Generic and Grand

Strategies
Generic Strategies
1. Differentiation
2. Low-cost leadership
3. Focus

PORTER’S GENERIC STRATEGIES

1. Cost Leadership

2. Differentiation

3 A. Cost Focus

3 B. Differentiation

Focus

Narrow Target

Broad Target

Differentiation

Lower Cost
REQUIREMENTS FOR GENERIC COMPETITIVE STRATEGIES

Generic Commodity Required Common Organizational

Strategy Skills and Resources Requirements

Overall cost • Sustained capital investment • Tight cost control

leadership access to capital • Frequent, detailed control

reports

• Process engineering skills • Structured organization

and responsibilities

• Intense supervision of labour • Incentives based on

• Products designed for ease meeting strict quantitative

• Low-cost distribution system targets in manufacture

Differentiation • Strong marketing abilities • Strong coordination •

Product engineering among functions in R&D, • Creative flare
product development, and marketing

• Strong capability in basic • Subjective measurement and

research incentives instead of quantitative

measures

• Corporate reputation for • Amenities to attract highly

quality or technological skilled labour, scientists, or

leadership creative people

• Long tradition in the industry

or unique combination of skills

drawn from other businesses

• Strong cooperation from

 channels

Focus • Combination of the above • Combination of the above

policies

policies directed at the directed at the regular strategic

particular strategic target target

RISKS OF THE GENERIC STRATEGIES

Risks of Cost Leadership Risks of Differentiation Risk of Focus

Cost of leadership is not Differentiation is not The focus strategy is

sustained initiated

sustained: • Competitors imitate The target segment

• Competitors imitate: • Bases for differentiation becomes

structurally unattractive
• Technology changes becomes less imported to • Structure
erodes
• Other bases for cost buyers • Demand disappears

leadership erode

Proximity in differentiation Cost proximity is lost Broadly targeted

is lost competitors overwhelm

the segment:

• The segment’s differences from other

segments narrow • The advantages of a broad line
increase

Cost focusers achieve Differentiation focusers New Focusers sub-

segments

even lower cost in segments achieve even greater the industry

 differentiation in segments

STAGE OF `INDUSTRY’ DEVELOPMENT

Keeping ahead of the field

Cost leadership Raise barriers Deter competitors

Redefine scope Divest peripherals Encourage departures

Imitation at lower cost Joint ventures

Differentiation Focus

Differentiation

New opportunities

Leader

Follower

Growth

Maturity

Decline

Strategic position of organization

Types of Grand Strategies

Consortia

Concentrated Growth

Market Development

Product Development
 Innovation

Horizontal Integration

Vertical Integration

Concentric Diversification

Conglomerate Diversification

Turnaround

Divestiture

Liquidation

Bankruptcy

Joint Ventures

Strategic Alliances

Characteristics of a Concentrated Growth

Strategy
• Involves focusing resources on the profitable growth of a
single product, in a single market, with a single dominant
technology
• Rationale - Firm develops and exploits its expertise in a
delimited competitive arena
• Determinants of competitive market success
• Ability to assess market needs
• Knowledge of buyer behavior
• Customer price sensitivity
• Effectiveness of promotion

Conditions Favoring a Concentrated Growth

Strategy
Firm’s industry is resistant to major technological
advancements

Firm’s targeted markets are not product saturated

Firm’s markets are sufficiently distinctive to dissuade

competitors in adjacent markets from entering firm’s segment

Firm’s inputs are stable in price and quantity and available in

amounts and at times needed

Firm’s industry is stable

Firm’s competitive advantages are based on efficient

production or distribution channels

Success of market generalists

Strategies of Market and Product Development

• Market development
• Consists of marketing present products, often with only
cosmetic modifications, to customers in related market
areas by
• Adding channels of distribution or
• Changing content of advertising or promotion
• Product development
• Involves substantial modification of existing products or
creation of new but related products
• Based on penetrating existing markets by
• Incorporating product modifications into existing
items or
• Developing new products connected to existing
products

Specific Options for Selected Grand Strategies

Concentration: Increasing use of present products in present
markets

1. Increasing present customers’ rate of use:

a. Increasing size of purchase

b. Increasing rate of product obsolescence

c. Advertising other uses

d. Giving price incentives for increased use

2. Attracting competitors’ customers

a. Establishing sharper brand differentiation

b. Increasing promotional effort

c. Initiating price cuts

3. Attracting nonusers to buy the product

a. Inducing trial use through sampling, price incentives,

and so on

b. Pricing up or down

c. Advertising new uses

Market Development: Selling present products in new

markets

1. Opening additional geographic markets

a. Regional expansion

b. National expansion

c. International expansion

2. Attracting other market segments

 a. Developing product versions to appeal to other
segments

b. Entering other channels of distribution

c. Advertising in other media

Product Development: Developing new products for present

markets

1. Developing new product features

a. Adapt (to other ideas, developments)

b. Modify (change color, motion, sound, odor, form,

shape)

c. Magnify (stronger, loner, thicker, extra value)

d. Minify (smaller, shorter, higher

e. Substitute (other ingredients, process, power)

f. Rearrange (other patterns, layout, sequence,

components)

g. Reverse (inside out)

h. Combine (blend, alloy, assortment, ensemble; combine

units, purposes, appeals, ideas)

2. Developing quality variations

3. Developing additional models and sizes (product

proliferation)

Innovation Strategy
 Involves creating a new product life cycle, thereby making
similar existing products obsolete

Strategies of Horizontal and Vertical

Integration
• Horizontal integration
• Based on growth via acquisition of one or more similar
firms operating at the same stage of the production-
marketing chain
• Involves eliminating competitors, providing acquiring firm
with access to new markets
• Vertical integration
• Involves acquiring firms
• To supply acquiring firm with inputs - backward
integration or
• Are customers for firm’s outputs - forward
integration

Acquisitions or mergers of suppliers or customer businesses are vertical

integrations

Acquisitions or mergers of competing businesses are horizontal

integrations

Textile producer

Shirt manufacturer

Clothing store

Textile producer

Shirt manufacturer

Clothing store

Vertical and Horizontal Integrations

 Motivations Related to Diversification
Strategies
Increase growth rate of firm

Investment is better use of funds than using them for internal

growth

Improve stability of earnings and sales

Balance or fill out product line

Diversify product line

Acquire a needed resource quickly

Achieve tax savings

Increase firm’s stock value

Increase efficiency and profitability

Diversification Strategies
• Concentric diversification

• Involves acquisition of businesses related to acquiring

firm in terms of technology, markets, or products
• Conglomerate diversification
• Involves acquisition of a business because it represents a
promising investment opportunity
• Primary motivation is profit pattern of venture
• Difference between the approaches
• Concentric diversification emphasizes commonality
whereas conglomerate diversification emphasizes profits
for each individual unit
 Turnaround Strategy
Involves a concerted effort over a period of time to fortify a
firm’s distinctive competencies, returning it to
profitability

Declining sales or margins

Imminent bankruptcy

Low

High

Cost reduction

Asset reduction

Efficiency maintenance

Entrepreneurial reconfiguration

Stability

Recovery

Internal factors

External factors

Turnaround situation

Turnaround response

Cause

Severity

Retrenchment phase
Recovery phase

(operating)

(strategic)

A Model of the Turnaround Process

Divestiture and Liquidation Strategies

• Divestiture strategy
• Involves selling a firm or a major component of a firm
• Reasons for divestiture
• Partial mismatches between acquired firm and
parent firm
• Corporate financial needs
• Government antitrust action
• Liquidation strategy
• Involves selling parts of a firm, usually for its tangible asset
value and not as a going concern

The Strategy of Bankruptcy

• Two approaches
• Liquidation - Involves complete distribution of a firm’s
assets to creditors, most of whom receive a small fraction
of amount owed
• Reorganization - Involves creditors temporarily freezing
their claims while a firm reorganizes and rebuilds its
operations more profitably
• Advantage of a reorganization bankruptcy
• Proactive option offering maximum repayment of a
firm’s debt in the future if a recovery strategy is successful

Corporate Combination Strategies

 • Joint venture
• Involves establishing a third company (child), operated
for the benefit of the co-owners (parents)
• Strategic alliance
• Involves creating a partnership between two or more
companies that contribute skills and expertise to a
cooperative project
• Exists for a defined period
• Does not involve the exchange of equity
• Consortia, Keiretsus, and Chaebols
• Defined as large interlocking relationships between
businesses of an industry

The Top Five Strategic Reasons for

Outsourcing
1. Improve Business Focus

2. Access to World-Class Capabilities

3. Accelerated Reengineering Benefits

4. Shared Risks

5. Free Resources for Other Purposes

INDIAN BUSINESS HOUSES

TATA GROUP
Group Overview

• India’s largest business house

• More than 85 companies
• 39 listed
• 8% of India’s market capitalization
• 2.6 Million shareholders
• 2,70,000 employees
• Turnover Rs 343 billion (1996-1997)
1996-97 Rs (Billion)

322

343

30

23

40

% change Over 1995-96

18.8

18

-7.1

- 16

19

Financial Highlights

Assets

Turnover

PBT

PAT

Exports

• Metals
• Automobiles
• Energy
• Engineering
 • Chemicals
• Pharmaceuticals

• Consumer Products
• Services
• Agro Industries
• IT and Communication
• Exports
• Finance

Tata Heritage

• Jamsetji Tata
• Started textile mill in 1877
• Inspired steel and power industry
• Technical education and philanthropy
• JRD Tata
• Pioneered civil aviation
• Funded Hom Bhabha’s nuclear programme
• Guided the Tata group for over half a century
• Ratan Tata
• Present Chairman since 1991

Holding Companies

• Tata Sons
• Founded by Jamsetji Tata
• Promoted many of the present Tata companies
• 63% held by Tata philanthropic trusts
• Tata Industries
• 100% subsidiary of Tata Sons founded in 1945
• Managing agency till 1970
• Promoted new Tata companies in technology based
businesses
• Cross holdings among other Tata companies
Restructuring

• Prompted by post 1991 changing environment

• Need to identify and focus on core businesses
• Resistance from satraps
• Russi Mody, Darbari Seth, Ajit Kerkar
• Shrink number of companies
• From over 85 to about 30
• Shrink number of core businesses
• From about 25 to around 10 or 12
• Mergers and divestments
• McKinsey hired as a consultants

Restructuring Strategy

• Keep and grow

• Power, watches, metals, chemicals, telecom, hospitality,
financial services, infotech, emerging services,
infrastructure, automobiles
• Forge strategic tie ups
• Tea and beverages, retailing
• Remain only as strategic investors
• Luxury cars, infotech, printing, cosmetics
• Sell
• Refrigeration, paints, textiles, trading, electronics, oil
drilling, petrochemicals, pharma, specialty chemicals

Recent Developments

• Voltas focus on air conditioning and engineering business

• Hive off pesticides business to Ralchem Pesticides (wholly
owned subsidiary of Rallis - largest integrated
agrochemical company in India)
• Electrolux Voltas - JV between Voltas and AB Electrolux
• Refrigerators
• Washing machines
• Compressors for refrigerators
Recent Developments

• Tata Tea focusing on global agro business

• Manages 32 tea gardens in Sri Lanka
• Adding tea gardens inTurkey
• Acquired a 9.5% stake in Asian Coffee
• Overseas Operations
• Automobile assembly in Bangladesh
• Instant tea operations in the US
• Chain of hotels across the world
• Precision tooling operations in Singapore