
Firm eventually shelves the old assets at some point of time and move
to the new product or technology.
But critical question is, Can we make more money by using these
assets or by selling them? The answer to that question is time
dependent.
Does not require new investment, so it is not a growth strategy.


Growth Strategy
Growth Strategies are means by which an
organization plans to achieve the increased level of
objective that is much higher than its past marginal
achievement level.
Organizations may select a growth strategy
to increase their profits, sales or market share.
to reduce cost of production per unit.
increase in performance objectives.
Growth Strategy Why & When
Inherent Desire to grow
Highly Preferred by investors
Increased prestige of the organization
Satisfaction to employees
For successful long term sustenance in the business
So as to defend from new entrants, higher costs,
inefficiencies, technology obsolescence
Avail advantage of economies of scale
So as to reduce per unit cost, enhance degree of
specialization, greater penetration
Build certain/added competitive advantage

Growth Strategy Various Options

Concentrates on its primary line of business
It means expand its present business - i.e. doing more what the firm is
already doing and is best at doing
Involves focusing resources on the profitable growth of a single product, in
a single market, with a single dominant technology
Rationale - Firm develops and exploits its expertise in a delimited
competitive arena
It can be aimed at-
Market penetration (capture the market share in the existing
product and expand its business at rate higher than the industry
growth)
Market development (increase sales by developing new markets,
geography-wise or segment-wise)
Product development (achieve growth through product innovation
to penetrate in new segment)
When a single-business organization pursues
growth, it is using the concentration strategy

2.1 Concentric Expansion Strategy
Concentration Strategy
Four concentration strategy options

Products
Customers
Current
New
Current New
Product-Market
Exploration
Product
Development
Market
Development
Product/Market
Diversification
Growth Strategy Various Options
2.2 Integration Strategy
Represents growth via acquisition
Horizontal integration
Acquisition of one or more similar firms operating
at the same stage of the production-marketing
chain; with an aim to..
eliminating competitors
enhance production capacity
Vertical integration
Backward: To get supply of input from acquired firm
Forward: To supply input to acquired firm
(value chain)
Horizontal Integration Strategies
Expanding the firm's operations through combining
with competitors operating in the same industry &
doing the same things

It is an appropriate corporate growth strategy as
long as
It enables the company to meet its growth objectives
It can be strategically managed to attain a sustainable
competitive advantage
It satisfies legal and regulatory guidelines
Vertical Integration Strategies
An organizations attempt to gain control of
Its inputs (backward integration) -- supplier
Its output (forward integration) -- distributor
Or both inputs and output
Purpose is to (1) reduce resource acquisition costs, &
(2) deal with inefficient operations
Vertical Integration
Considered a growth strategy because the firms
operations are expanded beyond primary business
Mixed empirical results as to whether strategy helps or
hurt performance
What is the role of outsourcing in achieving same
objective as vertical integration?
Vertical Integration Strategies
Benefits
Reduced purchasing &
selling costs
Improved coordination
of functions &
capabilities
Protected proprietary
technology
Costs
Reduced flexibility as
firm is locked into
products & technology
Create an exit barrier
due to existence of
assets that are hard to
sell
Difficulties in
integrating various
operations
Financial costs of
acquiring or starting up
Acquisitions or mergers of suppliers or customer
businesses are vertical integrations
Acquisitions or mergers of competing
businesses are horizontal integrations
Textile producer
Shirt manufacturer
Clothing store
Textile producer
Shirt manufacturer
Clothing store
Vertical and Horizontal Integrations
Growth Strategy Various Options
2.3 Diversification Strategy
Why:
To Grow
To more fully utilize existing resources and capabilities
Skills in sales & marketing, general management skills &
knowledge, distribution channels, etc.
Risk reduction and/or spreading
Escape from unattractive or undesirable industries (e.g., tobacco & oil
companies)
Stability of profit flows (CAPM: systematic vs. unsystematic risks;
shareholders & diversified portfolios)
To make use of surplus cash flows
Large cash balances attract corporate raiders
Use cash balances to avoid hostile takeovers
To build shareholder value
Create synergy among the businesses of a firm
Make 2 + 2 = 5: The whole should be greater than the sum of the parts

Growth Strategy Various Options
2.3 Diversification Strategy
Enter in to unchartered territory/getting out of ones comfort
zone
Entry into a business which is new to an organization
2.3.1 Related (Concentric) Diversification
Involves acquisition of businesses related to acquiring firm in terms of
technology, markets, or products
Concentric diversification emphasizes commonality
Diversifying into a different industry but one thats related in
some ways to the organizations current operations
Search for strategic synergy, which is the performance of the
sum of the parts is better than the whole
The idea that 2 + 2 = 5
Synergy happens because of the interactions and the
interrelatedness of the combined operations and the sharing
of resources, capabilities, & distinctive competencies

Growth Strategy Various Options
2.3 Diversification Strategy
2.3.2 Conglomerate Diversification (Unrelated
diversification)
Involves acquisition of a unrelated business because it
represents a promising investment opportunity
Conglomerate diversification emphasizes profits for each
individual unit
Diversifying into completely different industry
from the firms current operations
Firm move into industries where there is
No strategic fit to be exploited
No meaningful value chain relationships
No unifying strategic theme
Approach is venture into any business with good
profitability prospects

Unrelated Diversification
Targets for unrelated diversification
Firms with undervalued assets
Firms in financial distress
Firms with bright growth prospects but limited capital
Advantages
Business risk spread over different industries
Efficient allocation of capital resources
Stability of profits
Enhanced shareholder value
Unrelated Diversification
Disadvantages
Difficulties of competently managing many
diverse businesses
No strategic fits which can be leveraged into
competitive advantage

Unrelated diversification is a finance-driven
approach to creating shareholder value
A merger is a legal transaction in which two or
more organizations combine through an exchange
of stock, but only one firm actually remain
An acquisition is an outright purchase of an
organization by another, through amicable process
A takeover is basically a acquisition it may not be
amicable; it is hostile
Joint Venture - Two or more separate organization
form an independent organization for strategic
purposes; especially when parties to want to keep
themselves separate legal entities
Strategic Alliance - Two or more firms share
resources, capabilities or competencies to pursue
some business purpose; Similar to JVs but no
formation of a separate entity



Growth Strategy Various Options
2.4 External Strategy

2.4.1 Merger strategy
It means that two or more organizations merge together by
formally losing their corporate identities and form another
organization through combining assets & liabilities & issuing new
stock, for mutual synergetic benefits. The new co. is called holding
company and the merging companies are remain subsidiary
companies. According to the nature of business of merging
companies, merger may be
Horizontal
Vertical
Concentric
Conglomerate
Example: Merger of Sterlite and Malco into Sesa Goa - 2013
Satyam merged with TechMahindra - July 2013
Growth Strategy Various Options
2.4 External Strategy contd
2.4.2 Acquisition or Takeover
It means that one company attempts to acquire ownership or
control over management of other co. either by mutual
consent of or against the wishes of latters (other co.)
management or stock holders. It may be
Friendly Acquisition
Hostile Takeover
Example:
Bharti Airtel acquired Zain Africa, February 2010
Hindalco Industires acquired Novelis , February 2007
Hostile: Sanofi-Aventis acquired Genzyme Corp. 2011 $24
billion

Growth Strategy Various Options
2.4 External Strategy contd
2.4.3 Join venture
It means that two or more companies combine to form a new
company by equity participation and sharing of resources like
finance, managerial talents, technology etc., so as to create new
entity distinct from its parents
Percipients could be:
a Government firm (PSU)
an Indian Company,
a foreign company
Example: Virgin Group and Tata Tele Services
Volvo and Indias Eicher ;
McDonalds will open its fast food restaurants :"McDosalu

Growth Strategy Various Options
2.4 External Strategy contd

2.4.4 Strategic Alliance
Involves creating a partnership between two or more companies that
contribute skills and expertise to a cooperative project
Exists for a defined period, till achievement of objective
Does not involve the exchange of equity
Type: a win-win type
Types of Strategic Alliance (Based on its focus)
Technology Development Alliance
Operations and Logistics Alliance
Marketing, Sales and Service Alliance
Single Country or Multi-country Alliance
Example:
Strategic Alliances
A strategic alliance is the cooperation between
one or two companies to achieve the mutually
beneficial strategic objectives such as
To obtain technology or manufacturing
capabilities
To obtain access to specific markets
To reduce the financial risk
To reduce political risk
To achieve or ensure competitive advantage
Strategic Alliances - Types
Mutual service consortia partnership to gain a
benefit that are too expensive to develop alone
Joint venture - creates an independent business
entity and allocated ownership operational
responsibilities, financial risks and rewards to
each member while preserving their separate
identity
Licensing Arrangement - licensee pays the
compensation to the licensing firm

Growth Strategy Various Options
2.4. External Strategy contd
2.4.5 Outsource:
Firm outsources its non-core activities to outside
parties and there by it can better focus on core
activities
Advantages:
1. Improve Business Focus
2. Access to World-Class Capabilities
3. Accelerated Reengineering Benefits
4. Shared Risks
5. Free Resources for Other Purposes


Retrenchment Strategy
Defensive strategy in a declining performance environment
Aims at to improve performance through contraction in
activities i.e. reducing the scope of its business by total or
partial withdrawal from present business.
focusing on functional improvement with special emphasis
on cost reduction or
reducing the number of functions it performs, by being a
captive firm or
reducing the no. of products, markets, customer functions
etc. or
liquidation of business (as a last alternative) or
combinations of above.

Retrenchment Strategy Why & When
Organization is not doing well and perceives that it may
not do better in future too
May be after deletion there could be better options,
such as concentrate in other areas, where it has some
advantages.
If the organization is not meeting its objectives even
after following other alternative strategies it may go for
retrenchment strategy.
Also when the management is under compulsive
pressure to improve the performance but it can do so,
this strategy can be pursued as a last resort.

Alternative of Retrenchment Strategy
3.1. Turnaround Strategy
It is also known as cutback strategy hold the present business and
cut the costs
It is one in which a company tries to recover from its declining state
by improving internal efficiency.
Turnaround actions may include:
Change in the product mix
Selling of assets which are not useful for long time or in future
also to generate cash.
Closing down plants & divisions which are not rewarding.
Replacement of obsolete machinery
Focus on specific products and customers and improved
marketing, etc.

Declining
sales or
margins
Imminent
bankruptcy
Low
High
Cost
reduction
Asset
reduction
Efficiency
maintenance
Entrepreneurial
reconfiguration
S
t
a
b
i
l
i
t
y

R
e
c
o
v
e
r
y

Internal
factors
External
factors
Turnaround situation

Turnaround response

Cause Severity Retrenchment phase Recovery phase
(operating)
(strategic)
A Model of the Turnaround Process
Retrenchment Strategy
3.2. Divestment Strategy
In divestment strategy the organization decides to get out of certain
businesses and sells off units or divisions.
Divestment is done through:-
Outright sale of unit to another company Or
Leveraged buyout(by buying firm)- The acquisition of another
company using a significant amount of borrowed money (bonds
or loans) to meet the cost of acquisition Or
Spin off i.e. creating a new co. financially and managerially
independent one from parent company; with or without
retaining earlier ownership

Retrenchment Strategy
3.3. Liquidation Strategy
Liquidation - Involves sale of tangible and intangible assets
distribution of proceeds to creditors
Reorganization - Involves creditors temporarily freezing their
claims while a firm reorganizes and rebuilds its operations more
profitably
When?
Business cant be revived and its retaining value is less than its selling.
Business is in peak form, but future is quite uncertain, having no
direction (and there in better option than this one)
Business has accumulated losses and some other organization offers
higher price to get tax benefits,
Liquidation value is more than discounted present value of future flow
of income etc.

Combination Strategy
It is a combination of different strategies stability, growth,
retrenchment

The possible combinations could be:
Stability in some businesses and growth in other
businesses
Stability in some businesses and retrenchment in other
businesses
Growth in some businesses and retrenchment in other
businesses
Stability, growth and retrenchment in different businesses.