Types of Strategies

Strategy
` ` From the Greek word STRATEGIA which means the art and science of directing military forces. It is defined as a unified, comprehensive and integrated plan of the firm to meet the challenges of the environment. Formulated in anticipation of the possible positions, moves, actions and reactions of competitors.

Characteristics of Strategy ` ` ` It is the right combination of different factors. It relates the business organization to the environment. It is an action to meet a particular challenge, to solve particular problems or to attain desired objectives. Strategy is a means to an end and not an end in itself. It is formulated at the top management level. It involves assumption of certain calculated risks.

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Classification of Strategies ` ` ` Corporate level strategy Business unit level strategy Functional level strategy

Corporate Level Strategy ` It describes companies overall direction in terms of its general attitude towards growth the management of its various businesses and product lines. A corporate strategy formulation process is concerned with developing a corporation s mission, objectives, strategy and policy.

Stability Strategy ` It involves incremental improvement in functional performance in terms of customer groups inorder to remain successful in business. Eg: A photocopier machine company providing better after sales service to its existing customer groups.

Growth Strategy ` When a company substantially broadens the scope of its customer groups inorder to improve its performance either singly or jointly with another firm. Organizations may select a growth strategy to increase their profits, sales and market share Eg: A printing firm changes from its traditional letter press printing to desktop publishing.

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Classification of Growth Strategy ` ` ` ` ` ` ` Internal Growth Strategy Concentration Strategy Merger strategy Takeovers or acquisition strategy Horizontal integration Conglomerate diversification Vertical integration

Joint ventures

Internal growth strategy: Achieved through increasing the firm s production capacity, employees and sales by improving efficiency, quality and image. Concentration strategy: Helps the organization to grow while remaining relatively simple. It is concentrated on a limited combination of customer groups, customer functions, alternate technologies and products.

Eg: Nokia mobile (diversified needs for the same customer)

Merger strategy:

A merger is a combination of two or more businesses in which one acquires the assets and liabilities of the other in exchange for stock or cash or both. Types of mergers include ` ` ` ` ` Horizontal Merger Vertical Merger Concentric Merger Conglomerate Merger Takeovers or acquisition strategy:

It is defined as the attempt of one firm to acquire ownership or control or another firm against the wishes of the latters management and purchase some of its stake holders. ` Horizontal Integration: companies expand by creating other firms in the same line of business.

Eg Tata group ` Conglomerate Diversification : Firms may create new business units that are unrelated to its original business.

Eg: Tata Steel and TCS ` ` Vertical Integration- backward and forward integration. Joint Venture: defined as partnership in which two or more firms carry out a specific project in a selected area of business. Eg Nagarjuna fertilizers (Ap govt and Nagarjuna group)

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Retrenchment Strategy ` When a firms position is disappointing or at the extreme when its survival is at stake, then retrenchment strategic may be appropriate. Different types of retrenchment strategy are :

 Turn around strategy  Captive company strategy  Divestment  Transformation  Liquidation  Turn around strategy: main aim is to transform the organization into a learner and more effective business.  Two major approaches are Surgical and Human resource approach  Captive Company Strategy: This strategy is pursued when the firm sells majority of its products to one customer who in turn performs some of the functions normally done by an independent firm.  Transformation strategy: Transformation occurs when firms make a major change in its outlook and operations usually including moving from one kind of business to other.  Divestment Strategy: Company sells or spins off one of its business units usually when the company is performing poorly. Liquidation Strategy: It involves closing down a business organization and selling its assets Business Unit level strategy ` A firms position in the industry relative to its competitors determines the business unit level strategies that the firm can craft. Michel E Porter suggested three generic business unit level strategies Cost leadership Differentiation Focused

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Low cost leadership Strategy ` ` The low cost leader s basis of competitive advantage is lower overall cost than the competitors. The purpose of striving to be a low cost producer are :

1. To fix the price for the products at the lower level compared to the competitors. 2. To gain maximum market share from the competitors. 3. To earn a high profit margin. Ways to achieve cost advantage ` There are two ways for achieving cost advantage

1. Out managing rivals on efficiency and cost control 2. Finding creative ways to cut cost producing activities out of the activity cost chain.

Differentiation Strategy ` ` Customers needs, taste and preferences vary from one customer to another. These differences in customer references can be satisfied by producing products with different strategies.

Competitor advantage results when more customers become strongly attached to the attributes of differentiators product offering Approaches to Differentiation ` ` ` ` ` ` ` ` Different taste Special features Superior service Spare parts availability Engineering design and performance Product reliability Quality manufacturer Top of the line image and reputation

Focus and Specialization Strategies ` Focusing begins by choosing a market niche where customers have distinctive preferences or requirements. Niche is defined as geographic uniqueness, by specialized requirements in using the product or by special product attributes that appeal only to niche members.

Situations where focus strategy is efficient ` ` ` ` ` When a market segment is large enough to be profitable When the market segment has good growth potential When the market segment is not significant to the success of major competitors The focusing producer has the skills and resources to serve the segment efficiently When the company does not have enough resources to pursue a wider part of the total market

Focused cost leadership: enables the firm to produce the product / sell the product at the lowest price in the industry.

eg: Tata Nano ` Focused differentiation strategy: firms adopting this strategy differentiates products for different markets / customer groups

eg: Maruti udyog

Functional level strategies ` The activities of all the functional areas are interwoven to form functional level strategies for attaining their purposes as well as the purpose of the total firm. It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.

Production / Operations Strategies ` Decision making in operations: A firm before starting manufacturing/operations makes specific decisions with regard to cost, quality, dependability and flexibility. Product design strategies: It includes Market driven product design strategies Technology driven product design strategies Interfunctional driven product design strategies

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Process strategies: These include: Line process eg: automobile, TV companies Intermittent process eg: furniture, food Project process eg: ship building, movie making

Technology strategy: It is related to the selection of state of the art technology or appropriate technology or moderate and tested technology or outdated technology. Plant location strategy: It is influenced by factors like government policies, availibility of qualitative inputs at a less price including human resources, power, material etc Facilities Strategy: It is concerned with the capacity of production Inventory Strategy: It covers what to carry, how much to order, when to order and the control system to be used

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Marketing Strategy ` ` Marketing strategy along with the production strategies form the primary strategy. It is closely related to the marketing mix of a product. Product strategy Place/Distribution strategy Pricing strategy Promotion strategy

Product strategy comprises of

 Quality Improvement Strategy  Product Differentiation  Service Differentiation ` Place / Channel of Distribution Strategies

 Mainly depends upon whether the company prefer to sell directly to the customer or outsource its distribution function.  Most of the companies still prefer to distribute the product through market intermediaries like wholesalers, retailers, agents, dealers etc ` Promotion Strategy

 It includes advertising, personal selling and sales promotion. ` Pricing Strategy

Commonly used pricing strategies include  Mark Pricing Strategy  Target Return Strategy  Value Pricing  Perceived value Pricing  Geographical Pricing  Seasonal Discount  Cash Discount

Financial Strategies ` Financial Strategies are centered around acquiring capital, reducing cost of capital, making complex investment decision through capital budgeting, dividend decision etc Financial strategy includes, Acquiring Capital Capital Structure strategy Dividend strategy Capital Budgeting strategy Working Capital strategy Cash Management strategy Accounts Receivables strategy Inventory Management strategy

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Human Resource Strategies ` Human Resource Management is managing the functions of employing, developing, compensating and utilizing human resources resulting the creation and development of human and industrial relations which would shape future policies and practices of human resource management with the view to contribute proportionately to the organization individual and social goals.

Characteristics of HR Strategies ` ` ` ` ` ` ` Flexi work and flexi time Part time work Job sharing Home based working IT dependancy Multiskilling Customer centered

For additional information : ` Business policy and strategic management

P.Subba Rao ` www.managementparadise.com

BY DEEPAK, DIJO AND DAVIES