Blueprint for the future growth, success & survival of

firm
Main Dimensions of CLS
Directional Strategy
Portfolio Strategy
Parenting Strategy

2
 CLS

Portfolio Directional Parenting

BCG Matrix Growth Stability Retrenchment

Concentration Integration Diversification Turnaround Divestment Liquidation

Ansoff
Product- Horizontal Vertical Concentric Conglomerate
Market Matrix

3
 Directional Strategy
What is the firms future
orientation towards growth?
Questions
o Should we expand, cut
back or continue our
operations unchanged?
o Should we focus our
activities within the present
industry only or should we
diversify into other
industries?
o If adopting growth strategy
whether organic growth
or inorganic growth?

4
 Stability Strategy
When business unit focuses on
incremental improvement of its functional
performance by marginally changing one
or more of its businesses in terms of their 3
dimensions:
o Customer groups
o Customer functions &
o Alternative technologies
It is not doing nothing, but sustaining a
moderate growth in line with the present
trends.

5
 When to choose?
State of the economy is in turmoil /slow growth/no
growth prospects
In stable business environments
In unstable/ hostile environment
Internal resource constraint
Constrained by regulations
Short Term Strategy

6
Approaches to Stability
Strategy
Proceed with Opportunity to rest, digest, and
caution/ Pause consolidate after growth
Strategy Cool-off period or Breathing spell

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 Approaches to Stability
Strategy
No- Change Avoiding change
strategy To achieve sustainable growth

Where a firm has the dominant market

Harvesting share, it may seek to take advantage of this
Strategy position and generate cash for future
business expansion.
E.g. lifebuoy soap

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Approaches to Stability
Strategy
Nothing new in worsening
Profit situation but instead to act as though
companys problems are temporary.
Strategy
Reduce investment and
expenditure.

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Growth/ Expansion Strategy
Types
o Intensification
o Diversification
o Integration

10
 Growth Strategy- Routes
Organic Growth
Inorganic Growth

11
I. Different
IntensiveTypes Of
Growth
Business Strategies
Products
Current Products New Products

Markets
Current Market Product
Penetration Development
Strategy Strategy
Markets

Markets

Market Diversification
New

Development Strategy
Strategy
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 Market Penetration Strategy
To increase the market share
Increase Product usage
o Encouraging the present customer to buy
more per time period
o Attracting the competitors customers
o Attracting non-users to buy the product
Difficult strategy in maturing market

13
 Market Development Strategy
Expand geographically
Target new market segments
o Danger- company could fail
to adequately understand
the new customer base.

14
 HUL Market Penetration &
Market Development Strategy

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 Product Development Strategy
Substantial modification of existing products
Creation of a supposedly new, but related
product (marketed to current customers)
Necessary when organizations are faced
with shorter PLCs

Failure- colorless coke and Crystal Pepsi

16
II. Diversification Strategy
o Occurs when an organization seeks to
broaden its scope of activities by
moving into new products and new
markets.

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 DiversificationWhen?
If company has reached the maturity stage
All avenues in existing industry are exploited
New/big competitors have entered & difficult to
compete with them
Technology has become obsolete & little chances
of up gradation
New products have emerged
Preferences have also changed rapidly

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DiversificationExamples

19
 WhyDiversification?
Economies of Scope
Widen market base and enhance market power
Improve financial performance
Spreading Risk
Building shareholder value
Counter competitive threats
Access to new technology or other resources
Regulatory factors

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Levels and types of diversification

21
 Related Diversification
Situation when firm is going for a business which is
similar to its existing businesses in terms of one or the
other major functional areas like manufacturing,
engineering, sales or marketing or when similar to
existing business in terms of basic technology or skills
used
Two businesses will generate more profits together,
than they would do so separately, the point of
commonality
o Similar technology
o Customer usage
o Distribution
o Managerial skills
o Product similarity 22
Example-Sharp Corporation of Japan
Expertise with LCD
technology, flat panel
display technology,
miniaturization, also
org. capabilities for
fast product
development.
It has come out with broad line of calculators, TVs,
desktops, TVs esp LCD, video-recorders, video tape
recorders.

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Unrelated Diversification
Going for other businesses which dont
have these competitively valuable
relationships among activities and
which dont share any basic
technology/skills of existing business
and such businesses when existing DC
of the firm cannot be fruitfully
extended.

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 Examples
Wipro
vegetable oils computer hardware, and
software, medical equipment, hydraulic systems,
consumer products, lighting, export of leather shoe
nippers and has recently entered into financial
services

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 Guidelines for
Concentric Diversification
When an organization competes
in a no growth/slow growth
industry.
When adding new , but related
products would significantly
enhance sale of current products.
When an organizations products
are currently in declining stage of
PLC.
Guiding Factors
Strong brand name
Economies of scope
Distribution network
Manufacturing/ marketing skills
Guidelines for
Conglomerate Diversification
Declining annual sales & profits
Capital and managerial talent
to compete successfully in
a new industry
Exiting markets for present produ
cts are saturated
Guiding Factors
High profitability
First mover/ price advantage
Multiple products/ markets for risk
diffusion
Corporate restructuring
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 Diversification and Shareholder Value
Related Diversification

o A strategy-driven
approach to creating
shareholder value

Unrelated Diversification

o A finance-driven
approach to creating
shareholder value
Value Different Types Of
creating diversification strategies
Business Strategies
Corporate
Low
relatedness
High

Operational relatedness
Low

Related
High

constrained
diversification

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 Proctor and Gamble-
Related constrained diversification
Sharing Resources at P&G
House hold GBU

R&D Production Marketing & Customer

Sales Service

Shared
Beauty GBU

R&D Production Marketing & Customer

Sales Service

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Value Different Types Of
creating diversification strategies
Business Strategies
Corporate
Low
relatedness
High

Operational relatedness
Related linked
Low
diversification

Related
High

constrained
diversification

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 HP- Related linked diversification
strategy
Firm transferred its competence in ink printers to
high end copiers.

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Value Different Types Of
creating diversification strategies
Business Strategies
Corporate
Low
relatedness
High

Operational relatedness
Unrelated Related linked
Low
Diversification diversification

Related Both
operational
High

constrained
diversification and corporate
relatedness
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CONS of Diversification
Bureaucratic costs
High risk
Investment of significant resources which may
detract focus, commitment, and sustained
investments in the core industries.

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 Failure

The lesson? Even during tough times, stick with what you know

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 PSA group, CK Birla join hands to make cars in India
French car maker Group PSA and Indias CK Birla Group will form two joint
ventures to build and sell the Paris-based companys cars in India. PSA has three
brands--Peugeot, Citroen and premium brand DS automobiles. The partners
have not decided the brand they plan to sell in India. In the first half of 2016, in
the worldwide automotive industry in terms of profitability, the PSA Group has
been number 4. It demonstrates the strong rebound of the PSA group, which is
now a healthy company with a strong strategic plan.
In the first joint venture, which is to build cars, PSA will be a majority stakeholder,
and in the second one, which is about making engines, powertrain etc, both the
companies will hold 50% each. The manufacturing sites for both vehicle
assembly and powertrains will be based in the state of Tamil Nadu. PSA will
invest 100 million in India in the first phase. The companies will start selling cars
from 2020.
Peugeot, which was once considered as a partner for Maruti Udyog Ltd before
Suzuki took that role, entered India in 1994 through a partnership with Premier
Automobiles Ltd. Their first product. Peugeot 309, sold around 10,000 units in the
first year. But, labour unrest and mounting losses forced Peugeot to exit the joint
venture and also India by 1997.
In another attempt in 2011, Groupe PSA even laid the foundation for a factory in
Gujarats Sanand, aimed at producing over 170,000 units annually. But even this
35
plan was later shelved due to their financial woes globally.
 According to you, what will be the future of this
deal?
Indian market has started to graduate to cars,
which offer luxury, and are premium and then there
is a huge pool of customers who are just getting into
buying cars. So of these two segments, which one
you think should be the priority of the PSA Group?

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III. Integration Strategies

37
Horizontal Integration (HI)
Single Industry Strategy- stick to the knitting
Columbia
Pictures
Profitability
Coca
Cola California
winemaker

Process of acquiring or
merging with independent
competitors to achieve CA
that arise from large size and
scope of operations.

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Telecom Service Industry

Aerospace Industry

Computer Industry

DEC Compaq HP
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Benefits of Horizontal Growth
Lower Cost Structure
Increased product differentiation
o Increasing flow of innovative new product

o Cross Selling- total solution

40
 Oracle Strives to Become
the Biggest and the Best
Worlds largest maker of database software and 3rd
largest global software company.
Goal- To become global leader in corporate
application software market.
Acquire 14 leading suppliers of corporate software,
including PeopleSoft and Siebel Systems.
Advantages
o Able to bundle the best software applications of these
acquired companies
o Access to thousands of new customers
o Second largest supplier of corporate software
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 Benefits of HI
Reduced Industry Rivalry
Increased Bargaining Power

42
 Vertical Integration
Entering new businesses to strengthen the core
business model within the same overall industry.
Gaining control over distributors, stockists, retailers,
suppliers, vendors, etc.
Achieve through both Organic or Inorganic growth.

Chips and
IBM S/W and
memory
Consulting
disk

43
 Vertical Integration
Continuum- Harrigan
Full Taper Quasi
LT Contract
Integration Integration Integration

Firm participates in all stages

of industrys Value Chain
Less than 50% on its own
and remaining is outsourced
Active in some stages only

Agreement between 2 firms to

provide agreed upon G&S to each
other for specified period of time
44
 Benefits of Vertical
Integration
Cost Based Advantages
Differentiation Advantages
Build Entry Barriers
Control over Suppliers or
distributors

45
 Difficulties with VI
Increases Cost Structure
Blocking of resources
Dangerous in case of rapidly changing
technology
High business RISK

46
 Alternatives To Vertical
Integration
Competitive Bidding
Strategic Alliance
Building LT cooperative relationship
o Hostage Taking- means of guaranteeing
that each partner will keep its side of the
bargain.
o Credible Commitment- A
promise/pledge to support the
development of a LT relationship
between companies.
o Maintaining Market Discipline
Parallel Sourcing Policies
47
 Retrenchment Strategy
Reducing the scope of business by exiting from some
business areas
Useful in case of tough competition, scarcity of
resources or declining economy

48
 Reversing a negative trend
Emphasizes the improvement of operational efficiency
when the corporations problems are pervasive but not
critical
TWO PHASES
Contraction
Turnaround Consolidation
WAYS
Change in Leadership
Redefining companys strategic focus
Divesting or closing unwanted businesses/ assets
Taking steps to improve profitability of remaining
operations
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Making acquisition to rebuild core operations
Burger King Turnaround
Burger King just posted the biggest sales gain in 2
years
New management
Refranchising virtually all company-owned
restaurants
Huge international expansion
Focus on controlling costs
Menu makeover
Tim Hortons acquisition

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 Captive Involves giving up independence in
exchange for security
Company Simpson industries sell its division to GM

Sale of a portion of business, or a major

division, profit center or SBU to
Divestment restructure a company around smaller but
stronger portfolio of business

51
 Form of court protection from creditors.
Bankruptcy During the given time period,
organization reorganize itself.

52
 Closing down the entire firm and selling
its assets
Liquidation Good proposition when "dead business is
worth more than alive

53
 Corporate Restructuring
Process of redesigning one or more aspects of a
company
Objective: To reorient or tune the organization to make
it more efficient and effective

54
Corporate Restructuring- Ways
Change in status of companys business or
alters reporting relationship
Pure New subsidiaries are formed
restructuring for better control
tax considerations

55
 Reduction in number of firms
Downsizing employees and number of
operating units

Down- Spinning or eliminating business to refocus on

scoping their core business

An acquisition of a company
Leveraged financed with substantial
Buyout portion of borrowed debts

56
Alternatives ST outcomes LT outcomes

Reduced Loss of Human

Downsizing
labor costs capital

Reduced Lower
Down-scoping performance
costs

Emphasis on Higher
Leveraged core business performance
Buyout
High debt
costs Higher Risk

57
 Combination Strategy
Three generic strategies can be used
in combination

58
 Portfolio Strategy
Building portfolio of different
business & simultaneously focusing
on coordination of cash flow
between various units

59
 BCG Matrix
Developed in 1970 by Boston Consulting Group
Growth Growth or
Retrenchment
Market Growth

Stability Retrenchment

Rel. Mkt. Share 60

potential source of cash. In terms of BCG classification, the cash position of various
Cash positions of various
types of businesses can be visualised as in Table 16.1

Table businesses
16.1: Cash Positions of Various Businesses

Business Cash Cash Net Cash Balance

Type Source
/ Generation
Use
1. COW More Less Funds available, so milk and deploy
2. STAR More More Build competitive position and grow
3. DOG Less More Divest and redeploy proceeds
4. QUESTION Less More Funds needed to invest selectively to
improve competitive position

Limitations of BCG Matrix 61

Apple BCG Matrix

62
63
 Market size, growth
rate, product demand,
industry profitability,
intensity of comp.,
etc.
High
Industry Attractiveness
Low Medium

Mkt. share,
Profitability, size of
business unit, tech.
High capability, brand
Medium Low
image, culture, etc.
Business Strength/ Competitive position
64
Shell Directional Policy Matrix

Phased Double or
Divest
Withdrawal quit

Phased
Custodial Try Harder
Withdrawal

Cash
Growth Leader
generation
65
 CASE STUDY
What type of strategy is the company trying to
follow and why? Justify your answer by giving
relevant facts. What are the benefits of adopting
such a strategy?

In your opinion, how are the competitors going to

react, because of Titan adopting such a strategy.
What all alternatives are available to the
competitors to deal with Titan?

66