Corporate Strategy

Strategic
Management
Corporate Strategy
Dr. R.K. Mitra
11
STRATEGIC MANAGEMENT
Corporate Strategy
Corporate Strategy signifies
ORIENTATION
TO
GROWTH
FIRM
EXPAND?
CUT BACK ?
CONTINUE
WHERE WE
ARE
If growth and expansion,
Concentric (current industry)

OR
Diversification (Beyond current industry)
22
Corporate Strategy
Overall three types of strategic orientation
GROWTH
STABILITY
RETRENCHMENT
33
Corporate Strategy
Hunger, Flynn and Wheelen identified nine cells of
corporate strategy:
Business Strength/Competitive Position (BS/CP)
Strong
High
Industry attractiveness (IA)
Averag
e
2
Growth
Growth
Concentration Concentration
via Vertical
via Horizontal
Integration
Integration
4
Medium
Stability
Pause or
Proceed with
Caution
Low
5 Growth
Concentration
via Horizontal
Integration
Stability
No Change or
Profit Strategy
8
Growth
Growth
Concentric
Diversification
Conglomerate
Diversification
Weak
3
Retrenchme
nt
Turnaround
6
Retrenchme
nt
Captive
Company or
Selling Out
9
Retrenchme
nt Bankruptcy
or Liquidation
44
Corporate Strategy
Growth Strategies: Cell Nos. 1,2,5,7 and 8
Business Strength/Competitive Position (BS/CP)
Strong
Industry attractiveness (IA)
High
Averag
2e
Growth
Growth
Weak
3
Concentration Concentration
via Vertical
via Horizontal
Integration
Integration
4
Medium
Low
Growth
Growth
Concentric
Diversification
Conglomerate
Diversification
55
Corporate Strategy: Growth Strategies
Cell No. 1:
BS/CP
Strong
IA
High
1
Growth
Concentration via
Vertical Integration
Strategy
Industry
Means
Growth
Current
Vertical
Integration
- Backward (upstream industries)
- Forward (downstream industries)
Examples:
IBM integrated backward to produce disk drives and
forward into computer software and consultancy.
6
Apples Stores
Lafarge integrated backward to supply
limestone for a query at Bangladesh for its
cement production at a plant in India.
Cell No. 1:
BS/CP
Strong
IA
High
1
Growth
Concentration via
Strategy
Industry
Means
Growth
Current
Vertical
Integration
Vertical Integration is logical

for reasons High Industry attractiveness compels the firm to
stay in that industry.
Attractiveness results more competitors to enter.
An existing firm comes under pressure to improve
its competitive position.
8
Corporate Strategy
Cell No. 1:
BS/CP
Strong
IA
High
1
Growth
Concentration via
Vertical Integration helps to improve competitive
position (Backward-minimize resource.
acquisition costs;
Forwardgain
control
over
quality
and
distribution.
9
Corporate Strategy
Vertical Integration: Ways to achieve
Cell No. 1:
BS/CP
Strong
IA
High
1
Growth
Concentration via
Strategy
Industry
Means
Growth
Current
Vertical
Integration
Vertical Integration can be achieved

InternallyEx:
Lafarge by acquiring mining lease from Bangladesh

Govt.
Henry Ford built his River Rouge Plant by integrating

manufacturing process to the point iron ore entered.
10
Corporate Strategy
Vertical Integration: Ways to achieve
Externally
Ex: Du Pont, the chemical company, chose
external route to backward integration by
acquiring Conoco for oil needed in the
production of fabrics.
11
Corporate Strategy
Vertical Integration and Value Chain
Raw materials
Component parts
manufacturing
Backward vertical integration

into upstream industries
Backward Vertical Integration
Incorporates more stages of

the value chain closer to the
beginning of the Value Chain
(upstream)
Final assembly
Retail
Custo
mer
Forward vertical integration

into downstream industries.
Forward Vertical Integration
Incorporates more stages of

the value chain closer to the
end of the Value Chain
(downstream)
12
Corporate Strategy
Vertical Integration: Its Value
The value of vertical integration:
determine?
Can
we
It is sometimes possible to observe which stages of

the value chain a firm is engaging in, and thus the
level of that firms vertical integration.
Sometimes, however, it is more difficult to directly
observe a firms level of vertical integration.
This is especially true when a firm believes that its
level of vertical integration is a potential source of
competitive advantage. In this case, the firm would
not likely reveal this information freely to
competitors.
13
Corporate Strategy
Vertical Integration: Its value
The value of the Value Chain: Can we determine?
However, it is possible to get a sense of the degree
of a firms vertical integration from a close
examination of the firms value added as a
percentage of sales.
Value added as a percentage of sales measures that

percentage
14
Corporate Strategy
The value of the Value Chain:
determine?
Can
we
Value added as a percentage of sales measures

that percentage
15
Corporate Strategy
The value of vertical integration: Can we determine?
of sales measures that percentage of a firms sales that
is generated by activities done within the boundaries
of a firm.
A firm with a high ratio between value added and sales has
brought many of the value-creating activities associated
with its business inside its boundaries, consistent with a
high level of vertical integration.
A firm with a low ratio between value added and sales
does not have, on average, as high a level of vertical
integration.
16
Corporate Strategy
Vertical Integration: Firm Capabilities
Firms should vertically integrate into those businesses
which posses valuables, rare, costly-to-imitate
resources and capabilities.
How flexible vertical integration is?
Once a firm vertically integrates, it commits its
organizational structure, management controls and
other policies.
Undoing vertical integration would imply changing all
these aspects.
17
Corporate Strategy
Vertical Integration: Arguments for
Building Barrier to Entry
Facilitate investment in specialized assets (North-rop &
Boeing)
Protecting Product Quality
Arguments against Vertical Integration
High cost supplies from company owned suppliers
Lack of Competition
(Ex: GMs glassmaking Div. sales only to Car-making Div.)
May lock a company into an old/inefficient technology.
18
Corporate Strategy
Vertical Integration: Alternatives
Full integration Vs. Taper Integration
Taper integration occurs when a firm relies both on
independent suppliers and company owned suppliers.
OR
It sells parts of output through independent retailers
and some through company owned outlets.
In such cases, the company owned entities compete
with independent suppliers.
19
Corporate Strategy
Full Integration & Taper Integration
In-house
suppliers
In-house
manufacturing
In-house
Distributors
Custom
ers
In-house
suppliers
In-house
manufacturing
In-house
Distributors
Custom
ers
Outside
suppliers
Independent
distributors
Strategic Alliances: Long-term Co-operative Relations

20
Corporate Strategy
Strategic Outsourcing:
Strategic outsourcing is the decision to allow

one or more of a companys value chain
activities or functions to be performed by
independent specialist companies that focus all
their skills and knowledge on just one kind of
activity.
21
Corporate Strategy
Strategic Outsourcing
Strategic
COMPANY BOUNDARY BEFORE OUTSOURCING
Outsourcing of
Primary Value
Research &
Marketing &
Creation
Production
development
sales
Functions
Customer
service
COMPANY BOUNDARY AFTER OUTSOURCING

Research &
development
Outsourced
Production
Marketing &
Sales
Outsourced
Customer
service
22
Corporate Strategy
Horizontal Integration
Cell No.2 & 5
IA
Industry
Means
Growth
Current
Horizontal
Integration
BS/CP
Average
High
Strategy
2
Growth
Concentration via Horizontal Integration
Average
Medi
um
5
Growth
Concentration via Horizontal Integration
-No Change or Profit Strategy
Horizontal integration occurs

- When a firm expands its activities into other
geographical locations and/or by increasing the
range of products and services offered to current
market. Although industry attractiveness is high,
competitive position is average. A firm may attempt
to solidify and strengthen its position in the current
industry by working to shore up its weakness.
23
Corporate Strategy
Horizontal Integration
M&A are the most common tools of horizontal
integration.
An acquisition occurs when a company uses its
capital resources to purchase another company;
A merger is an agreement to pool operations
and create a new entity.
24
Corporate Strategy
Horizontal Integration: Arguments for
Lower costs due to scales
Better product differentiation
(product lines of acquired
companies.)
Reduced Industry Rivalry
Increased Bargaining Power
or
merged
25
Corporate Strategy
Diversification
Cell No. 7:
BS/CP
Strong
IA
Low
Strategy
Industry
Means
Growth
Related
Industry
Diversificat
ion
7
Growth
Concentric Diversification
As
the
firm
has
a
strong
industry
competitiveness but industry attractiveness is
low, it may use its distinctive competencies in
diversifying.
Look for a strategic fit in a new industry, where
it can apply its tested competencies.
26
Corporate Strategy
Diversification: Common Thread
(Related)
The point of commonality between the current industry
and the new industry could be similar technology,
customer use, distribution, products, managerial skill etc.
Empirical evidences show that firms that go for
diversification to related industry are those who are
leaders in their core business.
Diversification (related) can be externally or internally.
27
Corporate Strategy
Diversification (Unrelated)
Cell No. 8:
IA
Low
BS/CP
Average
8
Growth
Conglomerate Diversification
Strategy
Industry
Means
Growth
Un-related
Industry
Diversificat
ion
Conglomer
ate
A firms competitive position is average

industry attractiveness is low. These
factors push towards diversification
unrelated industry.
and
two
into
28
Corporate Strategy
Diversification (Unrelated): Synergy
Cell No. 8:
IA
Low
BS/CP
Average
8
Growth
Conglomerate Diversification
Some sort of move from a mature industry to a

younger industry and hence timing is a key factor:
early entry strategy proves much more profitable.
The commonality is not of product market
technology, the
emphasis
on
conglomerate
diversification is financial synergy.
29
Corporate Strategy
Diversification (Unrelated)
Ex:
A cash rich firm with little opportunities in
current industry may move to a new industry
with more opportunities.
Usually, external route to M&A is more popular
than slow process of internal route.
30
Corporate Strategy
Stability
Cell No. 4:
BS/CP
Strong
IA
Medi
um
Strategy
Industry
Means
Stability
Current
Pause or
proceed
with
caution
4
Stability
Pause or Proceed with Caution
A firm with strong competitive position but

medium attractiveness is unlikely to go for a
major change in corporate strategy.
31
Corporate Strategy
Stability: Pause or Proceed with Caution
Usually, a firm facing a prolonged growth tend
to pause to consolidate as the industry
attractiveness dips.
Michael Dell We grew by 28.5% in 2 years and
we are having growing pains
32
Corporate Strategy
Stability Strategy: No change
Cell No. 5:
BS/CP
Average
IA
Strategy
Industry
Means
Growth
Current
No change
Medi
um
Stability
No Change or Profit Strategy
Neither significant opportunities or threats nor

strength and weakness.
Makes small adjustments in sales and profits.
A short-term strategy.
33
Corporate Strategy
Retrenchment: Turnaround
Cell No. 3:
IA
High
BS/CP
Weak
Strategy
Industry
Means
Retrenchment
Current
Turnaround
3
Retrenchment
Turnaround
The turnaround strategy probably is most

appropriate when a corporation is in a highly
attractive industry and its problems are pervasive
but not yet critical.
This strategy emphasizes the improvement of
operational efficiency.
Two basis phases of turnaround strategy are
contraction and consolidation.
34
Corporate Strategy
Contraction is the initial effort to stop the bleeding quickly
with across-the-board cutbacks in size and costs.
Consolidation is the implementation of a program to stabilize
the now leaner corporation.
To streamline the company, management develops plans to
reduce unnecessary overhead and to justify the costs of
functional activities. This time is crucial for the organization.
If management doesnt conduct the consolidation phase in a
positive manner, many of the companys best people will live.
35
Corporate Strategy
If all resources are encouraged to get involved in
productivity improvements, the firm is likely to emerge
from this strategic retrenchment period a much stronger
and better organized company.
It improves its competitive position and is able once
again to expand the business.
36
Corporate Strategy
Retrenchment: Captive Company or Selling
Out
Cell No. 6:
IA
Medium
BS/CP
Weak
Strategy
Industry
Means
Retrenchment
Current
Captive Co. or
Selling out
6
Retrenchment
Captive Company or Selling Out
A company with a weak competitive position in

an industry of only medium (and probably
declining) attractiveness may not be able to
engage in a full-blown turnaround strategy.
The industry isnt sufficiently attractive to
justify such an effort either from the current
management or from investors. Nevertheless, a
37
company in this situation faces poor sales
Corporate Strategy
Out
Management desperately searches for an angel
by offering to be a captive company to one of
its larger customers in order to guarantee the
companys continued existence with a long-term
contract.
Reduction in the scope of some of its functional
activities, such as marketing, thus reducing costs
significantly.
38
Corporate Strategy
Out
This strategy became popular during the 1980s in
the moderately attractive auto parts and
electronics parts industries for small firms with
weak competitive positions. For example, in
order to become the sole supplier of a part to
General
Motors,
Simpson
Industries
of
Birmingham, Michigan, agreed to have its engine
parts facilities and books inspected and its
employees interviewed by a special team from
GM. In return, GM purchased nearly 80% of the
companys
production
through
long-term
39
contracts.
Corporate Strategy
Out
The selling out strategy makes sense if a
company doesnt see any way to build some
strengths or shore up its weaknesses and
management believes that the industry isnt soon
likely to become more attractive. It can still
obtain a good price by selling out to firms with
moderately attractive positions (cell 5) that are
expanding through horizontal integration.
40
Corporate Strategy
Retrenchment: Captive Company or Selling Out
Johnson Products, a pioneer in hair care products for
African-American and other ethnic markets, over time lost
its competitive position to larger cosmetics companies
who had entered Johnson Products niche. After
numerous attempts to turn the company around, the
Johnson family finally decided to sell out to Ivax
Corporation while they could still get a decent price for
the firm.
41
Corporate Strategy
Retrenchment: Liquidation and Bankruptcy
Cell No. 9:
IA
Low
BS/CP
Weak
9
Retrenchment
Bankruptcy or Liquidation
Strategy
Industry
Means
Retrenchmen
t
Current
Liquidation or
Bankruptcy
When a company finds itself in the worst

possible situation with a weak competitive
position in an industry of low attractiveness,
managements alternatives are limited and all
are distasteful.
Because no one is interested in buying a weak
company in an unattractive industry, the firm
ultimately must pursue a bankruptcy or
42
liquidation strategy.
Corporate Strategy
Retrenchment: Liquidation Bankruptcy
Bankruptcy involves giving up management of the firm to
the courts in return for some settlement of the corporations
obligations. Top management hopes that, after the court
decides the claims, the company will be stronger and better
able to compete in a more attractive industry.
In contrast to bankruptcy, which seeks to perpetuate the
corporation, liquidation terminates the firm. When the
industry is unattractive and the company is too weak to be
sold as a going concern,
43
Corporate Strategy
Retrenchment: Liquidation & Bankruptcy
management may choose to convert as many
stable assets as possible to cash, which the
company then distributes to its shareholders
after paying all obligations.
44
Corporate Strategy
BCG Portfolio Matrix
Stars
Question Marks
18
16
(Percent)
Business Growth Rate
22
20
14
12
10
Cash Cows
Dogs
8
4
2
0
10x 4x
2x 1.5x 1x 0.5x 0.4x 0.3x 0.2x 0.1x
Relative Competitive Position
45
Corporate Strategy
Four-Cell, BCG Growth-Share Matrix
A units relative competitive position is defined as its
market share in the industry divided by that of the
largest other competitors. By this calculation, a relative
market share above 1.0 belongs to the market leader.
The business growth rate is the percentage of market
growth, that is, the percentage by which sales of a
particular line of products have increased. A basic
assumption of this method is that, other things being
equal, a growing market is an attractive one.
46
Corporate Strategy
The line separating areas of high and low relative
competitive position is set at 1.5 times. A product line
or business unit must have relative strengths of at
least this magnitude to ensure that it will have the
dominant position needed to be a star or cash cow.
In contrast, a product line or unit having a relative
competitive position of less than 1.0 has dog status.
47
Corporate Strategy
The growth-share matrix has a lot in common with the product life
cycle. Companies in a fast-growing industry typically introduce new
products. Initially, these products are called question marks.
Question marks (sometimes called problem children or
wildcats) are new products that have potential for success but that
need a lot of cash for development. If one of these products is to
gain enough market share to become a market leader and thus a
star, funds must be re-allocated from one or more mature products
to the question mark.
48
Corporate Strategy
Stars are market leaders typically at the peak of their
product life cycle and usually generate enough cash to
maintain their high share of the market. When their market
growth rate slows, stars become cash cow products.
Cash cows typically bring in far more money than needed to
maintain their market share. As these products move along
the decline state of their life cycles, management milks
them for cash to invest in new question mark products.
49
Corporate Strategy
Question mark products that fail to obtain a dominant market
share (and thus become a star) by the time the industry
growth rate inevitably slows become dogs.
Dogs are those products with low market share that do not
have the potential (because they are in an unattractive
industry) to bring in much cash. According to the BCG growthshare matrix, dogs should be either sold off or managed
carefully for the small amount of cash they can generate.
50
Corporate Strategy
Grand StrategyOvercome
Selection
Matrix
Weakness
Retrenchment
-Turnaround
Conglomerate diversification
-Divestiture
Internal
-Liquidation
(redirected
-Captive
II
resources
within the firm)
III
External
(acquisition or
IV Concentric
-Market
development
-Horizontal
integration
-Product
development
-Concentric
diversification
-Innovation
-Joint venture
merger for resource capab
-Vertical Integration
Maximize strengths
51
Corporate Strategy
Grand Strategy Selection Matrix

Rapid market growth
1.
Concentrated growth *
2.
Vertical integration
3.
Concentric diversification
Strong competitive
position
IV
1.
2.
Conglomerate
diversification
3.
II
1.
Reformulation of
concentrated growth *
2.
Horizontal integration
3.
Divestiture
4.
Liquidation
Weak competitive positio
III
Rretrenchment
Conglomerate
diversification
Divestiture
Liquidation
Joint ventures
Slow market growth
* This is usually via market development, product development, or a combination

of
52
both
Business Model and Strategy

Strategy
focuses
on
building
competitive
advantage by creating/defending a unique
position and exploiting a valuable set of
resources.
Those positions and resources are created by
virtuous cycles.
Business Models activate those cycles.
53
Business Model and Strategy

Business Model
BM of LCA
Large
Volume
Business Model
Choices
Economics
of scale
Low fares
Policies
Assets
Governance
Consequences
Flexible
Low
Costs
Rigid
54
Business Model
Virtuous Cycle 1:
Low Cots (fixed)
Low fares
Greater bargaining power

1
High
volumes
55
Business Model
Virtuous Cycle 2:
Low fixed costs
3
Low fares
High aircraft utilization

2
High volume
56
Business Model
Virtuous Cycle 3:
2
No meals
3
Low variable costs
Expectation
of lowered
quality of
services
1
4
Low fares
57
TACTICS
Tactics are the specific actions a firm takes to implement
its strategies. Examples of tactics include decisions firms
make about various attributes of their products:
Size
Shape
Colour
Price
Specific advertising approaches adopted by a firm
Specific sales and marketing efforts.
58
TACTICS
Several industries provide excellent examples of these
kinds of tactical interactions. In consumer goods, for
example, if one company increases its sales by adding a
lemon scent to laundry detergent, then lemon scents
start showing up in everyones laundry detergent. If
Coke starts selling a soft drink with half the sugar and
half the carbs of regular Coke, can Pepsis lowsugar/low-carb product be far behind? And when
surprisingly, these kinds of tactical changes, because
they initially may be valuable and rare, are seldom costly
to imitate, and thus are typically only sources of
temporary competitive advantage.
59
THANK YOU
60
60

Corporate Strategy

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Strategic

If growth and expansion,

Concentric (current industry)

Industry attractiveness (IA)

Vertical Integration is logical

Vertical Integration can be achieved

Lafarge by acquiring mining lease from Bangladesh

Henry Ford built his River Rouge Plant by integrating

Backward vertical integration

Incorporates more stages of

Forward vertical integration

Incorporates more stages of

It is sometimes possible to observe which stages of

Value added as a percentage of sales measures that

Value added as a percentage of sales measures

Strategic Alliances: Long-term Co-operative Relations

Strategic outsourcing is the decision to allow

COMPANY BOUNDARY AFTER OUTSOURCING

Horizontal integration occurs

A firms competitive position is average

Some sort of move from a mature industry to a

A firm with strong competitive position but

Neither significant opportunities or threats nor

The turnaround strategy probably is most

A company with a weak competitive position in

When a company finds itself in the worst

Business Growth Rate

2x 1.5x 1x 0.5x 0.4x 0.3x 0.2x 0.1x

Relative Competitive Position

merger for resource capab

Grand Strategy Selection Matrix

Weak competitive positio

Slow market growth

* This is usually via market development, product development, or a combination

Business Model and Strategy

Business Model and Strategy

Low Cots (fixed)

Greater bargaining power

High aircraft utilization

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