MANAGEMENT POLICY AND

STRATEGY
SESSION - VI
Generic and Grand
Strategies
Prof. Sushil
Department of Management
Studies
Indian Institute of Technology,
Delhi
INDIA
Email: sushil@dms.iitd.ernet.in
Prof.Sushil\IITD\Session-VI 1
 Generic Strategies

Low-cost
leadership

Differentiati
Focus
on

Prof.Sushil\IITD\Session-VI 2
 PORTER’S GENERIC STRATEGIES

Competitive
Advantage
Lower Cost Differentiation

Broad 1. Cost 2.
Target Leadership Differentiation
Competitive Score

Narro 3 A. Cost Focus 3 B.

Differentiation
w Focus
Target

Prof.Sushil\IITD\Session-VI 3
 REQUIREMENTS FOR GENERIC
COMPETITIVE STRATEGIES
Generic Commodity Required Common Organizational
Strategy Skills and Resources Requirements
Overall cost • Sustained capital investment • Tight cost control
leadership access to capital • Frequent, detailed control reports
• Process engineering skills • Structured organization and responsibilities
• Intense supervision of labour • Incentives based on
• Products designed for ease meeting strict quantitative
• Low-cost distribution system targets in manufacture
Differentiation • Strong marketing abilities • Strong coordination • Product engineering
among functions in R&D, • Creative flare product development, and marketing

Prof.Sushil\IITD\Session-VI 4
REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES
CONTD…
• Strong capability in basic • Subjective measurement and
research incentives instead of
quantitative measures
• Corporate reputation for • Amenities to attract highly
quality or technological skilled labour, scientists, or
leadership creative people
• Long tradition in the industry
or unique combination of skills
drawn from other businesses
• Strong cooperation from
channels
Focus • Combination of the above • Combination of the above policies
policies directed at the directed at the regular strategic
particular strategic target target

Prof.Sushil\IITD\Session-VI 5
 RISKS OF THE GENERIC STRATEGIES

Risks of Cost Leadership Risks of Differentiation Risk of Focus

Cost of leadership is not Differentiation is not The focus strategy is sustained initiated
sustained: • Competitors imitate The target segment
■ Competitors imitate: • Bases for differentiation becomes structurally unattractive
■ Technology changes becomes less imported to • Structure erodes
■ Other bases for cost buyers • Demand disappears
leadership erode
Proximity in differentiation Cost proximity is lost Broadly targeted
is lost competitors overwhelm
the segment:
• The segment’s differences from other segments narrow • The
advantages of a broad line increase
Cost focusers achieve Differentiation focusers New Focusers sub-segments
even lower cost in segments achieve even greater the industry
differentiation in segments

Prof.Sushil\IITD\Session-VI 6
STAGE OF `INDUSTRY’ DEVELOPMENT

Growth Maturity Declin

e

Cost Redefine scope

Keeping leadership Divest
Leade ahead of the Raise barriers peripherals
r field
Strategic Deter Encourage
position competitors departures
of Imitation at Differenti Differentiatio
organizat lower cost ation n
ion Follower Joint ventures Focus New
opportunities

Prof.Sushil\IITD\Session-VI 7
 Types of Grand Strategies

Concentrated
Concentrated Growth
Growth Conglomerate
Conglomerate Diversification
Diversification

Market
Market Development
Development Turnaround
Turnaround

Product
Product Development
Development Divestiture
Divestiture

Innovation
Innovation Liquidation
Liquidation

Horizontal
Horizontal Integration
Integration Bankruptcy
Bankruptcy

Vertical
Vertical Integration
Integration Joint
Joint Ventures
Ventures

Concentric
Concentric Diversification
Diversification Strategic
Strategic Alliances
Alliances

Consortia
Consortia
Prof.Sushil\IITD\Session-VI 8
Characteristics of a Concentrated
Growth Strategy

■ Involves focusing resources on the profitable growth

of a single product, in a single market, with a single
dominant technology
■ Rationale - Firm develops and exploits its expertise in a
delimited competitive arena
■ Determinants of competitive market success
– Ability to assess market needs
– Knowledge of buyer behavior
– Customer price sensitivity
– Effectiveness of promotion

Prof.Sushil\IITD\Session-VI 9
Conditions Favoring a Concentrated
Growth Strategy
Firm’s
Firm’s industry
industry is
is resistant
resistant to
to major
major technological
technological
advancements
advancements

Firm’s
Firm’s targeted
targeted markets
markets are
are not
not product
product saturated
saturated
Firm’s
Firm’s markets
markets are
are sufficiently
sufficiently distinctive
distinctive to
to
dissuade
dissuade competitors
competitors inin adjacent
adjacent markets
markets from
from
entering
entering firm’s
firm’s segment
segment
Firm’s
Firm’s inputs
inputs are
are stable
stable in
in price
price and
and quantity
quantity and
and
available
available in
in amounts
amounts and
and atat times
times needed
needed

Firm’s
Firm’s industry
industry is
is stable
stable

Firm’s
Firm’s competitive
competitive advantages
advantages are
are based
based on
on efficient
efficient
production
production or
or distribution
distribution channels
channels

Success
Success of
of market
market generalists
generalists
Prof.Sushil\IITD\Session-VI 10
 Strategies of Market and Product
Development
■ Market development
– Consists of marketing present products, often with
only cosmetic modifications, to customers in related
market areas by
■ Adding channels of distribution or
■ Changing content of advertising or promotion
■ Product development
– Involves substantial modification of existing products
or creation of new but related products
– Based on penetrating existing markets by
■ Incorporating product modifications into existing
items or
■ Developing new products connected to existing
products
Prof.Sushil\IITD\Session-VI 11
 Specific Options for Selected Grand
Strategies
Concentration: Increasing use of present products in
present markets
1. Increasing present customers’ rate of use:
a. Increasing size of purchase
b. Increasing rate of product obsolescence
c. Advertising other uses
d. Giving price incentives for increased use
2. Attracting competitors’ customers
a. Establishing sharper brand differentiation
b. Increasing promotional effort
c. Initiating price cuts
3. Attracting nonusers to buy the product
a. Inducing trial use through sampling, price
incentives, and so on
b. Pricing up or down
c. Advertising new uses
Prof.Sushil\IITD\Session-VI 12
Specific Options for Selected Grand
Strategies (continued)
Market Development: Selling present products in new
markets
1. Opening additional geographic markets
a. Regional expansion
b. National expansion
c. International expansion
2. Attracting other market segments
a. Developing product versions to appeal to
other segments
b. Entering other channels of distribution
c. Advertising in other media

Prof.Sushil\IITD\Session-VI 13
Specific Options for Selected Grand
Strategies (concluded)
Product Development: Developing new products for present
markets
1. Developing new product features
a. Adapt (to other ideas, developments)
b. Modify (change color, motion, sound, odor,
form, shape)
c. Magnify (stronger, loner, thicker, extra value)
d. Minify (smaller, shorter, higher
e. Substitute (other ingredients, process, power)
f. Rearrange (other patterns, layout, sequence,
components)
g. Reverse (inside out)
h. Combine (blend, alloy, assortment, ensemble;
combine units, purposes, appeals, ideas)
2. Developing quality variations
Prof.Sushil\IITD\Session-VI 14
3. Developing additional models and sizes (product
 Innovation Strategy

Involves creating a new product life

cycle, thereby making similar existing
products obsolete

Prof.Sushil\IITD\Session-VI 15
Strategies of Horizontal and Vertical
Integration

■ Horizontal integration
– Based on growth via acquisition of one or more
similar firms operating at the same stage of the
production-marketing chain
– Involves eliminating competitors, providing
acquiring firm with access to new markets
■ Vertical integration
– Involves acquiring firms
■ To supply acquiring firm with inputs - backward
integration or
■ Are customers for firm’s outputs - forward integration

Prof.Sushil\IITD\Session-VI 16
 Vertical and Horizontal
Integrations
Textile producer Textile producer

Shirt manufacturer Shirt manufacturer

Clothing store Clothing store

Acquisitions or mergers of suppliers or customer

businesses are vertical integrations

Acquisitions or mergers of competing

businesses are horizontal integrations
Prof.Sushil\IITD\Session-VI 17
 Motivations Related to
Diversification Strategies
Increase firm’s stock value

Increase growth rate of firm

Investment is better use of funds than using
them for internal growth
Improve stability of earnings and sales

Balance or fill out product line

Diversify product line

Acquire a needed resource quickly

Achieve tax savings

Increase efficiency and profitability

Prof.Sushil\IITD\Session-VI 18
 Diversification Strategies
■ Concentric diversification
– Involves acquisition of businesses related to
acquiring firm in terms of technology, markets, or
products
■ Conglomerate diversification
– Involves acquisition of a business because it
represents a promising investment opportunity
– Primary motivation is profit pattern of venture
■ Difference between the approaches
– Concentric diversification emphasizes commonality
whereas conglomerate diversification emphasizes
profits for each individual unit

Prof.Sushil\IITD\Session-VI 19
 Turnaround Strategy

Involves a concerted effort over a

period of time to fortify a firm’s
distinctive competencies, returning it
to profitability

Prof.Sushil\IITD\Session-VI 20
 A Model of the Turnaround Process
Turnaround situation Turnaround response
Cause Severity
Retrenchment phase Recovery phase

(operating)
Declini
Intern
ng Cost Efficiency
al
sales reducti maintena
factors
or on nce
margin
s
Low

Recovery
Stability
High
Imminen Entrepreneu
Extern t Asset rial
al bankrupt reducti reconfigurat
factors cy on ion
(strategic)
Prof.Sushil\IITD\Session-VI 21
 Divestiture and Liquidation
Strategies
■ Divestiture strategy
– Involves selling a firm or a major component of a firm
– Reasons for divestiture
■ Partial mismatches between acquired firm and
parent firm
■ Corporate financial needs
■ Government antitrust action
■ Liquidation strategy
– Involves selling parts of a firm, usually for its tangible
asset value and not as a going concern

Prof.Sushil\IITD\Session-VI 22
 The Strategy of Bankruptcy
■ Two approaches
– Liquidation - Involves complete distribution of a
firm’s assets to creditors, most of whom receive
a small fraction of amount owed
– Reorganization - Involves creditors temporarily
freezing their claims while a firm reorganizes
and rebuilds its operations more profitably
■ Advantage of a reorganization
bankruptcy
– Proactive option offering maximum repayment
of a firm’s debt in the future if a recovery
strategy is successful
Prof.Sushil\IITD\Session-VI 23
Corporate Combination Strategies

■ Joint venture
– Involves establishing a third company (child),
operated for the benefit of the co-owners (parents)
■ Strategic alliance
– Involves creating a partnership between two or
more companies that contribute skills and expertise
to a cooperative project
■ Exists for a defined period
■ Does not involve the exchange of equity
■ Consortia, Keiretsus, and Chaebols
– Defined as large interlocking relationships
between businesses of an industry

Prof.Sushil\IITD\Session-VI 24
The Top Five Strategic Reasons for
Outsourcing

1.
1. Improve
Improve Business
Business Focus
Focus

2.
2. Access
Access to
to World-Class
World-Class Capabilities
Capabilities

3.
3. Accelerated
Accelerated Reengineering
Reengineering
Benefits
Benefits

4.
4. Shared
Shared Risks
Risks

5.
5. Free
Free Resources
Resources for
for Other
Other
Purposes
Purposes
Prof.Sushil\IITD\Session-VI 25
 INDIAN BUSINESS HOUSES
TATA GROUP
Group Overview

■ India’s largest business house

■ More than 85 companies
■ 39 listed
■ 8% of India’s market capitalization
■ 2.6 Million shareholders
■ 2,70,000 employees
■ Turnover Rs 343 billion (1996-1997)

Prof.Sushil\IITD\Session-VI 26
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

Financial % change Over

Highlights 1996-97 Rs (Billion) 1995-96
322 18.8
Assets 343 18
Turnover 30 -7.1
PBT 23 - 16
PAT 40 19
Exports

Prof.Sushil\IITD\Session-VI 27
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

■ Metals ■ Consumer Products

■ Automobiles ■ Services
■ Energy ■ Agro Industries
■ Engineering ■ IT and Communication
■ Chemicals ■ Exports
■ Pharmaceuticals ■ Finance

Prof.Sushil\IITD\Session-VI 28
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

Tata Heritage
■ Jamsetji Tata
– Started textile mill in 1877
– Inspired steel and power industry
– Technical education and philanthropy
■ JRD Tata
– Pioneered civil aviation
– Funded Hom Bhabha’s nuclear programme
– Guided the Tata group for over half a century
■ Ratan Tata
– Present Chairman since 1991

Prof.Sushil\IITD\Session-VI 29
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

Holding Companies
■ Tata Sons
– Founded by Jamsetji Tata
– Promoted many of the present Tata companies
– 63% held by Tata philanthropic trusts
■ Tata Industries
– 100% subsidiary of Tata Sons founded in 1945
– Managing agency till 1970
– Promoted new Tata companies in technology based businesses
■ Cross holdings among other Tata companies

Prof.Sushil\IITD\Session-VI 30
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

Restructuring
■ Prompted by post 1991 changing environment
■ Need to identify and focus on core businesses
■ Resistance from satraps
– Russi Mody, Darbari Seth, Ajit Kerkar
■ Shrink number of companies
– From over 85 to about 30
■ Shrink number of core businesses
– From about 25 to around 10 or 12
■ Mergers and divestments
■ McKinsey hired as a consultants

Prof.Sushil\IITD\Session-VI 31
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

Restructuring Strategy
■ Keep and grow
– Power, watches, metals, chemicals, telecom, hospitality,
financial services, infotech, emerging services,
infrastructure, automobiles
■ Forge strategic tie ups
– Tea and beverages, retailing
■ Remain only as strategic investors
– Luxury cars, infotech, printing, cosmetics
■ Sell
– Refrigeration, paints, textiles, trading, electronics, oil
drilling, petrochemicals, pharma, specialty chemicals

Prof.Sushil\IITD\Session-VI 32
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

Recent Developments
■ Voltas focus on air conditioning and
engineering business
– Hive off pesticides business to Ralchem Pesticides
(wholly owned subsidiary of Rallis - largest integrated
agrochemical company in India)
■ Electrolux Voltas - JV between Voltas and AB
Electrolux
– Refrigerators
– Washing machines
– Compressors for refrigerators

Prof.Sushil\IITD\Session-VI 33
 INDIAN BUSINESS HOUSES
TATA GROUP Contd...

Recent Developments
■ Tata Tea focusing on global agro business
– Manages 32 tea gardens in Sri Lanka
– Adding tea gardens inTurkey
– Acquired a 9.5% stake in Asian Coffee
■ Overseas Operations
– Automobile assembly in Bangladesh
– Instant tea operations in the US
– Chain of hotels across the world
– Precision tooling operations in Singapore

Prof.Sushil\IITD\Session-VI 34