Gaurav kumar (SEC.

A)
Grand Strategies

Strategy Formulation is a strategic planning or long range-planning. This process

is primarily analytical, not action oriented. This process involves scanning
external and internal environmental factors, analysis of the strategic factors and
generation, evaluation and selection of the best alternative strategy appropriate
to the analysis.
Identification of various alternative strategies is an important aspect of
strategic management as it provides the alternatives which can be considered and
selected for implementation in order to arrive at certain result. At this stage,
the managers are able to complete their environmental analysis and appraisal of
their strengths and they are in a position to identify what alternatives
strategies are available for them in the light of their organizational mission.
In this there are four main strategies:
1) Stability strategy
2) Growth/Expansion Strategy
3) Retrenchment strategy
4) Combination strategy

1. Stability strategy
The basic approach is ‘maintain present course: steady as it goes.’
In an effective stability strategy, companies will concentrate their resources
where the company presently has or can rapidly develop a meaningful competitive
advantage in the narrowest possible product-market scope consistent with the
firm’s resources and market requirement's.
Reasons for adopting Stability Strategies:
Managers of small business desire a satisfactory level of profits rather
than increased profits.
Maintenance of status quo involves less risk than a more growth strategy.
Change may upset the smooth operations and result in poor performance
especially, if the firm considers itself successful with the present level of
operations.
Changing operations to pursue a more aggressive growth strategy usually
requires an increased investment and managerial support. Firms, which cannot
provide resources, may continue with the stability strategy.
Some executives maintain with the stability strategy due to inertia for
change.
In some cases, firms are forced to adopt stability strategy, if they operate
in a low-growth or no-growth industry.
Sometimes, firms may find that the cost of growth is more than the benefits
of the same.
Firms that dominate its industry through their superior size and competitive
advantage may pursue stability to reduce their chances of being prosecuted for
engaging in monopolistic practices.
Smaller firms that concentrate on specialized products or services may
choose stability because of their concern that growth will result in reduced
quality and customer service.
Examples of Stability Strategies adopted by companies:
Steel Authority of India has adopted stability strategy because of over
capacity in steel sector. Instead it has concentrated on increasing operational
efficiency of its various plants rather than going for expansion. Others
industries are ‘heavy commercial vehicle’, ‘coal industry.
Apart from over capacity, regulatory restrictions in some industries have
forced companies to adopt stability strategy. Cigarette, liquor industries fall in
this category because of strict control over capacity expansion. Both these
industries require license under the provisions of Industries (Development and
regulations) Act, 1951.
Many companies in public sector have been forced to adopt stability strategy
because of government’s policy of cutting the role of public sector and budgetary
support for expansion of these companies has been withdrawn.

2. Growth/Expansion Strategies
A growth strategy is one that an enterprise pursues when it increases its level of
objectives upward in significant increment, much higher than an exploration of its
past achievement level. The most frequent increase indicating a growth strategy is
to raise the market share and or sales objectives upward significantly.
If we look at the corporate performance in the recent years, we find how the
various organizations have grown both in terms of sales and profit as well as
assets. For example: Reliance Industries Limited, Nirma Limited.
Organizations may select a growth strategy to increase their profits, sales and/
or market share. They also pursue growth strategy to reduce cost of production per
unit. Growth Strategies involve a significant increase in performance objectives.
These strategies are adopted when firms remarkably broadens the scope of their
customer groups, customer functions and alternative technologies either singly or
in combination with each other.
Reasons for adopting Growth Strategies:
In the long run, growth is necessary for the very survival of the
organizations themselves, particularly when the environment is quite volatile.
Growth offers many economies because of large scale operations.
Growth Strategy is taken up because of managerial motivation to do so.
Managers with high degree of achievement and recognition always prefer to grow.
There are certain intangible advantages of growth. These may be in the form
of increased prestige of the organization, satisfaction to employees and social
benefits. Example: Growing companies have high level of prestige in the corporate
world, e.g., Reliance, Infosys, Hindustan Unilever, etc.

Types of Growth / Expansion Strategies:

(i)Concentric Expansion Strategy: The first route of growth is to expand the
present line of business. It can be aimed at market penetration, market
development and / or product development.
Market Penetration: The organization tries to capture market share in the existing
product and aims at expanding its business at a rate higher than the industry
growth.
Example: Reliance has captured substantial market share in textile yarn and
intermediaries
Example: ITC has captured substantial market share in cigarettes.
Market Development: Attempt is made to increase sales by developing new markets
either geography-wise or segment-wise.
Example: Many companies which find that the urban market is saturated and there is
little scope for expansion, opt for developing new market in rural areas. Some of
the companies which have made keen attempt to develop rural market are HUL
(personal products), Colgate (oral care products), LG (TV), Videocon (Consumer
durables), etc.
Product Development: Efforts are attempted at to achieve growth through product
innovation so as to penetrate in new segment.
Example: SAMSUNG (TV) may offer slim line TV, Plasma TV, etc.
Benefits of Concentric Expansion Strategy:
A firm that is familiar with an industry would naturally like to invest more
in known business rather than unknown ones. Eg. Bajaj Auto
It involves minimal organizational changes.
It enables the firm to master one or a few businesses and enable it to
specialize by gaining an in depth knowledge of these businesses.
Managers face fewer problems when dealing with known situations.
Past experience is valuable as it is replicable.
Limitations of Concentric Expansion Strategy:
“Putting all one’s eggs in one basket has its own problems” these are as follows-
Concentration strategies are heavily dependent on the industry.
Factors like product obsolescence, fickleness of markets, and emergence of
newer technologies are threats to concentrated firms.
Concentration strategies may result in doing too much of a known thing. This
may create an organizational inertia; managers may not be able to sustain interest
and find the work less challenging and less stimulating.
Concentration strategies may lead to cash flow problems that may pose a
dilemma before a firm. Large cash inflows are required for building up assets
while the businesses are growing. But when these businesses mature, firms often
face a cash surplus with little scope for investing in the present businesses.
(ii) Integration Strategy: When firms use their existing base to expand in the
direction of their raw materials or the ultimate consumers, or, alternatively they
acquire complimentary or adjacent businesses, integration takes place. Integration
basically means combining activities related to the present activity of a firm.

Types of Integration Strategy:

Vertical Integration: When an organization starts making new products that serve
its own needs, vertical integration takes place. Any new activity undertaken with
the purpose of either supplying inputs (such as raw materials) or serving as a
customer for outputs (such as, marketing of firm’s product) is vertical
integration.
Backward Integration: retreating to the source of raw materials.
Example: Reliance started its business with textiles and went for backward
integration to produce PFY and PSF, critical raw materials for textiles, PTA and
MEG-raw materials for PSF and PFY, paraxylene -raw materials for PTA and MEG, and
finally naphtha for producing paraxylene.
NaphthaàParaxyleneàPTA + MEGàPSf(fibres) and PFY yarnsà Textiles
Forward Integration: moves the organization nearer to the ultimate customer
Example: Expansion strategies at Modern Group, consisting of five companies having
a combined turnover of Rs.115 crore in 1989, involved diversification in the form
of backward and forward integration.
Forward integration took place at Modern Suiting when it diversified into worsted
suiting. With an investment of Rs.7 crore, it acquired sulzer looms, sophisticated
fabric processing facilities and other sophisticated equipments to manufacture a
premium terry wool suiting with the brand name ‘Amadeus’.
Backward integration at Modern Woolens involved collaboration with Schild of
Switzerland for wool processing, combing, and woolen tops which are necessary for
the production of woolen textiles. In this manner, a number of backward and
forward linkages were being attempted within the Modern Group with the objective
of raising the turnover to Rs.250 crore by 1992.
Horizontal Integration: When an organization takes up the same type of products at
the same level of production or marketing process, it is said to follow a strategy
of horizontal integration
For Example: When a luggage company takes over its rival luggage company
Horizontal Integration strategy may be frequently adopted with a view to expand
geographically by buying a competitor’s business, to increase the market share or
to benefit from economies of scale.
Solidaire India Ltd. is a prominent manufacturer of TVs and has a sizeable
presence in the market in southern India. It started with the name of Hi Beam
Electronics Ltd. in 1974. Subsequently, this unit was merged with two other units
to form a consortium called TriStar Electronics. In 1978, the brand name Solidaire
was adopted. In this manner the growth strategy of the company started with
Horizontal Integration.
Takeover of Neyveli Ceramics and Refractories Ltd. (Neycer) by Spartek Ceramics
India Ltd. in the early 1990s. Both the companies were in sanitary ware and tile
production. By acquiring Neycer, Spartek became the largest ceramic tile
manufacturer in the country.

(iii) Expansion through Diversification:

Diversification is the process of entry into a business which is new to an
organization either marketwise or technology wise or both. Diversification may
involve internal or external, related or unrelated, horizontal or vertical, and
active or passive dimensions------ either singly or collectively.
Example: “Kesoram Cotton Mills” into textiles, cellophane paper, firebricks, cast-
iron pipes, and cement & “ITC Ltd.” (a cigarette major) into hotel, paper and
packaging; edible oils,etc.
Types of Diversification Strategy:
• Horizontal Integration
• Vertical Integration
• Concentric Diversification
• Conglomerate Diversification
Concentric Diversification: When an organization takes up an activity in such a
manner that it is related to the existing business definition of one or more of a
firm’s business, either in terms of customer groups, customer functions or
alternative technologies, it is called Concentric Diversification.
For example: a company in the sewing machine business diversifies into kitchenware
and household appliances, which are sold to housewives through a chain of retail
stores.
Conglomerate Diversification: When an organization adopts a strategy which
requires taking up those activities which are unrelated to the existing business
definition of one or more of its business, either in terms of their respective
customer groups, customer functions or alternative technologies.

For Example:
– ITC, a cigarette company diversifying into the hotel industry.
– Essar Group in shipping, marine construction, oil support services, and iron
and steel.
– Shriram Fibres Ltd. In nylon industrial yarn, synthetic industrial fabrics,
nylon tyre cords, fluorochemicals, fluorocarbon refrigerant gases, ball and needle
bearings, auto electrical, hire-purchase and leasing, and financial services.

(iv) Expansion through Cooperation:

This can be done through simultaneous competition and cooperation among rival
firms for mutual benefit.
Types of Cooperative Strategies:
Merger Strategy: A merger is a combination of two or more organizations in which
one acquires the assets and liabilities of the other in exchange for shares or
cash, or both the organizations are dissolved, and the assets and liabilities are
combined and new stock is issued.
Example: Nirma Detergents Ltd., Nirma Soaps and Detergents Ltd., and Shiva Soaps
and Detergent Ltd. With Nirma Ltd.
Acquisition or Takeover Strategy: Acquisition or Takeover is the attempt of one
firm to acquire ownership or control over another firm against the wishes of the
latter’s management. But in practice it can be hostile or friendly.
Example: Tata Tea’s takeover of Consolidated Coffee (a grower of coffee beans) and
Asian Coffee (a Processor)
Joint Venture Strategy: Joint Ventures are partnerships in which two or more firms
carry out a specific project or corporate in a selected area of business. It can
be temporary; disbanding after the project is finished, or long-term. Ownership of
the firms remains unchanged.
“Even a successful joint venture may not last forever. Nor does the collapse of a
joint venture always imply failure. Actually, corporate partnerships are formed
for specific and time bound objectives which, once achieved, leave little reason
for the alliance to be continued. Joint Ventures that last longer do so because
their objectives have been redesigned”.

Examples:
• IBM World Trade Corporation and Tata Industries Ltd. Created joint venture
to form Tata Information Systems Ltd. The stated purpose was to make it India’s
top information technology company
• Cummins Engine Company and TELCO formed a joint venture to manufacture Telco
Engines
• Reliance Industries and Nynex Corporation
• Tata Industries and Bell Canada
• Ashok Leyland and Singapore Telecom
Strategic Alliances: Strategic Alliance is a combination of the efforts of two or
more organizations to develop competitive advantage In Strategic Alliance, two or
more partners join hands together for certain specified objectives, generally, for
certain specific period. When these objectives are achieved, partners terminate
their alliance.
Examples: Oberoi group of Hotels’ has entered into Strategic Alliance with
‘Lufthansa Airlines’, ‘Hong Kong Bank’, and ‘Mercury Travels’. All these four
organizations undertake promotional activities jointly. Any person who stays in
Oberoi hotels gets bonus point. His bonus point increases if he travels by
Lufthansa, uses Hong Kong Bank facilities, and engages Mercury Travel’s services.
On the basis of his accumulated bonus points, he gets various prizes including
free air ticket to New York

(v) Internationalization Strategy: International Strategy is a type of expansion

strategy that requires firms to market their products or services beyond the
domestic or national market. Firm would have to assess the international
environment, evaluate its own capabilities, and devise strategies to enter foreign
markets.
Types of International Strategies:
International Strategy: Firms adopt International Strategy when they create value
by transferring products and services to foreign markets where these products and
services are not available. International firm, by maintaining a tight control
over its overseas operations, offers standardized products and services in
different countries with little or no differentiation .Like IBM, Kellogg, Proctor
& Gamble, Microsoft, etc adopt this strategy for the different countries they
operate in.
Multidomestic Strategy: Firm adopts a Multidomestic Strategy when they try to
achieve a high level of local responsiveness by matching their products and
services offerings to the national conditions operating in the countries they
operate in. Multidomestic firm attempts to extensively customize their products
and services according to the local conditions operating in the different
countries. Like Coca Cola, McDonald, Pizza Hut, etc.
Global strategy: The global firms try to focus intensively on a low cost structure
by leveraging their expertise in providing certain products and services, and
concentrating the production of these standardized products and services at a few
favourable locations around the world. These products and services are offered in
an undifferentiated manner in all countries the global firm operates in, usually
at competitive prices.
Transnational Strategy: Firms adopt a Transnational strategy when they adopt a
combined approach of low-cost and high local responsiveness simultaneously for
their products and services.

3. Retrenchment Strategy:
When a firm’s position is disappointing or, at the extreme, when its survival is
at stake, then Retrenchment Strategy may be appropriate
Types of Retrenchment Strategies:
Turnaround Strategy: If the firm chooses to focus on ways and means to reverse the
process of decline, it adopts a turnaround Strategy.
Approaches of Turnaround Strategy:
Surgical Approach: It is mostly mechanic and requires tough attitude of the top
executive. The executive issues direction for change, fire employees, close down
divisions/plants, drops the product lines, replaces the machinery, issues
production, marketing and finance controls, fixation of accountability for
results. This approach continues until the firm is turned around. Later the chief
executives relax the tough environment and controls.
Human Resources Development Approach: It involves-
– Chief Executive conducts a series of meetings, encourages the managers to be
open, understand each other, understand the problems and diagnose the root cause
for poor performance of the firm
– He encourages the employees to suggest methods of turning around
– He encourages the managers and employees to implement the solutions offered
by them in a highly coordinated, committed team spirit
Example: Metal Box India Ltd. a reputed company in the packaging industry, turned
sick due to its wrong strategic move of diversifying into bearings manufacture in
the early eighties. Eight of its nine units closed down as results of which the
BIFR and the ICICI formulated a rehabilitation package for the turnaround of the
company.
Captive Company strategy: This strategy is pursued when a firm sells the majority
of its products to one customer (Wholesaler/retailer) who in turn perform some of
the functions normally done by an independent firm. The customer, in this
strategy, provides the product design to the captive manufacturer, who in turn
produces according to the design and supplies the product to the customer. The
firm need not involve the cost o product design and marketing.
Divestment Strategy: It involves the sale or liquidation of a portion of business,
or a major division, profit centre or SBU. This strategy is usually adopted when
the company is performing poorly or when it no longer fits the company’s strategic
profile.
Examples: Tata group is a highly-diversified entity with a range of businesses
under its fold. They identified their non core businesses for divestment. TOMCO
was divested and sold to Hindustan Levers as soaps and detergents was not
considered a core business for the Tatas.
‘VST Natural Products’, the food business company of ‘VST’, the tobacco firm, was
divested to the ‘Global Green Company’ of the ‘Thapar group’. The reasons for
divestment were: non availability of raw materials and inadequate working capital
infusion. ‘VST’, the parent company, could not invest more as it was itself
running under a loss.
Liquidation Strategies: This involves closing down a firm and selling its assets.
It is considered as a last resort because it leads to serious consequences such as
loss of employment for workers and other employees, termination of opportunities
where a firm could pursue any future activities, and stigma of failure
Example: On May 14, 1986, the Bombay High Court appointed a provisional liquidator
in the petition for the voluntary liquidation of Empress Mills at Nagpur. Empress
Mills was a 113-years-old mill owned by the Tatas. Behind the liquidation petition
lay a host of reasons. The major strategic cause for liquidation lies in the fact
that for nearly 50 years, Empress Mills did not invest in modernization or keep
pace with competition. In the wider context, the government policies did not prove
favourable for the cotton textile industry. The management of the mill carried the
blame for neglect and delayed action. After Mr.Ratan Tata took over as chairman of
the company in 1977, some efforts were made for modernization but these proved to
be grossly insufficient. A proposal to merge the mill with other textile units of
the Tatas could not materialize. Rationalization of the product-mix across these
units also proved to be a non-starer owing to resistance offered by executives.
Efforts to negotiate a voluntary retirement scheme to cut down on the 6000
workers-employees strength also failed. Ultimately, the banks and financial
institutions delayed the formulation of a rehabilitation package that could turn
the mill around. The state government apparently did not provide the much needed
political support that could have helped save the jobs of the workers.

4. Combination Strategies:
Combination Strategies are a mixture of stability, expansion or retrenchment
strategies applied either simultaneously (at the same time in different
businesses) or sequentially (at different times in the same business). It would be
difficult to find any organization that has survived and grown by adopting a
single ‘pure’ strategy. The complexity of doing business demands that different
strategies be adopted to suit the situational demands made upon the organization.
Example: The Tube Investments of India (TI), a Murugappa group company, has
created strategic alliances in its three major businesses: tubes, cycles, and
strips. In cycles, it has entered into regional outsourcing arrangements with the
UP-based Avon (which we could term as co-opetition, as Avon is TI’s competitor in
the cycle industry) and Hamilton Cycles in the western region. In steel strips, TI
has entered into a manufacturing contract with Steel Tubes of India, Steel
Authority of India, and the Jindals.