Chapter 4

Corporate Strategy and Long-Range Planning

I. Definitions

Corporate strategy- is hierarchically highest strategic plan of the organization, which defines the global
goals and ways of their achieving within strategic management.

Long-range plan - is a set of goals (usually five to ten) that outlines the path for the company's future.
When the long-range plan is in place, a strategic plan should be developed to define the objectives and
actions necessary to achieve the goals spelled out in the long-range plan.

II. Corporate Strategy

 Organizations are facing exciting and dynamic challenges in the 21st century. In the globalized business,
companies require strategic thinking and only by evolving good corporate strategies can they become
strategically competitive. A sustained or sustainable competitive advantage occurs when firm
implements a value – creating strategy of which other companies are unable to duplicate the benefits or
find it too costly to initiate. Corporate strategy includes the commitments, decisions and actions
required for a firm to achieve strategic competitiveness and earn above average returns. The goals of
corporate strategy are challenging not only for large firms like Microsoft but also for small local
computer retail outlets or even dry cleaners.

A. Benefits:
a. Keeping pace with changing environment - The present day environment is so dynamic
and fast changing thus making it very difficult for any modern business enterprise to
operate. Because of uncertainties, threats and constraints, the business corporations are
under great pressure and are trying to find out the ways and means for their healthy
survival. Under such circumstances, the only last resort is to make the best use of strategic
management which can help the corporate management to explore the possible
opportunities and at the same time to achieve an optimum level of efficiency by minimizing
the expected threats.
b. Minimizes competitive disadvantage - It minimizes competitive disadvantage and adds up
to competitive advantage. For example, a company like Hindustan Lever Ltd., realized that
merely by merging with companies like Lakme, Milk food, Ponds, Brooke bond, Lipton etc
which make fast moving consumer goods alone will not make it market leader but
venturing into retailing will help it reap heavy profits. Then emerged its retail giant “Margin
Free’ which is the market leader in states like Kerala. Similarly, the R.P. Goenka Group and
the Muruguppa group realized that mere takeovers do not help and there is a need to
reposition their products and reengineer their brands. The strategy worked.
c. Clear sense of strategic vision and sharper focus on goals and objectives - Every firm
competing in an industry has a strategy, because strategy refers to how a given objective
will be achieved. ‘Strategy’ defines what it is we want to achieve and charts our course in
the market place; it is the basis for the establishment of a business firm; and it is a basic
requirement for a firm to survive and to sustain itself in today’s changing environment by
providing vision and encouraging to define mission.
d. Motivating employees- One should note that the labor efficiency and loyalty towards
management can be expected only in an organization that operates under strategic
management. Every guidance as to what to do, when and how to do and by whom etc, is
given to every employee. This makes them more confident and free to perform their tasks
without any hesitation. Labor efficiency and their loyalty which results into industrial peace
 and good returns are the results of broad-based policies adopted by the strategic
management.
e. Strengthening Decision-Making - Under strategic management, the first step to be taken is
to identify the objectives of the business concern. Hence a corporation organized under the
basic principles of strategic management will find a smooth sailing due to effective
decision-making. This point out the need for strategic management.
f. Efficient and effective way of implementing actions for results - Strategy provides a clear
understanding of purpose, objectives and standards of performance to employees at all
levels and in all functional areas. Thereby it makes implementation very smooth allowing
for maximum harmony and synchrony. As a result, the expected results are obtained more
efficiently and economically.
g. Improved understanding of internal and external environments of business - Strategy
formulation requires continuous observation and understanding of environmental
variables and classifying them as opportunities and threats. It also involves knowing
whether the threats are serious or casual and opportunities are worthy or marginal. As
such strategy provides for a better understanding of environment.

B. Levels of Strategy:

In some businesses it is only the Chairman Managing Director who crafts the strategy. But in firms,
which have participative management style of functioning, it is a group or team exercise involving
key personnel and all functional executives in the organization.

A typical business firm should consider 4 types of strategies, which form a hierarchy as shown in
Figure 1.1

Corporate Responsibility of corporate-level managers

Strategy

Responsibility of business –level general

Business Strategies managers

Functional Strategies
Responsibility of heads of major
(R&D manufacturing, marketing, finance, human functional activities within a business
resources, etc.) unit or division

Operating Strategies
Responsibility of plant
(regions and district, plants, department w/in functional managers, geographic unit
area) managers, and lower-level
supervisors

Figure 1.1 Hierarchy of strategy

  Corporate strategy – Which describes a company’s overall direction towards growth by
managing business and product lines? These include stability, growth and retrenchment.
 For example, Coco cola, Inc., has followed the growth strategy by acquisition. It has
acquired local bottling units to emerge as the market leader.

 Business strategy- Usually occurs at business unit or product level emphasizing the
improvement of competitive position of a firm’s products or services in an industry or
market segment served by that business unit. Business strategy falls in the in the realm of
corporate strategy.
 For example, Apple Computers uses a differentiation competitive strategy that
emphasizes innovative product with creative design. In contrast, ANZ Grindlays merged
with Standard Chartered Bank to emerge competitively.

 Functional strategy - It is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource productivity. It is concerned
with developing and nurturing a distinctive competence to provide the firm with a
competitive advantage.
 For example, Procter and Gamble spends huge amounts on advertising to create
customer demand.

 Operating strategy - These are concerned with how the component parts of an organization
deliver effectively the corporate, business and functional -level strategies in terms of
resources, processes and people. They are at departmental level and set periodic short-
term targets for accomplishment.

C. Components of Corporate Strategy:

1. Allocation of Resources - The allocation of resources at a firm focuses mostly on two

resources: people and capital. In an effort to maximize the value of the entire firm,
leaders must determine how to allocate these resources to the various businesses or
business units to make the whole greater than the sum of the parts.

Key factors related to allocation of resources are:

i. People
 Identifying core competencies and ensuring they are well distributed
across the firm
 Moving leaders to the places they are needed most and add the most
value (changes over time-based on priorities)
 Ensuring an appropriate supply of talent is available to all businesses
ii. Capital
 Allocating capital across businesses so it earns the highest risk-adjusted
return
 Analyzing external opportunities (mergers and acquisitions) and
allocating capital between internal (projects) and external opportunities

2. Organizational Design - Organizational design involves ensuring the firm has the
necessary corporate structure and related systems in place to create the maximum
amount of value. Factors that leaders must consider are, the role of the corporate head
office (centralized vs decentralized approach and the reporting structure of individuals
and business units (vertical hierarchy, matrix reporting, etc.).
 Key factors related to allocation of resources are:

a. Head office (centralized vs decentralized)

 Determining how much autonomy to give business units
 Deciding whether decisions are made top down or bottom up
 Influence on the strategy of business units

b. Organizational structure (reporting)

 Determine how large initiatives and commitments will be divided into
smaller projects
 Integrating business units and business functions such that there are no
redundancies
 Allowing for the balance between risk and return to exist by separating
responsibilities
 Developing centers of excellence
 Determining the appropriate delegation of authority
 Setting governance structures
 Setting reporting structures (military / top down, matrix reporting

3. Portfolio Management - Portfolio management looks at the way business units

complement each other, their correlations, and decides where the firm will “play” (i.e.
what businesses it will or won’t enter).

Corporate Strategy related to portfolio management includes:

 Deciding what business to be in or to be out of
 Determining the extent of vertical integration the firm should have
 Managing risk through diversification and reducing the correlation of results
across businesses
 Creating strategic options by seeding new opportunities that could be heavily
invested in if appropriate
 Monitor the competitive landscape and ensure the portfolio is well balanced
relative to trends in the market

4. Strategic Tradeoffs - One of the most challenging aspects of corporate strategy is

balancing the tradeoffs between risk and return across the firm. It’s important to have a
holistic view of all the businesses combined and ensure that the desired levels are risk
management and return generation are being pursued.

Below are the main factors to consider for strategic tradeoffs:

a) Managing risk
 Firm-wide risk is largely depending on the strategies it chooses to
pursue
 True product differentiation, for example, is a very high-risk strategy
that could result in a market leadership position, or total ruin
 Many companies adopt a copycat strategy by looking at what other risk
takers have done and modifying it slightly
 It’s important to be fully aware of strategies and associated risks across
the firm
  Some areas might require true differentiation (or cost leadership) but
other areas might be better suited to copy-cat strategies that rely on
incremental improvements
 The degree of autonomy business units have is important in managing
this risk

b) Generating returns
 Higher risk strategies create the possibility of higher rates of return. The
examples above of true product differentiation or cost leadership could
provide the most return in the long run if they are well executed
 Swinging for the fences will lead to more home runs, and more
strikeouts so it’s important to have the appropriate number of options
in the portfolio. These options can later turn into big bets as the
strategy develops

c) Incentives
 Incentive structures will play a big role in how much risk and how much
return managers seek
 It may be necessary to separate the responsibilities of risk management
and return generation so that each can be pursued to the desired level
 It may further help to manage multiple overlapping timelines, ranging
from short-term risk/return to long-term risk/return and ensuring there
is appropriate dispersion

III. Long-Range Planning

 Business planning involves setting short-term, mid-term and long-term objectives and scheduling the
series of actions necessary to achieve them. Long-range business planning includes developing a
mission statement, vision statement and ongoing business goals and strategies necessary to move the
company's vision and mission forward. By focusing on key issues such as productivity, customer service
and quality, business goals and objectives provide a sense of direction, purpose and urgency. It also
motivates organizational teams to deliver the performance necessary to achieve targeted results.

Mission and Vision Statements-

Long-range business goals make business teams and individuals accountable for moving forward
a company's mission and vision. The mission statement articulates the purpose for the
organization's existence. For example, a mission statement for a bicycle manufacturer might be
to offer high-quality bicycles at value prices. A vision statement is more specific and expresses
the change a company aspires to make. As an example, the bicycle manufacturer's vision
statement might be to "become the largest-selling bicycle manufacturer by 2015." Based on the
mission and vision statements, top-down business objectives are developed by senior managers
in the form of long-term business goals.

Forecasting-
Long-term business planning involves developing long-term goals based on assessing historical
sales and other operating data. Using forecasting techniques in business planning helps leaders
make informed predictions that can be used in developing long-term goals. Relevant internal
data about the company's performance, as well as external data about the industry, might be
used to establish strategic long-term goals that are SMART: an acronym for Specific,
Measurable, Attainable, Relevant and Timely goals.
 Managing the Future –
Managing the future of the company lies at the heart of setting long-term business goals. This is
particularly true of strategic business planning, which is "a total concept of the whole business
involving a framework and process that guides its future," according to Kerry Napuk in his book
"The Strategy-Led Business." Long-term planning involves assessing a company's current market
position, setting goals for where to take the company in the future, and establishing tactics for
moving the company from where it is to where its leaders want it to be in the future.

Direction and Motivation

Long-range business planning helps business leaders to think differently about the company's
direction. It also provides motivation and insight into the type of performance necessary to
meet business goals. This is especially important when significant internal change is required to
maintain competitive advantages. For example, a long-term goal might be to increase revenue
for a particular product by 20 percent over a five-year period. This long-term goal gives
management a measurable direction and provides employees a target by which to measure
performance progress.

 The Process of Planning:

Data Collection and assessment of current position-

Data must be gathered in order that a reassessment of the company’s major policies and a
restatement of its specific objectives can be made. The data are also necessary for strategic
planning. These should show the trends for the past 3-5yrs, an assessment of the present
situation, a projection for the next 5 yrs, & some estimates beyond those 5yrs.

Should include in the data:

 What have you been the profits in relation to the invested capital, the total capital, and
to sales?
 What has been the profit contribution of each product & service?
 What is the stage of the product –life-cycle reached by each product?
 What are the internal resources in terms of plant and equipment, cash, credit & people.
 How has the organization of the firmed evolved?
 If a labor union exists, how has its strength developed & how will its demands probably
evolved? If does not exist, what are the expectations of the workers in this area?
 In reviewing all of the above, what are the firm’s strength & weaknesses?

There are five distinct product life cycle stages:

1. Product Development. When the company finds and develops a new product idea,
product development starts. During product development, sales are zero, and the
company’s investment costs increase.
2. Introduction. Sales slowly grow as the product is introduced in the market. Profits
are still non-existent, because the heavy expenses of the product introduction
overweigh sales.
3. Growth. The growth stage is a period of rapid market acceptance and increasing
profits.
4. Maturity. In the maturity stage, sales growth slows down because the product has
achieved acceptance by most potential buyers. Profits level off or decline because
marketing outlays need to be increased to defend the product against competition.
5. Decline. Finally, sales fall off and profits drop.
Setting Specific Objectives
As noted in Chapter1, the purpose of the policies is to provide guidance for decision making:
operating policies provide guidance for day to day operating decisions; major company policies
provide guidance for direction in the setting of the objectives (goals). The objective must be
specific in order to be useful.

Strategic Planning
Strategy simply the process of devising alternative choices of achieving company objectives, of
relating choices to company resources and to the environment, and then selecting the best-
method for achieving those objectives.

The Operational Plan

 Product planning and development- prepare programs for the phasing-out identified
and obsolete or past the peak of their life cycle. Prepare programs for the modification
of existing products and the development of the new ones.
 Market planning- geographical areas to be serve, type of customer to be sought,
products to be sold to introduced and discontinued, quality of the product to be
marketed, pricing strategy to be used, channels of distribution to be used, selling
methods, w/c products are to receive priority in terms of sales effort & advertising.
 Production planning- is the planning of production and manufacturing modules in a
company or industry. It utilizes the resource allocation of activities of
employees, materials and production capacity, in order to serve different customers.
 Manpower planning- also called as Human Resource Planning consists of putting right
number of people, right kind of people at the right place, right time, doing the right
things for which they are suited for the achievement of goals of the organization.
 Organizational Planning- Process of identifying an organization's immediate and long-
term objectives, and formulating and monitoring specific strategies to achieve them. It
also entails staffing and resource allocation and is one of the important responsibilities
of a management team.
 Financial planning- is the task of determining how a business will afford to achieve its
strategic goals and objectives.
 The short-term plan- involves processes that show results within a year. Usually
associated with annual budget.