Gowth Strategy

Syllabus
• Overview of Strategic management Process
• Establishment of Strategic Intent

» Mission,Vision,Goals,Objectives
Strategy Formulation
• Environment Analysis
» Environment Appraisal (SWOT Analysis

» PEST,ETOP,Core Competency, Michael Porter 5 force model
• Organizational Appraisal
» Internal Environment,OB,Competency,
» Methods 7 Techniques for Organizational Appraisal
• Corporate Level Strategy

» Concentration, Integration,Diversification,
» Internationalization, Cooperation (M&A,JV), Digitalisation
» Stability, Retrenchment and Restructuring
• Strategic Analysis and Choices
http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #1

Syllabus
• Strategic Implementation
• Structural Implementation (Functional/Divisional/Matrix/SBU)

• Behavioural Implementation ( Corporate Governance,Corporate
Culture,Business Ethics)
• Functional & Operational Implementation (Marketing/Finance/Operations)
• Strategy Evaluation and Control

Chapter-4
Corporate Growth Strategies

Organizational Growth: External
and/or Internal
• External and Internal Growth Strategy
– One that involves the attainment of specific
growth objectives by increasing the level of
an organization’s capabilities
– Typical growth strategies include goals for:
• Increase in sales revenues
• Profits

Corporate Growth Strategy
Expansion Strategy
Stability Strategy
Retrenchment Strategy
Combination Strategy
http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #5 3-18

Expansion Strategy
This is followed when an organization aims at high growth by

substantially broadening the scope of one or more of its businesses in
terms of their respective customer groups, customer functions and
alternative technologies in order to improve overall performance.
Example :-
•Chocolate manufacturer expands customer group to include middle
aged and old people
•Stockbroker firm offers personalized financial services to small
investors apart from dealing in shares and debentures.
•Printing firm changes from traditional letter press printing to desk-top
publishing http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #6 3-18
Stability Strategy
This is followed by an organization when it attempts at incremental

improvement of its performance by marginally changing one or more
of its businesses in terms of their respective customer groups, customer
functions and alternative technologies in order to improve overall
performance.
Example :-
• Packaged tea company provides special services to institutional buyers
in order to encourage bulk buying.
•A copier machine company provides better after sales service to
existing customers.
• A steel company modernizes its http://macy.ba.ttu.edu/5491/week8/Week
plants to improve efficiency and
8 Strategy.ppt Slide #7 3-18
Retrenchment Strategy
This is followed when an organization aims at contraction of its

activities through a substantial reduction or elimination of the scope
of one or more of its businesses in terms of their respective customer
groups, customer functions and alternative technologies in order to
improve overall performance.
Example :-
• A Pharmaceutical firm pulls out from retail selling to concentrate on
institutional selling & reduce sales force.
•A corporate hospital decides to focus only specialty treatment than
general treatment.
• Expansion Strategy :- Followed by organization with aim for high
growth
Concentration
Integration
Diversification
Cooperation
Internationalization
Digitalization
•Stability Strategy :- Adopted to improve functional performance
•No change strategy
•Profit Strategy
•Pause/Proceed with caution strategy
Retrenchment Strategy :- Followed by Organization with an aim to
contraction of activities.
•Divestment,Liquidation
• Compulsory winding up
•Voluntary Winding up
•Winding Up under court supervision
• Combination Strategy :- Combination of stability,expansion and

retrenchment either at same time in different business or different time in
the same business.

Types of Growth Strategies
International Concentration
Organizational
Growth
Diversification Vertical Integration

•Related Businesses •Related Businesses
Horizontal
•Unrelated Businesses •Unrelated Businesses
Integration:
Along Value Chain
Corporate Strategy:
Concentration

Concentration
Organization concentrates on its primary

lines of business and looks for ways to
meet its growth objectives through
increasing its level of capability in this
primary business

Concentration
Product(s)
Product-Market Product
Exploitation Development
Customers
Market Focused Product/Market

Development Diversification

Ansoff Matrix

Background
• Long-term business strategy is dependant on

planning for their introduction
• Ansoff Matrix represents the different options
open to a marketing manager when
considering new opportunities for sales growth

Variables in the matrix
Two variables in Strategic marketing
Decisions:
– The market in which the firm was going to operate
– The product intended for sale
In terms of the market, managers had two

options:
– Remain in the existing market
– Enter new ones

In terms of the product, the two options are:
– selling existing products
– developing new ones

Existing PRODUCTS New
Existing INCREASING RISK

MARKET
PRODUCT
PENETRATION
DEVELOPMENT
INCREASING RISK
Sell more in
Sell new products in
existing Markets
existing markets
MARKETS
MARKET
EXTENSION DIVERSIFICATION
Achieve higher Sell new products in

New new markets
sales/market
share of existing
products in new
markets

MARKET
PENETRATION
INCREASING RISK
Sell more in
existing Markets
MARKETS
New

MARKET PENETRATION
• This is the objective of higher market share in

existing markets
– E.g. in 2000, Mitsubishi announced a 10%

reduction in prices in the UK in order to encourage
purchases


MARKET
PENETRATION
INCREASING RISK
Sell more in
existing Markets
MARKETS
MARKET
EXTENSION
Achieve higher
New
sales/market
share of existing
products in new
markets

MARKET EXTENSION
• This is the strategy of selling an existing product to
new markets. This could involve selling to an
overseas market, or a new market segment
– Tractor company focussing on haulage transportation apart

from Agriculture segment.


MARKET
PRODUCT
PENETRATION
DEVELOPMENT
INCREASING RISK
Sell more in
existing Markets
existing markets
MARKETS
MARKET
EXTENSION
Achieve higher
New
sales/market
share of existing
products in new
markets
PRODUCT DEVELOPMENT
• Least risky of all four strategies
• This involves taking an existing product and
developing it in existing markets
– E.g. Coca-Cola. This has been developed to have
vanilla, lime, cherry and diet varieties (amongst
others) in the SOFT DRINKS market


MARKET
PRODUCT
PENETRATION
DEVELOPMENT
INCREASING RISK
Sell more in
existing Markets
existing markets
MARKETS
MARKET
EXTENSION DIVERSIFICATION
Achieve higher Sell new products in

New new markets
sales/market
share of existing
products in new
markets
DIVERSIFICATION
• This is the process of selling different,
unrelated goods or services in unrelated
markets
• This is the most risky of all four strategies

Summary
• Risks involved differ substantially
• The matrix identifies different strategic areas
in which a business COULD expand
• Managers need to then asses the costs,
potential gains and risks associated with the
other options

Corporate Strategy:
Integration

Horizontal Integration
• When an organization takes up the same type of product at the
same level of production or marketing process, it is called
Horizontal Integration.
• It results in bigger size and greater competitive position in the
Industry.
• This is similar to mergers and acquisitions.
Example:-
• Shoe Manufacturer---Bigger Shoe manufacturer
• Cat food + Dog Food---Animal Feed Industry

Horizontal Integration-Benefits
• Economies of Scale:- Spread fixed cost over larger base of
products…Unit cost reduction
• Economies of Scope :- Better utilization of assets through
sharing of resources.
• Increased product Differentiation:- Offer customers with
wide range of products.
• Increased Market power :- Bigger size of operation…More
bargaining power with suppliers and customers.
• Reduction in Industry Rivalry:- Fewer competiton

Stages in the Raw-Material-to-
Consumer Value Chain
Upstream Downstream
FIGURE
9.1
Stages in the Raw-Material-to-Consumer
Value Chain in the Personal Computer
Industry
Intermediate
Raw materials Assembly Distribution End user
manufacturer
Examples: Examples: Examples: Examples:

Dow Chemical Intel Apple Computer World
Union Carbide Seagate Compaq Office Max
Kyocera Micron Dell
FIGURE
9.2
Vertical Integration
• Integration backward into supplier functions
– Assures constant supply of inputs.
– Protects against price increases.
• Integration forward into distributor functions
– Assures proper disposal of outputs.
– Captures additional profits beyond activity costs.
• Integration choice is that of which value-
adding activities to compete in and which are
better suited for others to carry out.

Structure of a Company Sharing
Marketing Between Two Business Units
FIGURE
9.4
Creating Value Through Vertical
Integration
• Advantages of a vertical integration
strategy:
– Builds entry barriers to new competitors by
denying them inputs and customers.
– Protects product quality through control of
input quality and distribution and service of
outputs.
– Improves internal scheduling (e.g., JIT
inventory systems) responses to changes in
demand.

Creating Value Through Vertical
Integration
• Disadvantages of vertical integration
– Cost disadvantages of internal supply purchasing.
– Remaining tied to obsolescent technology.
– Aligning input and output capacities with
uncertainty in market demand is difficult for
integrated companies.

Corporate Strategy:
Diversification

Another Way: Diversification
Value Chain Capabilities/

Core Competencies
Product Distribution
Similarities Related Channels
Diversification
Similar Customer
Technology Use

Diversification
• Two Types
– Related Businesses
– Unrelated Businesses

Related Diversification and Competitive
Advantage
• Competitive advantage can result from related
diversification if opportunities exist to
– Transfer expertise / capabilities / technology
– Combine related activities into a single operation and
reduce costs
– Leverage use of firm’s brand name reputation
– Conduct related value chain activities in a
collaborative fashion to create valuable competitive
capabilities

What is Unrelated Diversification?
• Involves diversifying into businesses with

– NO strategic fit
– NO meaningful value chain relationship
– NO unifying strategic theme
• Approach is to venture into “any business in
which we think we can make a profit”
• Firms pursuing unrelated diversification are
often referred to as conglomerates

Drawbacks of Unrelated Diversification
• Difficulties of competently managing many
diverse businesses
• Lack of strategic fits which can be leveraged
into competitive advantage
– Consolidated performance of unrelated businesses
tends to be no better than sum of individual
businesses on their own (and it may be worse)
• Likely effect is 1 + 1 = 1.5, not 1 + 1 = 3
– Promise of greater sales-profit stability over business
cycles seldom realized
Diversification and Corporate Strategy
• A company is diversified when it is in two or

more lines of business
• Strategy-making in a diversified company is a
bigger picture exercise than crafting a strategy
for a single line-of-business
– A diversified company needs a multi-industry, multi-
business strategy
– A strategic action plan must be developed and
implemented for several different businesses
competing in diverse industry environment
Levels and Types of Diversification
Low Levels of Diversification
Single business > 95% of revenues from a single A
business unit
Dominant business Between 70% and 95% of A
revenues from a single business
B
unit
Moderate to High Levels of Diversification
A
Related constrained < 70% of revenues from dominant
business; all businesses share product, B C
technological and distribution linkages
Related linked (mixed) < 70% of revenues from dominant A

business, and only limited links exist
B C
Very High Levels of Diversification A

Unrelated-Diversified Business units not closely related B C
When to Diversify
• Some companies do EXCELLENTLY and are
not diversified
– McDonald’s, Coca-Cola, Domino’s Pizza, Wal-Mart,
FedEx, Timex,
– Why stay single business
• Clear understanding of who we are/what we do
• No Dilution of management’s attention
– Risks of a single business strategy
• Putting all the “eggs” in one industry basket
• Unforeseen changes can undermine a single
business firm’s prospects
Alternative Diversification Strategies
Sharing Activities
Key Characteristics:
Sharing Activities often lowers costs or
raises differentiation
Example: Using a common physical distribution system
and sales force such as Procter & Gamble’s disposable
diaper and paper towel divisions
Sharing Activities can lower costs if it:

Achieves economies of scale
Boosts efficiency of utilization
Helps move more rapidly down Learning Curve
Example: General Electric’s costs to advertise, sell and
service major appliances are spread over many different
products http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #47
Alternative Diversification Strategies
Sharing Activities
Key Characteristics:
Sharing Activities can enhance potential for or
reduce the cost of differentiation
Example: Shared order processing system may allow new
features customers value or make more advanced remote
sensing technology available
Must involve activities that are crucial to

competitive advantage
Example: Procter & Gamble’s sharing of sales and
physical distribution for disposable diapers and paper
towels is effective because these items are so bulky and
costly to ship

Gowth Strategy

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Syllabus

• Overview of Strategic management Process

• Establishment of Strategic Intent

» Environment Appraisal (SWOT Analysis

• Corporate Level Strategy

• Strategic Analysis and Choices

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #1

• Structural Implementation (Functional/Divisional/Matrix/SBU)

• Strategy Evaluation and Control

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #2

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #3

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #4

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #5 3-18

This is followed when an organization aims at high growth by

This is followed by an organization when it attempts at incremental

This is followed when an organization aims at contraction of its

• Combination Strategy :- Combination of stability,expansion and

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #10 3-18

Diversification Vertical Integration

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #12

Organization concentrates on its primary

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #13

Market Focused Product/Market

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #14

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #15

• Long-term business strategy is dependant on

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #16

In terms of the market, managers had two

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #17

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #18

Existing INCREASING RISK

Achieve higher Sell new products in

Existing INCREASING RISK

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #20

• This is the objective of higher market share in

– E.g. in 2000, Mitsubishi announced a 10%

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #21

Existing INCREASING RISK

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #22

– Tractor company focussing on haulage transportation apart

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #23

Existing INCREASING RISK

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #25

Existing INCREASING RISK

Achieve higher Sell new products in

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #27

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #28

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #29

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #30

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #31

Examples: Examples: Examples: Examples:

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #34

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #36

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #37

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #38

Value Chain Capabilities/

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #39

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #40

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #41

• Involves diversifying into businesses with

http://macy.ba.ttu.edu/5491/week8/Week 8 Strategy.ppt Slide #42

• A company is diversified when it is in two or