Choice of direction for the corporation as a whole

Corporate strategy involves decisions relating to choice of businesses, allocation of resources among different

businesses, Transferring skills & capabilities Nurturing a portfolio of businesses so as to

obtain synergies

1. What businesses should the 1. What businesses should the corporation be in?corporation be in?

2. How should the corporate office 2. How should the corporate office manage the array of business units?manage the array of business units?

Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts

Key Questions of Corporate StrategyKey Questions of Corporate Strategy

Stability strategy Expansion strategy Retrenchment strategy Combination strategy

Abundant environmental opportunities

Critical environmental threats

Continuing the current activities without any significant change

Firms attempt to maintain their size, level of production and sales

Serving almost the same customer groups, performing same customer functions

If the firm is doing well and perceives itself as successful, it is less easy & comfortable to follow this strategy

Managers of small business desire a satisfactory level of profits rather than increased profits

Changes of any form may disrupt the current working relationships & may be detrimental to organization

If the external environment is highly dynamic and unpredictable it is less risky to follow stability strategy

Change may upset smooth operations & result in poor performance

Changing operations to pursue growth strategy requires an increased investment. Firm’s which can not provide resources may continue stability

Firms may find that the cost of growth is more than the benefits of same

Pause/ proceed with caution strategy No change strategy Profit strategy/ sustainable growth strategy

There is a danger of product obsolescence due to changing environment in following stability strategy. Hence, firms plan for adopting growth strategies.

Internal Growth by expanding firm’s operations External growth through mergers. Acquisitions,

JVs or strategic alliances

Reasons for pursuing growth strategy: To obtain economies of scale To increase profits To be market leader To fulfill natural urge for growth To ensure survival

Types of Growth StrategiesTypes of Growth Strategies

Organizational

Growth

HorizontalIntegration:

Along Value Chain

International Concentration

Diversification•Related Businesses•Unrelated Businesses

Vertical Integration•Related Businesses•Unrelated Businesses

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

Product-Product-Market Market

ExploitationExploitation

Product Product DevelopmentDevelopment

Market Market Focused Focused

DevelopmentDevelopment

Product/Product/Market Market

DiversificatioDiversificationn

Cu

stom

ers

Product(s)

Present

New

Present New

Focusing intensely on existing market with present products

Selling more products to the same market

Increasing Usage of product byLow pricing

Attractive offersother strategies,

Ex- Colgate toothpaste

Attracting competitor’s customers byIncreasing promotional effortsestablishing sharper brand differentiationprice cuts

Attracting nonusers to buy the product byInducing trial use through samplingAdvertise new usesOffer special prices Increase product availability

Current markets are not saturated Usage rate of present customers is low Economies of scale can bring down the

costs Market share of major competitors are

declining

Selling same products to new markets Entering other channels of distribution Attracting new users for existing product

For example: Offering same product with a different pricing to a different set of customers-

“RIN supreme” was launched with a name of “RIN shakti” for the middle class users of detergent cake.

Clinic plus shampooCadbury’s dairy milk

New untapped markets exist New channels of distribution are

available Firm has excess production capacity Firm’s industry is becoming rapidly

global The firm has resources for expanded

operations

Selling new products to the same markets Introducing newer products in the existing

markets. Change styles, options and colours

available Example:

Fair n handsome Bournvita for women Variety of shampoos

Firm’s product are in maturity stage Rapid technological developments are

there in industry Firm is in a high growth industry Competitors bring out improved quality

products from time to time Firm has strong R & D capabilities

Benefits of adopting concentration strategies

It is less risky

Involves minimal organizational changes

Firms may gain specialization

enables a firm to develop competitive advantage

Higher level of predictability

Limitations of concentration strategies Risk of being heavily dependent on one

industry

Threats like product obsolescence , substitute products, emergence of new technologies may be detrimental to a firm

Sometimes this may create an organizational inertia

This strategy may lead to cash flow problems

Few examples of concentration strategies Unilever to introduce Sunsilk shampoo

in US. Currently sold in Europe, Latin America and Asia.

Coca-Cola to launch Diet Coke Sweetened with Splenda

Campbell plans advertising campaign for its soups.

Frito-Lay removes trans fats from its salty snack products.

Reasons for change of a firm from concentration strategy

Temptation of diversification Underestimation of present

opportunities Impatience to grow Overconfidence Siren song of integration Pressure to use idle capacity

Integration strategies

Combining activities related to the present activity of a firm.

Firm may move up or down the value chain

More comprehensive concentration on the customer groups and needs that firm is already serving

Widening the scope of business definition

Retailer

Raw Materials

Distributor

Product Producer

Primary Manufacturing

Retailer

Backward Integration

Forward Integration

Horizontal Integration

Horizontal IntegrationHorizontal Integration

– Seeking ownership or increased control Seeking ownership or increased control over competitors through acquisition and over competitors through acquisition and mergermerger

– Results in bigger size with concomitant Results in bigger size with concomitant benefits of a stronger competitive position benefits of a stronger competitive position in the industryin the industry

– Ex- horizontal integration by the Ex- horizontal integration by the amalgamation of United western bank into amalgamation of United western bank into IDBIIDBI

Few more examples..

An automobile company’s acquisition of a sport utility vehicle manufacturer

A media company's ownership of Radio, television, newspaper, magazines or books

A shoe manufacturing company’s acquisition of a sport shoe manufacturing company

Advantages of Horizontal Integration

Firm can gain monopolistic characteristics without being challenged by federal government

Competes in growing industry

Increased economies of scale provide major competitive advantages

Increased product differentiation

Reduction in industry rivalry

RISKS ASSOCIATED WITH HORIZONTAL INTEGRATION

Horizontal integration increases size which may attract the provisions of MRTP Act or other anti-trust laws

Faltering due to lack of managerial expertise or need for particular resources

Integration StrategiesIntegration Strategies

Vertical Integration Strategies

Forward Integration

Backward Integration

Vertical Integration strategiesVertical Integration strategies

Allow a firm to gain control over:Allow a firm to gain control over: DistributorsDistributors SuppliersSuppliers competitorscompetitors

Vertical Integration Strategies

Forward Integration –Forward Integration –

– Gaining ownership or increased control Gaining ownership or increased control over distributors or retailersover distributors or retailers

Present distributors are expensive, unreliable, or incapable of meeting firm’s needs

Availability of quality distributors is limited

When firm competes in an industry that is expected to grow markedly

Organization has both capital and human resources needed to manage new business of distribution

Advantages of stable production are high

Present distributors have high profit margins

Guidelines for Forward Integration Guidelines for Forward Integration

Wockhardt Group is present in pharma and biotechnology

The company has entered into collaboration with Dr Umesh Gupta of Umkal Group to set-up a multi super-specialty hospital. Umkal group is presently running multi-specialty healthcare institutions at Gurgaon and New Delhi with over 150 beds.

Backward Integration Strategies

Backward Integration –Backward Integration –

– Seeking ownership or increased Seeking ownership or increased control of a firm’s supplierscontrol of a firm’s suppliers

When present suppliers are expensive, unreliable, or incapable of meeting needs

Number of suppliers is small and number of competitors large

High growth in industry sector Firm has both capital and human resources to

manage new business Advantages of stable prices are important Present supplies have high profit margins

Guidelines for Backward IntegrationGuidelines for Backward Integration

Oil and petroleum exploration & production

Advantages of vertical integration

Secure supply of raw materials or distribution channels

Control over the inputs of production & distribution channel

Access to new business opportunities Firm can lower down the selling prices

to end users

Pitfalls in using Vertical integration strategies Increased cost of coordinating integration over

multiple stages of value chain Uneven productivity across different value chain

activities may create either excess capacity or under utilization of resources

Increased mobility and exit barriers Calls for radically different skills and capabilities Outsourcing of component parts may be

cheaper and less complicated than in-house manufacturing

Adding new businesses to the existing business

Diversification StrategiesDiversification Strategies

Diversification Strategies

Concentric Diversification

Conglomerate Diversification

Horizontal Diversification

Diversification StrategiesConcentric Diversification –Concentric Diversification –Adding new, but related, products or Adding new, but related, products or

servicesservices

Technology- related diversification- Technology- related diversification- Addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd.

Marketing related diversification- Marketing related diversification- HUL selling its HUL selling its different products in home & personal care, as well as in different products in home & personal care, as well as in food products through the same retail stores.food products through the same retail stores.

Diversification Strategies

Guidelines for Concentric Diversification –Guidelines for Concentric Diversification –

Competes in no- or slow-growth industry Adding new & related products increases sales of

current products New & related products offered at competitive prices Current products are in decline stage of the product

life cycle Strong management team

Diversification Strategies

Conglomerate Diversification –Conglomerate Diversification –

Adding new, unrelated products or Adding new, unrelated products or servicesservices

Diversification Strategies

Guidelines for Conglomerate Diversification –Guidelines for Conglomerate Diversification –

Declining annual sales and profits Capital and managerial talent to compete

successfully in a new industry Financial synergy between the acquired and

acquiring firms Existing markets for present products are saturated

Metals Automobiles Energy Engineering Chemicals Pharmaceuticals

Consumer Products Services Agro Industries IT and Communication Exports Finance

Hindalco industries- Aluminium, copper, mineral resources Cement- Grasim, ultratech, shri digvijay Carbon black- Aditya Birla Nuvo Ltd,Thai carbon black co.ltd Textiles- Grasim industries ltd, AV cell Inc., Aditya Birla

Nuvo(jay shree textiles) Fertilizers- IndoGulf, birla copper Chemicals- Aditya Birla chemicals India Ltd. Mining- Essel mining & industries ltd Fatty alcohol/ Fatty acids- pan century surfactants Inc. Insulators, Softwares, BPO, Finance and insurance Telecom- Idea Retail- more

Diversification Strategies

Horizontal Diversification –Horizontal Diversification –

Adding new, unrelated products or Adding new, unrelated products or services for present customersservices for present customers

Guidelines for Horizontal Guidelines for Horizontal DiversificationDiversification

Revenues from current products/services would increase significantly by adding the new unrelated products

Highly competitive and/or no-growth industry w/low margins and returns

Present distribution channels can be used to market new products to current customers

New products have counter cyclical sales patterns compared to existing products