Professional Documents
Culture Documents
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P.K.Agarwal
Business
Cost (price) Leadership Differentiation Focus
Corporate Strategy
Strategy formulation in a multi-business enterprise is different from strategy formulation in a single-business enterprise. In a single-business enterprise, the key question is how to compete successfully in the chosen market. So, there is only one-level strategy known as Business-level Strategy. But in a multi-business enterprise, which is involved in several businesses, there is a need to have strategies at two levels a corporate level strategy for the company as a whole and a business level strategy for each of the separate businesses of the company.
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Corporate Strategy
Corporate strategy is primarily about the choice of direction for the Corporation as a whole. The basic purpose of a corporate strategy is to add value to the
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Broad target
Differentiation
Narrow target
Focussed differentiation
Adapted from M.E. Porter: Competitive Advantage: Creating and Sustaining Superior Performance New York: Free Press, 1985, p. 12.
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Differentiation
Quality, design, support/service, image -- that make a product or service special
Focus
Explicit tie to a broad or narrow market segment
Examples
Cost (price) leadership
Videocon (logistics, volume) Easyday (location, services, salespeople) Indigo (corporate culture, service)
Differentiation
Quality (Mercedes) Design (Apple) Service ( Haldiram). Image (Nike). Special niches (Tanishq jewellery)
Examples
Focus
Broad (Wal-Mart - rural) Narrow (NSP - activists, NRI - network administrators) Segmented (Computer security spooks and commerce, Financial services rich, poor and inbetween.)
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4. Combination Strategy
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1. Stability strategies
No-change strategy Profit strategy Pause / proceed-with-caution strategy
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Stability Strategies
Stability strategies result from attempts by an organisation at incremental improvement of functional performance without any significant change in direction Pause/Proceed with caution strategy- an opportunity to rest before continuing a growth or retrenchment strategy No change strategy- continuance of current operations and policies Profit Strategies- to do nothing new in a worsening situation but instead to act as though the companys problems are only temporary
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To obtain economies of scale To attract merit To increase profits To become a market leader To fulfill natural urge To ensure survival
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Growth strategies can be divided into three broad categories: Intensive strategies Integration strategies
Diversification strategies
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Growth Strategies
Concentration
Vertical and Horizontal
Diversification
Concentric Conglomerate
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4.
More risky
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Diversification
Used if firms current product lines do not have much growth potential Benefits
Economies of Scope Increase market power Share infrastructure Maintain growth
3. Defensive strategies
Also called retrenchment strategies - are the last resort . A company may pursue retrenchment strategies when it has a weak competitive position in some/all of its product lines resulting in poor performance sales are down and profits are dwindling. In an attempt to eliminate the weaknesses that are dragging the company down, management may follow one or more of the following retrenchment strategies.
i. ii.
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Turnaround Divestment
iii iv.
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Bankruptcy Liquidation
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Retrenchment Strategies
Used when the firm has a weak competitive position in some or all of its product lines from poor performance
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Contraction- effort to quickly stop the bleeding across the board but in size and costs Consolidation- stabilization of the new leaner corporation
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price for its shareholders and the employees can keep their jobs by selling the company to another firm
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Turnaround strategies
Turnaround strategies derive their name from the action
Divestment strategies
Divestment strategy involves the sale or liquidation of a portion of business, or a major division, profit centre or SBU.
Reasons for divestment Approaches to divestment Decision to divest
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Liquidation strategies
Liquidation involves closing down an organisation and selling its assets.
Why is liquidation difficult or undesirable? Planned liquidation Legal aspects of liquidation
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4. Combination strategies
Combination strategies are a mixture of stability, expansion or retrenchment strategies applied either simultaneously (at the same time in different businesses) or sequentially (at different times in the same business). But this can be exceptionally risky if carried too far. No organization can afford to pursue all the strategies that might benefit the firm. Difficult decisions must be made. Priorities must be established.
Sequential combination Simultaneous combination
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Combination Strategy
In large diversified companies, a combination strategy is commonly employed when different divisions pursue different strategies. Also, organizations struggling to survive may employ a combination of several defensive strategies.
Corporate parenting views the corporation in terms of resources and capabilities that can be used to build business units value as well as generate synergies across business units.
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Corporate restructuring
Corporate- or business-level restructuring means changes in the composition of an organisation's set of businesses in order to create a more profitable enterprise.
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coordinates activities & transfers resources & cultivates capabilities among product lines and business units
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Full integration- a firm internally makes 100% of its key suppliers and completely controls its distributors Taper integration- a firm internally produces less than half of its own requirements and buys the rest from outside suppliers
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Quasi-integration- a company does not make any of its key supplies but purchases most of its requirements from outside suppliers that are under its partial control Long-term contracts- agreements between 2 firms to provide agreed-upon goods and services to each other for a specific period of time
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geographic locations and/or increasing the range of products and services offered to current markets Horizontal growth is achieved through:
Internal development Acquisitions Strategic alliances
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unrelated industry Management realizes that the current industry is unattractive Firm lacks outstanding abilities or skills that it could easily transfer to related products or services in other industries
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Controversies in Directional Strategies Is vertical growth better than horizontal growth? Is concentration better than diversification? Is concentric diversification better than conglomerate diversification?
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