Types of Strategies

Identification of
various
alternatives
strategies is an
important aspect
of Strategic
Management as it
provides:
The alternatives which can
be considered and selected
for implementation in order
to arrive at certain results.
At this stage managers are
able to complete their
environmental analysis &
appraisal of their strengths
& weaknesses.
They are in a position to
identify what alternative
available with them in the
light of their organizational
mission.
Objectives of identification of strategic
alternatives
The managers should be
aware about the various
courses of action available
to them.
Even if large numbers of
possible alternative actions
are available, they should
be in a position to limit
themselves to various
relevant alternatives so that
unnecessary exercises are
not taken up.
Types of strategies
Strategies
On the basis
of Scope
On the basis
of level of
organization
On the basis
of functions
On the basis of
Scope
1.
Stability
2.
Growth
3.
Retrenchment
4.
Combination (of
the above three)
Also Called as
(a) Grand
(b) Generic
(c) Root
(d) Programme
Stability Strategy
In an effective stability
strategy, companies will
concentrate their resources
where the company presently
has or can rapidly develop a
meaningful competitive
advantage in the narrowest
possible product market scope
consistent with the firms
resources and market
requirements.
When & why Stability Strategy When & why Stability Strategy
WHEN
When organization serving
according to business
definition.
If the organization
continues to pursue same
objectives.
When there is scope for
incremental improvement
of functional performance
in the same line of business.
When organization serving
according to business
definition.
If the organization
continues to pursue same
objectives.
When there is scope for
incremental improvement
of functional performance
in the same line of business.
WHY
If the managers are satisfied
with the current performance.
Less Risky/ Safe Business.
Slow to Change/ Resistance to
Change.
If past history is full of change.
If strategic advantage lies in
the present business.
The nature of environment
If the managers are satisfied
with the current performance.
Less Risky/ Safe Business.
Slow to Change/ Resistance to
Change.
If past history is full of change.
If strategic advantage lies in
the present business.
The nature of environment
STABILITY STRATEGY STABILITY STRATEGY
1. It is basically defensive in nature.
2. It is implemented on the basis of STEADY AS IT GOES.
3. There is no functional change in the organization.
4. It does mean that there is no change in the organization
structure & process also.
STABILITY STRATEGY OF Indian
Companies
Many companies in different industries have been forced to
adopt stability strategy because of over capacity in the industries
concerned. For Eg., Steel industry in India adopts this strategy
because of over capacity. Similar is the situation with cement
industry and most of the companies which have concentrated on
operational efficiency rather than expansion.
Apart from over capacity, regulatory restrictions like on cigarette,
liquor wine industries fall in this category because of strict
control over capacity expansion. And also these industries require
license under the provision of Industries(Development and
Regulations) Act, 1951.
Growth Strategy
A growth strategy is one that
an enterprise pursues when it
increases its level of objectives
upward in significant
increment, much higher than
an exploration of its past
achievement level. And
indicating increase in the
market share and or sales
objectives upward significantly.
When & why Growth Strategy When & why Growth Strategy
In long run, growth is necessary
for survival.
Growth offers many economies.
Growth is taken up because of
Managerial motivation to do so.
Certain intangible advantage of
growth.
In long run, growth is necessary
for survival.
Growth offers many economies.
Growth is taken up because of
Managerial motivation to do so.
Certain intangible advantage of
growth.
Growth strategy can be
Expansion
Vertical integration
Diversification
Merger
Acquisition
Joint Venture
Retrenchment Strategy
It is one that an enterprise pursues
when it decides to improve its
performance in reaching its objectives
by:
(i) Focusing on Functional improvement, specially
reduction in cost
(ii) Reducing the numbers of functions
(iii)Reducing the numbers of products and markets it
serves up to and including liquidation of the business.
When & why retrenchment Strategy
When the organization is not doing well.
If the organization is not meeting with its
objective.
Retrenchment Strategy may be
adopted in different forms:
Retrenchment Strategy may be
adopted in different forms:
1. Turnaround
2. Divestment
3. Liquidation
Turnaround Strategy
Turnaround strategy also known as cutback
Strategy, has the basic philosophy: Hold the
present Business & Cut the Costs.
Turnaround strategy also known as cutback
Strategy, has the basic philosophy: Hold the
present Business & Cut the Costs.
It can be done by 2 ways:
1. Strategic Turnaround
2. Operating Turnaround
It can be done by 2 ways:
1. Strategic Turnaround
2. Operating Turnaround
Divestment Strategy
In this strategy, the organization
decides to get out of certain business
and sells off units or divisions.
In this strategy, the organization
decides to get out of certain business
and sells off units or divisions.
Liquidation Strategy
In this strategy, the organization takes a
decision to sell its entire business and
the realization can be invested
somewhere else.
In this strategy, the organization takes a
decision to sell its entire business and
the realization can be invested
somewhere else.
4. Combination Strategy
Combination of above three
strategies (stability + Growth +
Retrenchment)
For eg.
Stability in some business & growth in other
business.
Stability in some business & Retrenchment in
other business.
Growth in some business & Retrenchment in
other business.
Stability, Growth & Retrenchment in different
business.
Why Combination Strategy
Different product in different product life cycle
Business cycle
Number of businesses
Product Life Cycle
Business Cycle
GROWTH STRATEGY
GROWTH ROUTES
INTERNAL GROWTH ROUTE INTERNAL GROWTH ROUTE
I CONCENTRIC EXPANION
1. Market development
2. Market Penetration
3. Product Development
. II VERTICAL INTEGRATION
1. Backward integration
2. Forward Integration
. III DIVERSIFICATION
1. Concentric Diversification
(a) Technology related
(b) Market related
2. Conglomerate Diversification
EXTERNAL GROWTH ROUTE EXTERNAL GROWTH ROUTE
Merger
Acquisition OR takeover
Joint Ventures
Strategic Alliances
Merger
Acquisition OR takeover
Joint Ventures
Strategic Alliances
Concentric Expansion---to expand the present
line of business through intensification
For eg, Reliance has captured
substantial market share in
textile yarn.
For Eg, many companies which
find that the urban market is
saturated & there is a little
scope for expansion opt rural
market as HUL (Personal
products), Colgate(Oral Care
Products)
For Eg, to achieve growth
through product innovations
so as to penetrate in new
segment say, different size of
TV for different consumers
group.
MARKET PENETRATION
MARKET DEVELOPMENT
PRODUCT DEVELOPMENT
VERTICAL INTEGRATION
It is the combination of technically
distinct production, distribution, and
other economic process within the
confines of a single organization
Vertical integration
Benefits Benefits
Economics of Integration
Assured Supply/ Demand
Offset Bargaining Power
Enhanced ability to
differentiate
Elevates entry and Mobility
Barriers
Costs Costs
Increased operating
Leverage
Reduced Flexibility
High Capital Investment
requirements
Problem in maintaining
balance
Dulled incentives
Differing Managerial
Requirements
Diversification Strategy
Another growth strategy is diversification
strategy which is the process of entry into a
business which is new to an organization either
market wise or technology wise or both.
Diversification is quite old Strategy.
Another growth strategy is diversification
strategy which is the process of entry into a
business which is new to an organization either
market wise or technology wise or both.
Diversification is quite old Strategy.
DIVERSIFICATION TYPES DIVERSIFICATION TYPES
Horizontal Integration: a firm expands in its
present line of business.
Vertical Integration: forward and Backward
Concentric Diversification: the new business is
related with old business in some form. This
relationship can be either market wise, or
technology wise or both.
Conglomerate Diversification: means collected
or clustered together. In which 2 or more
products not closely related by market or
technology factors.
Horizontal Integration: a firm expands in its
present line of business.
Vertical Integration: forward and Backward
Concentric Diversification: the new business is
related with old business in some form. This
relationship can be either market wise, or
technology wise or both.
Conglomerate Diversification: means collected
or clustered together. In which 2 or more
products not closely related by market or
technology factors.
MERGER STRATEGY
This can be followed by merging another
organization in toto or its part to increase
effectiveness of both merging and merged
organizations. There are various words used for the
same purpose. For eg, absorption, amalgamation
reconstruction.
This can be followed by merging another
organization in toto or its part to increase
effectiveness of both merging and merged
organizations. There are various words used for the
same purpose. For eg, absorption, amalgamation
reconstruction.
EXTERNAL GROWTH ROUTE
REASONS FOR MERGER
MERGING ORG. POINT OF VIEW
Quick entry in the business
Faster growth rate
Diversification Advantage
Reduction in competence &
Dependence
Tax benefits
Synergistic Advantage
MERGED POINT OF VIEW
Better realization of the
value of the company
May provide growth
opportunity
Imbalanced growth to
balanced growth
Takeover or Acquisition Takeover or Acquisition
One company takes over the control of
another company.
This can be done either by--------
1. mutual agreement i.e Friendly Takeover
2. Against the wishes of acquired company i.e
Hostile Takeover
One company takes over the control of
another company.
This can be done either by--------
1. mutual agreement i.e Friendly Takeover
2. Against the wishes of acquired company i.e
Hostile Takeover