Corporate Level Strategies

CORPORATE LEVEL STRATEGIES
Categories of Business Organization

• By OWNERSHIP and STRUCTURE
– Corporation
– Single Proprietorship
– Partnership
– Cooperative
Categories of Business Organization
• By AFFILIATION and DIVERSITY
– Group of Companies or Conglomerate
• Mother or Parent Company – core or unifying factor;
holding firm or holding company
• Subsidiaries or affiliates – partly capitalized or wholly-
owned by parent company
– Form part of diversified business group
HIERARCHY OF STRATEGY
CORPORATE LEVEL STRATEGY
BUSINESS LEVEL STRATEGY
FUNCTIONAL
LEVEL
STRATEGY
Nature of Corporate Level Strategy
• Mother or parent company has to be
concerned with CORPORATE STRATEGY
• Single Business Unit (SBU) needs to be
concerned with its own BUSINESS LEVEL
STRATEGY
HIGHLY DIVERSIFIED BUSINESS ORGANIZATION
- group of individual business organizations
with individual charters or corporate status
registered in appropriate govt agencies.
• Independent business organizations need to
be orchestrated or managed in a way that
each business organization is duty-bound to
contribute to the short and long-term profit
objectives of the entire group.
• Guiding start of all the individual business
organizations.
• BROAD or corporate-wide strategy
synchronizing various business level strategies
into a cohesive and coordinated efforts to
achieve the vision of the entire business
organization
• OVERALL DIRECTION of its general attitude
toward growth and management
• Opined with three main categories: STABILITY,
GROWTH and RETRENCHMENT
• CHOICE of direction for the firm as a whole.
• Managing various product lines and business
units for MAXIMUM VALUE.
4 E’s to Addressing Corporate Strategy
EXTEND
- It means extending the business by going
beyond its current business model by adopting a
new business model or entering into new
businesses.
EXPAND
- This option takes the form of adding
products and/or services within the context of
the company’s existing business concern or
present area of operation.
EXIT
- This option takes the form of making
some sacrifice by dropping some product lines
and services or business units deemed
uncompetitive or unprofitable or less profitable
to operate.
ENHANCE
- This option takes the form of adding
functionality or improving product or service
that is currently being offered.
ENHANCEMENT
Add functionality or EXTENSION
improve a product or Adopt new business
E model or enter new
service that is
currently offered.
X businesses
T
E
N
ENHANCE D
EXPAND
EXIT
EXIT EXPANSION
Drop a product or Add products and
service line or exit a services within an
business. existing business
STRATEGIC CHOICES AT THE
CORPORATE LEVEL
• BUSINESS CLOSURE
– Undesired act of folding up or shutting down non-
profitable business units to control or avoid
further loss. Operationally, this means declaring
either bankcruptcy, liquidation or simply closing
down to withdraw from the business.
CORPORATE LEVEL
• BUSINESS DISPOSAL
– Disposing or unloading some of the members,
subsidiaries, affiliates or investments in other
business concerns deemed unprofitable.
Operationally, this option could take the form of
divestiture by way of selling out the entire
business unit or selling interests or shares in any
of its affiliates or members which the corporation
partly owns.
CORPORATE LEVEL
• BUSINESS ACQUISITION
– This meant to expand the business size and make
their presence felt. It is a growth strategy that in
operations may take the form of acquisition and
merger.
CORPORATE LEVEL
• BUSINESS REORGANIZATION
– This intends to restructure, reorganize and
consolidate the organization so it becomes more
responsive to the needs of the time.
Operationally, it can take the form of
consolidation and retrenchment (or downsizing)
or reorganization that may even lead to expanding
organizational structure and manpower
complement. Can lead to hiring or firing to make
the org structure lean and mean.
CORPORATE LEVEL
• BUSINESS START-UP
– This intends to create new business units to cater
to market opportunities. Creating a fresh and
liability-free company.
– Typically, top management will come from the
mother company and from its strategic partner if
it opts to do so.
CORPORATE LEVEL
• STATUS QUO
– Status quo or doing nothing different can be an
option if after a thorough study and analysis such
situation is deemed appropriate.
– Operationally, this option comes in the form of
pause or no-change strategy.
CORPORATE EXPANSION OPTION
VERTICAL INTEGRATION OPTION
• Bridging the gap between the raw material
and the consumer of product resulting from
the processing of such product.
• Vertical integration concept evolves around
the notion of how far or close the business
from the source of raw materials or the final
consumer of the product.
CONTINUUM OF
VERTICAL INTEGRATION OPTION
TAPER QUASI LONG – TERM

FULL INTEGRATION
INTEGRATION INTEGRATION CONTRACT
FULL INTEGRATION
• Firm internally makes 100 percent of
its key supplies and completely
controls its distributors.
TAPER INTEGRATION
• Firm internally produces less than
half of its own requirements and
buys the rest from the outside
suppliers.
QUASI - INTEGRATION
• Firm internally produces key supplies
but purchases most of its
requirements from the outside
suppliers that are under its partial
ownership or control.
LONG-TERM CONTRACTS
• Firm signs an agreement or contract
with another firm providing agreed
upon goods and services for a
specified period of time. The
company has no investment or
ownership privilege upon the firms
where it buys its raw materials.
FORWARD VERTICAL INTEGRATION
• Firm engages in business activities in
the area of distribution and retailing
of the product or service directly to
the customer.
• Situations favoring forward
integration:
a. Organization’s present distributors are
especially expensive, or unreliable, or
incapable of meeting the firm’s
distribution needs.
integration:
b. When the availability of quality
distributors is so limited as to offer a
competitive advantage to those firms
that integrate forward.
integration:
c. When an organization competes in an
industry that is growing and is expected
to continue to grow markedly;
integration:
d. When an organization has both the
capital and human resources needed to
manage the new business of distributing
its own products;
• Situations favoring forward integration:
e. When the advantages of stable
production are particularly high;
f. When the present distributors or retailers
have high profit margins; suggests that a
company profitably could distribute its own
products and price them more competitively
by integrating forward.
BACKWARD VERTICAL INTEGRATION
• Is a corporate option that

concentrates its efforts at the stage
of raw materials production or close
the source of raw materials.
– The company invests on new businesses or buying
other business concerns dealing with raw
materials or inputs to what they are presently
doing.
• Conditions favoring backward
integration
– When an organization’s present suppliers are
especially expensive, or unreliable, or incapable of
meeting the firm’s needs for parts, components,
assemblies, or raw materials;
– When the numbers of suppliers is small and the
number of competitors is large;
integration
– When the organization competes in an industry
that is growing rapidly;
–When an organization has both capital
and human resources to manage the
new business of supplying its own
materials
integration
– When the advantages of stable prices are particularly
important; this is a factor because an organization can
stabilize the cost of its raw materials and the
associated price of its product through backward
integration.
– When the present supplies have high
profit margins
– When the organization needs to acquire a
needed resource quickly
HORIZONTAL DIVERSIFICATION
• A strategy of seeking ownership or increased
control over the direct and indirect competitors
of the business.
• Direct Competitors – are businesses whose
products and services are of the same kind with
what you offer.
• Indirect Competitors – products and services
are not in direct collision course or head-on
competition with one another but are potential
threats because they can be substitute or
alternative.
• Horizontal diversification is basically
meant to expand the business sideward
either to the left or right side.
• Business expands or diversify by dealing with
other products or services allied or related
with what the company is doing.
• The idea is to add a new line of product or
service to serve a new market and
strengthen its position in the market.
• Situations favoring horizontal
diversification:
–When revenues derived from an
organization’s current products or
services would increase significantly by
adding the new unrelated products.
diversification:
–When an organization competes in a
highly competitive and/or a no-growth
industry, as indicated by low industry
profit margins and returns.
diversification:
–When an organization’s present
channels or distribution can be used to
market the new products to current
customers.
diversification:
–When the new products have counter
cyclical sales patterns compared to an
organization’s present products.
ASSIGNMENT:
• What is Conglomerate
Diversification?
• What is Concentric Diversification?
I BASIC MODEL FOR INTEGRATION AND
N D
V DIVERSIFICATION OPTIONS I
E D
R I R
FORWARD INTEGRATION E
T R
I E C
C
C T
A
T
L C
HORIZONTAL THE HORIZONTAL O
I C
DIVERSIFICATION COMPANY INTEGRATION M
N O
T M P
E P E
G E T
R
T I
A T
I BACKWARD INTEGRATION
T O
I T
O R
O
HORIZONTAL INTEGRATION/DIVERSIFICATION S
N R
S
Conglomerate Diversification
• Conglomerate Diversification is also known as
unrelated diversification , an option that
involves investing in or buying into business
organizations whose products and/or services
has nothing to do or not related to the kind of
products or services it is presently dealing
with.
• This option allows the company to venture
into other products or services not only as a
fallback but as a venue or opportunity for
other expansionary options in the future.
• Favorable situations for conglomerate
diversification:
– When an organization’s industry is experiencing
declining annual sales and profits
– When the organization has the capital and
managerial talent needed to compete successfully
in a new industry.
– When the organization has the opportunity to
purchase unrelated business that is an attractiv
investment opportunity.
• Favorable situations for conglomerate
diversification:
– When there exists a financial synergy between the
acquired and acquiring firm.
– When existing market for an organization’s
present products are saturated
– When antitrust action could be charged against an
organization that historically has concentrated on
a single industry.
Concentric Diversification
• Concentric Diversification is a corporate
diversification option that involves engaging
or dealing with products or services that are
somehow related to or associated with what
the firm is presently handling.
• Could be done by either investing in a new
business or simply investing in existing
business.
• Appropriate only where the resources of the
firm (e.g. human or financial resources) whose
potentials for growth and development
remain unexplored or used to the fullest.
• Favorable situation:
– When an organization competes in a no-growth or
a slow-growth industry.
– When adding new, but related products
significantly would enhance the sales or current
products.
– When new, but related, products have seasonal
sales levels that counterbalance an organization’s
existing peaks and valley.
• Favorable situation:
– When an organization’s products are currently in
the decline stage of the product life cycle
– When an organization has a strong management
team.
THE STRATEGIC FIT
STRATEGIC FIT
• Strategic Fit refers to the relatedness in
making decisions concerning the
appropriateness of the strategic moves vis-à-
vis the various operating divisions or business
units of the company.
• Connectivity or degree of relationship among
the business concerns owned or managed by
the mother unit of the business.
STRATEGIC FIT
• Strategic Fit concept assumes that the
corporation should pursue only those strategic
alternatives in which it has a certain level of
competence so that there will be no difficulty
in running or managing the group of business
concerns as they grow even if they are
considered structurally or organizationally
independent.
STRATEGIC FIT CATEGORIES
• PRODUCT FIT
– This is achieved when distribution channels, sales
forces, promotion techniques, or customers can
be handled at the same time for more than one
product or service.
– Ex. Softdrinks handles mineral water
• OPERATING FIT
– This involves economies being realized in certain
areas like purchasing, warehousing production
and operations, RnD, or personnel from more
than one product or services.
– Ex. Production of pants enters into production of
underwares
• MANAGEMENT FIT
– This occurs when managers are given
responsibility over areas of accumulated exposure
from one line of business to another.
– Ex. Life insurance opt to enter pre-need plans

Corporate Level Strategies

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CORPORATE LEVEL STRATEGIES

Categories of Business Organization

CORPORATE LEVEL STRATEGY

BUSINESS LEVEL STRATEGY

TAPER QUASI LONG – TERM

• Is a corporate option that

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