Strategic Options For Businesses

Module 4:
Strategic Options for Businesses
• Strategic Life Cycle of a Business

• 4 Generic Growth Strategies
• Diversification Options
• Reviewing the Business Portfolio
• Milk/ Harvest & Divestment Strategies
• Strategies for Rural Markets
• Service Product Strategies
Presentation content & material developed for exclusive use by V. Mohan. All rights reserved. No unauthorised copying or usage permitted. 1
Strategic Business Life Cycle
Allow sufficient time to establish
Strategic Analysis
Allow sufficient gestation period
Periodically
Generic Growth Strategies
1. The obvious tonic for viability & sustainability of any business is GROWTH!
Though its possible to sustain a business by “downsizing”, its just a stop gap
approach & of course, a negative one, which sets the business on the closure
path (often, irreversibly!). Hence, Business Strategies are most often (but not
always) “Growth Strategies”.
2. From a general viewpoint, there are 4 Growth Strategies that any business can
adopt/ pursue, either individually or concurrently, based on the growth
objectives/ goals and available resources & constraints, if any:
Ease of
Implementation
Energizing the Business
This is probably the “least resource demanding” and “lowest risk”
Growth Strategy. Most Firms tend to pursue this strategy initially
and subsequently add the other strategies gradually, for greater
or exponential growth rate.
Energizing the Business is all about a well established Firm with
considerable/ significant market & operating experience, assets &
competencies and customer base, strengthening its market
position with little or no Product & Market Expansion.
3 sub-strategies within “Energizing the Business”:
a)Innovating to improve the offering
b)Energizing the brand & offering
c) Increasing existing Customers’ usage of offerings.
Leveraging The Business
The 2nd Growth Strategy is about a Firm clearly recognizing its Core
Business, its (Intangible) Assets & its Competencies (what the Firm
does very well generally) & using these strengths as “Expansion Levers”
The Firm leverages specific Assets & Competencies in order to:
a) Take existing (core) business to new markets (segments & territories)
b) Finding new products for the existing Customer Base
c) Establish new businesses (products within existing product
lines & new products lines) fairly close to/ not too removed or
distanced from the current (core) business & thereby create real
synergy & a more profound/ overall customer value proposition.
Though this growth strategy may seem to overlap with “Starting a New
Business (Diversification), the difference is that the avenues for
territorial expansion & diversification are pretty “strait jacketed” and
there’s no real change in the Firm’s core business.
Going Global
In this strategy, the Firm/ Group undertakes significant territory
expansion that transcends borders; converts itself into a truly multi-
national business organisation.
This strategy can be implemented in numerous ways:
Full scale: All or most of the product lines & large number of new countries/ regions.
Medium scale: [Few product lines & significant number of countries/ regions] or
[significant number of product lines & few countries/ regions].
Small Scale: Few product lines & few countries/ regions.
The organisation must have the competency to “tweak” or customize

various offerings according to specific national/ regional preferences
across the globe.
This strategy is probably the one with the highest risk, in terms of
achieving success and achievement of goals/ objectives.
New Business (Diversification)
“Diversification” generally refers to a new “Line of Business”, which may
be commenced under the Company & Brand Name, or through a new
Company and/ or new Brand name.
Basic diversification can include Forward & Backward integration or
products lines related at a “broader” level (such as Refrigerators, A/Cs &
Water coolers; Range of Kitchen/ Home appliances).
Diversification can mean new businesses that are related by a same
broad level competency (such as manufacturing, education & training
services, transportation services, etc.) or even businesses that are
completely unrelated (a manufacturing company venturing into BFSI or
Retail or Health Care).
Diversification can result in a Firm transforming into a “Group” or
“Conglomerate” and building new core competencies quite different from
those associated with the core or start-up business.
Review the Business Portfolio
1. After a period of time, during which a Firm has practiced (one or more) Growth
Strategies of Leveraging, Go Global & Diversification, there will emerge multiple
Product lines, BUs & Group Companies. The Firm would also have invested
(rightly!) in “Energizing” all these BUs/ product lines & tapping their potential.
2. Every Firm must periodically review its Business Portfolio (all the product lines)
and assess the future of each component; whether it warrants a growth strategy &
similar investment pattern.
3. Every Growth Strategy related decision of a Firm may not be successful. Various
external factors (customer preferences, competitors’ strategies, market &
environment forces) can render a bleak future for some BUs/ product lines & for
these, the Firm may need to consider strategic options that may even be
“negative” such as downsizing or even closing down!
4. Two common Business Portfolio Analysis tools used by Firms to strategize future
investments & focus:
– Growth-Share Matrix or BCG Matrix
– Market Attractiveness-Business Position Matrix or GE Matrix
Growth-Share (BCG) Matrix
Two huge contributions of the BCG Matrix:

– Brought visibility to the issue of “allocation of resources” across BUs/ product lines.
– Made organisations recognize “experience curve” & need for cash cows (BUs that generate cash to
support others) for any meaningful future business strategies to be implemented.
Mkt. Appeal-Buss. Position Matrix
Market Attractiveness
High
High Medium
Medium Low
Low
1. Invest/
High
Medium High
(ability to compete)
1 1 2 Grow
Business Position
Low Medium
2. Selective
1 2 3
Investment
Low
2 3 3 3. Harvest/
Divest
Chapter 14 – Setting Priorities for Businesses and Brands Figure 14.2 PPT 14-10
Mkt. Appeal-Buss. Position Matrix
Evaluating Business Position Evaluating Market
(Ability to Compete) Attractiveness
• Organization • Size
• Growth • Growth
• Share by Segment • Customer satisfaction Levels
• Customer Loyalty • Competition: Quantity, Types,
Effectiveness, Commitment
• Margins
• Price levels
• Distribution
• Profitability
• Technology Skills
• Technology
• Patents
• Governmental regulations
• Marketing
• Sensitivity to economic trends
• Flexibility
Divestment/ Liquidation Strategy
1. Though this strategy is generally applied to 1 or more BUs/ Product lines in the “Dog” quadrant
of the Firm’s BCG Matrix or in the quadrants labeled as “3” in the Firm’s GE/ McKinsey matrix,
there can be other reasons behind a Divestment decision, such as:
a) Erratic/ unpredictable market growth/ demand; fear of sudden slump, serious substitution by
new technologies etc.
b) Competitive intensity; new competitors; significant changes/ enhancements in competitors’
aggressiveness/ value propositions, etc.
c) A shift in the Firm’s general “Strategic Thrust/ direction”.
2. Therefore, from a generic perspective, Divestment can be adopted as a strategy, for a part (or
whole) of a Firm’s Business Portfolio, based on one or more of the following:
• Weak Business Position: Inadequate assets & competencies, value proposition losing
relevance rapidly, market share is out of the top 3 & declining in the face of strong
competition, business is losing money & future prospects are also dim.
• Low Market Attractiveness: Demand decline at accelerated pace with no pockets of
enduring demand accessible (future resurgence unlikely), huge price pressures from
competitors with high exit barriers/ short term plan, low brand loyalty & product differentiation.
• Poor Strategic Fit: Due to a change in the Firm’s Vision or general strategic directions, this
particular business is superfluous/ unwanted/ not really desired.
Divestment/ Liquidation Strategy
3. The decision to divest a BU/ Product Line/ Business can be implemented in different ways:
Sell Out: This is possible when another Firm (the Buyer) perceives future benefit for itself
from the divested entity, which should not be an undisputed “Dog”.
Downsizing & Eventual Closure: A timeline driven set of sequential activities (cutting out
territories, retrenchment, sale of assets, etc.). This approach is generally applicable for the
BUs/ Product lines in the “Dog” quadrant.
4. Important considerations/ issues in reaching & managing the implementation of a divestment/
liquidation strategy:
Objectivity & lack of emotional attachment to the entity being considered for divestment.
Careful evaluation of the Exit Barriers such as termination costs, losses in selling out, etc.
The Firm must be convinced that these are worth absorbing, from a longer term perspective.
Negative Impact on the Firm’s overall image/ reputation, brand value, impact on customer
loyalty & other BUs / product lines. The Firm must anticipate & proactively address any such
possibilities through effective market communications, implementation time frames,
continuation of support for a defined period, etc.
“Milk the Business” Strategy
1. The Milk or Harvest Strategy aims to generate as much cash inflow as possible,
from a BU/ product line by reducing investment and operating expenses to the
minimum, even if it causes some reduction in the related sales & market share (of
course, its immensely desirable to avoid this happening!).
2. Generally, this strategy applies most to a BU/ Product line of the Firm, that’s very
well established, where the Firm holds sizable market share (in top 3, with 10+
market players; No. 1 or 2 with fewer) & where good revenue is more or less assured
with little or no “out of the hat” marketing & promotion efforts/ expenses/ resources.
3. The future potential of the BU/ Product line being “harvested” is generally not very
exciting- no significant growth rate or decline, a flattish growth curve that will continue
to be so. Therefore, some loss of sales / market share is not considered very critical,
as long as profitability and sizable cash inflow occurs.
4. Though ideally associated with a “cash cow” BU/ Product line, milk/ harvest
strategy can also be applied as a “precursor” to a Divest strategy (the Firm is
unable to decide about divestment, or feels that the BU/ Product Line will soon end
up in the Dog quadrant, though its currently elsewhere.
“Milk the Business” Strategy
Situations that favour “Milk/ Harvest”,
rather than “Divest/ Liquidate” Strategy: MILK/ HARVEST
STRATEGY VARIANTS
Business position weak, but there’s enough
customer loyalty (maybe in limited pockets FAST MILK
of the market), to generate sufficient cash − High level of discipline in minimizing expenses &
inflows/ profits from whatever sales maximizing short term cash flows.
revenue is best possible. If market position
− The Firm accepts the risk of quick exit.
further erodes, not a huge crisis!
− Definitely a precursor to Divestment/ Liquidation.
Business is not “central/ core” to the current
strategic direction of the Firm, but has SLOW MILK
relevance to it & leverages current assets & − Sharply reduce/ stop long-term investments, but
competencies easily. continue to support operating areas such as
Demand is stable or decline rate is not promotion & support.
steep and even in future, chances of HOLD
sudden slump in demand is unlikely. − Provide sufficient investment & resources to
Price structure is stable & at a level that’s “maintain market share & position” as opposed
profitable with cost efficient operations. to growing it. Avoid loss of relative market share!
Strategies for Rural Markets
Competency to serve “the bottom of the Pyramid”. The lowest income
groups with very little awareness.
Develop and/ or package offerings specifically for the rural population.
Innovative distribution & logistics. These costs can erode profits significantly.
Unconventional marketing & promotion campaigns that can produce desired
results with low costs.
Empower the women to create awareness, in small entrepreneurship, being
the decision maker, etc.
Allow for larger gestation periods in general. Changing long-standing habits
is tougher with the rural population.
Imbibe specific cultural & traditional elements (including festivals) in the
offerings and their promotions.
Service Product Strategies
When offerings are “Services” rather than “Goods”, the element of “Intangibility” mandates a
different set of marketing strategies:
Build & emphasize “People” as the competency and product feature where appropriate: For
instance Software, Training, Consulting, Health Care etc. Particularly, when the offering is
at a premium
Processes and Physical Evidences are major product features and must be appropriate for
the price charged.
Market communications & promotions must focus on conveying reality and projecting actual
experiences. Customer expectations must be “managed” properly (excessive hype causes
unrealistic expectations & leads to poor experience & dissatisfaction).
Ensure Customer Group cohesiveness, for Service Products that are delivered concurrently
to a group (for instance: Education & Training, Travel, Food & Hospitality etc.)
Encourage & maximize “Customer Self Service” and permit Customers to configure
Service Levels (and associated Price), as desired.
Segment pleasure & combine pain; Convey bad news proactively (handle bad experiences
early); Finish strongly.

Strategic Options For Businesses

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Strategic Options For Businesses

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Module 4:

Strategic Options for Businesses

• Strategic Life Cycle of a Business

Allow sufficient time to establish

Allow sufficient gestation period

The organisation must have the competency to “tweak” or customize

Two huge contributions of the BCG Matrix:

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