Seven

areas in which Long term

objectives have to be established

Profitability
Productivity
Competitive Position
Employee Development
Employee Relations
Technological Leadership
Public Responsibility

Scope of Operations
Which product or service markets should the company compete

in?
Which geographic markets should the company serve?

Extent and type of diversification

How broad should the corporate portfolio of businesses be?

Should related or unrelated diversification be pursued?
Are there new businesses the company should enter?
Are there existing businesses the company should terminate or
divest?

Organizational structure and integration

How should the company be structured?

How much should the company integrate its various lines or units

of business?

Deployment of resources
How should the company allocate resources among business

units?
Which business units will be stressed?

 Acceptable
Flexible
Measurable
Motivating
Suitable to Mission
Understandable
Achievable the BOD

& Ceo are

involved in developing strategies at
corporate level. It should be innovative,
pervasive and futuristic in nature.

Growth Strategies
Type: Concentration - Diversification integration new product development strategy-expansion(jv, licensing,

franchising, vertical expansion, horizontal expansion)

Level: Vertical Integration vs. Horizontal Integration
Geographic location: International Growth vs. Domestic
Growth

Stability Strategies

Pause, Digest and Consolidate after rapid growth or some

turbulent events

Retrenchment Strategies (renewal strategies )

Turnaround through cost cutting, downsizing, divestment
Bankruptcy and restructuring
Liquidation

Focusing on expanding the companys primary lines of

business
Potential benefits of concentration
Allows the company to specialize in and master one

business
No dilution of managements attention the management
can focus on what the company knows and does best

Drawbacks of concentration

The current industry may become mature and even decline

The industry conditions can be too unstable
Too much dependence on a single industry makes the

company vulnerable to risks of product obsolescence (due

to changes in, e.g., technology or consumer preferences)
Miss the opportunity to leverage resources and capabilities
to other businesses

It is a strategy in which a firms long term strategy is based on

growth through acquisition of one or more similar firms
operating at the same stage of the production-marketing chain
Potential benefits of horizontal integration
Gain scale economies in production
Cost savings from economics of scope by combining similar

operations (e.g., marketing and distribution) of different companies

and reducing duplication of resources
Create value through product bundling, total solution and cross
selling
Reduce the threat from substitutes
Increase market power over suppliers and buyers
May help increase market penetration and/or expand market
coverage geographically

Drawbacks of horizontal integration

Not easy to integrate operations of companies with different

cultures
Synergies may be more imaginary than real
Reduction in competition can generate antitrust issues

It is a process in which a firm's grand strategy is to acquire

firms that supply it with inputs (such as raw materials) or are
customers for its outputs (such as warehouses for finished
products).
Potential benefits of backward integration
Lower transaction (purchasing) costs and capture additional profits

from expanded operations

Have better control over the supply of inputs
Reduce the bargaining power of supplier

Potential benefits of forward integration

Lower transaction (selling) costs and capture additional profits

Have better control over the distribution of products and services
Reduce the bargaining power of distributors/buyers

Drawbacks of vertical integration

Product costs may rise if best-cost external suppliers are not used
Susceptible to industry fluctuations and cycles
May face risks with growing maturity of the industry
Increase bureaucratic costs

 Diversification

is a set of strategies. these

strategies involve all the dimensions of
strategic involvement. it may involve
internal or external, related or unrelated,
horizontal or vertical
Diversification involves a substantial change
in the business definition singly or jointly in
terms of customer functions, customer
groups, or alternative technologies of one or
more of a firms businesses.
Types
Concentric diversification
Conglomerate diversification

 When

they have excess resources,

capabilities, and core competencies that
have multiple uses
Diminishing growth prospects in present
industry
Cost saving opportunities
Capture strategic fits
Capture financial economies
Spread business risk
Leverage brand name

 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 firms businesses, either in terms of
customer groups, customers functions or
alternative technologies, it is called
concentric diversification
Types

MARKETING RELATED DIVERSIFICATION.

TECHNOLOGY RELATED DIVERSIFICATION.

MARKETING AND TECHNOLOGY RELATED

DIVERSIFICATION.

Marketing related concentric

diversification:
When a similar type of product is offered with
the help of unrelated technology

Technology related concentric

diversification:
When a new type of product or service is
provided with the help of related technology

Marketing and technology related

concentric diversification:
when a similar type of product or service is
provided with the help of related technology

(Advantages)
Enable a firm to attain synergy by exchange of resources
and skills.
To avail economies of scale

(Disadvantage)
Increase in risk and commitment
Reduction in Flexibility
Thus, the acquiring firm searches for new businesses
whose products, markets, distribution channels,
technologies and resource requirements are similar to but
not identical with its own, whose acquisition results in
synergies but not complete interdependence
Involves diversifying into businesses whose value chains
possess competitively valuable strategic fits with the
value chain(s) of the present business(es)
Capturing the strategic fits makes related
diversification a 1 + 1 = 3 phenomenon

Johnson and Johnson

Engages in the research and development, manufacture, and sale

of various products in the health care field worldwide
3 segments
Consumer segment

Products for baby care, skin care, oral care, wound care, and
womens health care fields, as well as nutritional and overthe-counter pharmaceutical products

Pharmaceutical segment
Products for anti-infective, antipsychotic, cardiovascular,
dermatology, gastrointestinal, hematology, immunology,
neurology, oncology, pain management

Medical Devices and Diagnostics segment

Products for circulatory disease management, orthopedic
joint reconstruction and spinal care, wound care and
womens health, blood glucose monitoring and diagnostic
products, as well as disposable contact lenses

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 it is called
conglomerate diversification.
Involves diversifying into businesses with
No strategic fit
No meaningful value chain
relationships
No unifying strategic theme
Approach is to venture into any business
in which we think we can make a profit

(Advantages)
Better management and allocation of cash flows.
Realizing a high return on investment.
Reduction of risk by spreading investment in different
business and industries.
(Disadvantages)
Diversion of resources and attention to other areas
leading to a lack of concentration.
Facing the risks of managing entirely new business.
They may seek a balance in their portfolio between
current businesses with cyclical sales and acquired
businesses with countercyclical sales, between highcash/low-opportunity and low-cash/high-opportunity
businesses or between debt-free and high leveraged
businesses.

United Technologies Corporation

Provides technology products and services to the
building systems and aerospace industries worldwide
Otis segment elevators and escalators
Carrier segment air conditioning and
refrigeration
UTC Fire and Security segment.
Pratt and Whitney segment - aircraft engines;
parts and services
Hamilton Sundstrand segment - aerospace
products and aftermarket services
Sikorsky segment helicopters
UTC also engages in the development and
marketing of distributed generation power
systems and fuel cell power plants for stationary,
transportation, space, and defense applications

Dominant-business firms
One major core business accounting for 50 - 80
percent of revenues, with several small related or
unrelated businesses accounting for remainder
Narrowly diversified firms
Diversification includes a few (2 - 5) related or
unrelated businesses
Broadly diversified firms
Diversification includes a wide collection of either
related or unrelated businesses or a mixture
Multibusiness firms
Diversification portfolio includes several unrelated
groups of related businesses

Step 1: Assess long-term attractiveness of each

industry firm is in
Step 2: Assess competitive strength of firms
business units
Step 3: Check competitive advantage potential of
cross-business strategic fits among business
units
Step 4: Check whether firms resources fit
requirements of present businesses
Step 5: Rank performance prospects of businesses
and determine priority for resource allocation
Step 6: Craft new strategic moves to improve
overall company performance

 Companies

with undervalued assets

Capital gains may be realized

Companies

in financial distress

May be purchased at bargain prices and turned

around

Companies

with bright growth prospects

but short on investment capital
Cash-poor, opportunity-rich companies are

coveted acquisition candidates

A strategic alliance is a cooperative strategy

in which
firms combine some of their resources and

capabilities
to create a competitive advantage

A strategic alliance involves

exchange and sharing of resources and capabilities
co-development or distribution of goods or services

Ways to enter foreign markets

Exporting
Licensing or Franchising
Direct investment (joint ventures or wholly owned

subsidiaries)

These alternative options vary in their degree of

speed, control, and risk, as well as the required
level of investment and market knowledge.
Types of cross border market differences
Differences in consumer tastes and preferences
Differences in buying habits
Differences in infrastructure and distribution channels
Differences in Govt. regulations

Gain access to new markets

with attractive growth

Get access to
valuable natural resources
and raw materials

Enable
cost reduction

Capitalize on
resource strengths
and competencies

Diversify
business risks across a
wider market base

Multi-country
Competition

Global
Competition

 Strategic

Alliances and Joint Ventures

Combine resources with foreign
partner(s)
Multicountry
Think-global, act-local
Tailor strategy to each country
Global
Think-global, act-global
Pursue same basic strategy worldwide

 Stability

Strategy

A strategy that seeks to maintain the status

quo to deal with the uncertainty of a dynamic

environment, when the industry is
experiencing slow- or no-growth conditions, or
if the owners of the firm elect not to grow for
personal reasons.
It maintains the present status of the
organization by concentrating on their present
resources and rapidly develops a meaningful
competitiveness with the market requirements.

Diversification efforts have become too broad,

resulting in difficulties in profitably managing
all the businesses
Deteriorating market conditions in a onceattractive industry
Lack of strategic or resource fit of a business
A business is a cash hog with questionable
long-term potential
A business is weakly positioned in its industry
Businesses that turn out to be misfits
One or more businesses lack compatibility of
values essential to cultural fit

Sometimes the profit of a company decline due to

various reasons like economic recession,
production inefficiencies and innovative
breakthrough by competitors.
In many cases the management believes that
such a firm can survive and eventually recover if a
concerted effort is made over a period of a few
years to fortify its distinctive competences.
This is known as turnaround strategy.
It is the temporary reduction in the activities
to make a stronger organisation. This is called
downsizing or rightsizing.

Turnaround typically begins with one or both of the following forms of

retrenchment being employed either singly or in combination.
1.

Cost reduction

It is done by decreasing the workforce through employee

attrition, leasing rather than purchasing equipment,

extending the life of machinery, eliminating promotional
activities, laying off employees, dropping items from a
production line and discontinuing low-margin customers.

2. Asset reduction

This includes sale of land, buildings and equipment not essential

to the basic activity of the firm.

Research have showed that turnaround almost always was
associated with changes in top management.
New managers are believed to introduce new perspectives, raise
employee morale and facilitate drastic actions like deep budgetary
cuts in established programs.

Turnaround situation
The model begins with the depiction of external and internal
factors as causes of a firm's performance downturn.
When these factors continue to detrimentally impact the
firm, its financial health is threatened.
Unchecked decline places the firm in a turnaround situation.
Turnaround situations may be a result of years of gradual
slowdown or months of sharp decline.
For a declining firm, stabilizing operations and restoring
profitability almost always entail strict cost reduction
followed by shrinking back to those segments of the
business that have been the best prospects of attractive
profit margins.

Situation severity
The urgency of the resulting threat to company survival
posed by the turnaround situation is known as situation
severity.
Severity is the governing factor in estimating the speed
with which the retrenchment response will be formulated
and activated.
When severity is low stability can be achieved through cost
reduction alone.
When severity is high cost reduction must be
supplemented with more drastic asset reduction measures.
Assets targeted for divestiture are those determined to be
underproductive.
More productive resources are protected and will become
the core business in the future plan of the company

Turnaround response
Turnaround response among successful firms typically
include two strategic activities:

Retrenchment phase
Recovery phase

Retrenchment phase

It consists of cost-cutting and asset-reducing activities.

The primary objective of this process is to stabilize the
firm's financial condition.
Firms in danger of bankruptcy or failure attempt to halt
decline through cost and asset reductions.
It is very important to control the retrenchment process in
a effective and efficient manner for any turnaround to be
successful.
After the stability has been attained through retrenchment,
the next step of recovery phase begins.

Recovery phase
The primary causes of the turnaround situation
will be associated with the recovery phase.
For firms that declined as a result of external
problems, turnaround most often has been
achieved through creative new entrepreneurial
strategies.
For firms that declined as a result of internal
problem, turnaround has been mostly achieved
through efficiency strategies.
Recovery is achieved when economic measures
indicate that the firm has regained its predownturn levels of performance.

 This

strategy involves the sale of a firm

or a major component of a firm
Reasons
Partial mismatched between acquired firm

& parent firm

Corporate financial needs
Government antitrust actions

Hurdles

Finding a buyer who is willing to pay a

premium above the value of a going

concerns fixed assets

 It

is a strategy through which the

business agrees to a complete
distribution of their assets to creditors,
most of whom receive a small part of
what they are owed
Outcome
The business closes its doors
Investors loose their money
Employees loose their jobs
Managers loose their credibility

 As

per this strategy the firm sells its

parts at tangible asset value and not
as a going concern.
It minimizes the losses of all the
stakeholders

Strengths
Weaknesses

Organizational Status

Corporate Strategies
GROWTH
Vertical (backward,
forward), or horizontal
integration
Related or conglomerate
diversification

STABILITY

STABILITY

INVESTMENT
REDUCTION
Retrenchment
Divestment

Opportunities

Environmental Status

Threats

 ??????????????????????????????????