Chapter Seven

Strategy Formulation :
Corporate Strategy

Learning Objectives
Understand the three aspects of corporate
strategy
Apply the directional strategies of growth,
stability and retrenchment
Understand the differences between
vertical and horizontal growth as well as
concentrate and conglomerate
diversification

 Identify strategic options to enter a foreign

country
Apply portfolio analysis to guide decisions
in companies with multiple products and
businesses
Develop a parenting strategy for a
multiple-business corporation

Corporate Strategy
Directional strategy
Portfolio strategy
Parenting strategy

Directional Strategy
1. Growth strategy
2. Stability strategy
3. Retrenchment strategy

Directional strategy :
1. Should we expand, cut back, or continue our
operations unchanged
2. Should we concentrate our activities within our
our current industry or should we diversify into other
industries
3. If we want to grow and expand nationally and/or
globally, should we do so through internal development
or through external acquisitions, merger or strategic
alliances

Corporate Directional Strategies

GROWTH
Concentration
Vertical growth
Horizontal
growth

Diversification
Concentric
Conglomerate

STABILITY

RETRENCH
MENT

Pause/Proceed Turnaround
with caution
Captive
No change
company
Profit
Sell-out/
Divestment
Bankruptcy/
Liquidation

Diversification Strategies
Concentric (Related) DIversification
Conglomerate (Unrelated) Diversification

International Entry Options

1. Exporting
2. Licensing
3. Franchising
4. Joint ventures
5. Acquisitions
6. Green-Field Development
7. Production Sharing
8. Turnkey Operations
9. BOT Concept
10. Management Contracts

STABILITY STRATEGIES
Pause/Proceed-with- Caution Strategy
No-change Strategy
Profit Strategy

RETRENCHMENT STRATEGIES

Turnaround Strategy
Captive Company Strategy
Sell-out/Divestment Strategy
Bankruptcy/Liquidation Strategy

PORTFOLIO ANALYSIS
1. BCG Growth-Share Matrix
- question marks
- stars
- cash cows
- dogs
2. GE Business Screen

Advantages and Limitations of

Portfolio Analysis
Advantages :
1. It encourages top management to evaluate
each of the corporations businesses
individually and to set objectives and allocate
resources for each
2. It stimulates the use of externally oriented data to
supplement managements judgment
3. It raises the issue of cash flow availability for
use in expansion and growth
4. Its graphics depiction facilities communication

Limitations of Portfolio Analysis

1. It is not easy to define product or market
segment
2. It suggests the use of standard strategies
that can miss opportunities or be
impractical
3. It provide an illusion of scientific rigor
when in reality positions are based on
subjective judgments
4. Its value-laden terms like cash cow and
dog can lead to self-fulfilling prophecies

5. It is not always clear what makes an

industry attractive or where a product
is in its life cycle
6. Naively following the prescriptions of a
portfolio model may actually reduce
corporate profits if they are used
inappropriately

CORPORATE PARENTING
Developing a corporate parenting strategy
Three analytical steps in search for appropriate
corporate strategy :
1. Examine each business unit (or target
firm, in the case of acquisition) in term
of its strategic factors
2. Examine each business unit (or target
firm) in terms of areas in which performance
can be improved

3. Analyze how well the parent corporation

fits with the business unit (or target firm)