Strategic Management Lecture 9

STRATEGIC MANAGEMENT CONCEPT AND CASES FRED R. DAVID 13 TH EDITION

Topic Week 6 Lecture 9

Q.1 Value of establishing long term objectives?
STRATEGIES IN Q.2.Organizational strategies (Corporate, Business,
ACTION Functional)
Q.3Corporate level strategies (Grand strategies,
Secondary level strategies, Tactical level strategies)
6 Business and Functional Level Strategies.
Project Announcement Q.5 Strategic Management in non-profit and
+Discussion Government Organization
Q.6 Strategic Management in small firms

Q1 Value of establishing long term objectives?

Long-Term Objectives can be defined as specific results that an organization seeks to achieve in

pursuing its basic mission. Long-term objectives represent the results expected from pursuing
certain strategies. 

The means by which long term objectives will be achieved are strategies. Strategies represent

the actions to be taken to accomplish long-term objectives, and they say that it should determine how
resources should be configured to meet the needs of markets and stakeholders.

Strategic objectives are long-term organizational goals that help to convert a mission statement
from a broad vision into more specific plans and projects, analyzing the actions of competitors,
reviewing the organization's internal structure, evaluating current strategies and confirming
that strategies are implemented company-wide.

There are five criteria that should be used in preparing long-term objectives:

1. Flexible.
2. Measurable.
3. Motivating.
4. Suitable.
5. Understandable.
Q.2. Organizational strategies (Corporate, Business, Functional)?

Strategies are actions required to be better than the competitors. Generic (Common) Strategies be
grouped into three categories.

1. Corporate Level Strategies:  Corporate strategy deals with decisions related to various
business areas in which the firm operates and competes. Examples of corporate
strategies include the horizontal integration, the vertical integration, and the global product strategy,
i.e. when multinational companies sell a homogenous product around the globe.

2. Business Level Strategies: This level focuses on how you're going to compete.If,
for example, your corporate level strategy was to increase market share, and your business
level strategy might be: Broaden exposure, Increase marketing budget.Improve
quality.Rebrand.Tap new and emerging markets.

3. Functional Level Strategies: The actions and goals assigned to various departments that
support yourbusiness level strategy and corporate level strategy. Examples of
common functional strategies are production strategy, debt financing, organizational strategies,
marketing strategies, financial strategies, etc.

Q.3Corporate level strategies (Grand strategies, Secondary level strategies, Tactical level
strategies)?

Corporate Level Strategies:

At the corporate level, strategy is formulated for your organization as a whole.These are usually
decided at the top management level of organization. Corporate level strategies address overall
direction and scope of the business and where it should be going in future.

Corporate level strategy is concerned with two main questions:

(1) What business areas should a company participate in so as to maximize its long-term profitability
(2) What strategies should it use to enter into and exit from business areas?

Types of Corporate Level Strategies

Corporate level strategies can be defined in following types.

1. Grand Strategies:
2. Secondary Level Strategies
3. Tactical Level Strategies.

Grand Level strategies:

Designed to identify the firm's choice with respect to the direction it follows to accomplish its set
objectives. Simply, it involves the decision of choosing the long-term plans from the set of available
alternatives. Most likely used in the beginning.

There are four grand strategic alternatives that can be followed by the organization to realize its long-
term objectives:

1. The Growth Strategy 2. The Stable Growth Strategy

 3. The Turn Around Strategy. 4. The Combination Strategy.

1. The Growth Strategy: A plan of action that allows you to achieve a higher level of market
share than you currently have. Contrary to popular belief, a growth strategy is not necessarily
focused on short-term earnings—growth strategies can be long-term, too. Next year Growth
rate is higher than previous year.Market penetration. The aim of this strategy is to increase
sales of existing products or services on existing markets, and thus to increase your market
share. Examples are Market development, Product development. 

2. The Stable Growth Strategy: where a company concentrates on maintaining its current

market position. A company that adopts such an approach focuses on its existing product and
market. Usually, a company that is satisfied with its current market share or position uses such
a strategy.Next year growth rate is same as the previous year. Example No-Change Strategy.

3. The Turn Around Strategy: Followed by an organization when it feels that the decision made
earlier is wrong and needs to be undone before it damages the profitability of the company.
During this situation Growth rate of company has been on a negative trend but positive as
compare to previous year.Example: Dell is the best example of a turnaround strategy. Then
in 2007, Dell withdrew its direct selling strategy and started selling its computers through the
retail outlets and today it is the second largest computer retailer in the world.

4. The Combination Strategy: meansmaking the use of other grand strategies (stability,

expansion or retrenchment) simultaneously in a good combination. Such strategy is followed
when an organization is large and complex and consists of several businesses that lie in
different industries, serving different purposes.A combination strategy is suitable for a multiple-
industry firm at the time of recession.Example A baby diaper manufacturing company
augments its offering of diapers for the babies to have a wide range of its products (Stability)
and at the same time, it also manufactures the diapers for old age people, thereby covering the
other market segment (Expansion).

Secondary Level Strategies

Basically,designed to grow and increase businessoperations through the existing activities. In other
words, the measure is to increase the volume of the existing operations. They are as follows:

1. The Expansion Strategy

2. The Integration Strategy
3. Diversification Strategy
4. Reduction or Turnaround Strategy

The Expansion Strategy:is adopted by an organization when it attempts to achieve a high growth as
compared to its past achievements. This strategy is adopted to increase the volume of the existing
operations. No new product will be introduced but company will increase its volume through existing
products or services. Examples are Banks, Super Markets, Petrol Stations, Fast Food Chains etc.

The Integration Strategy: To have more control of its operations like the production or services such
as through the control of resources (backward) or the added value of down line activities as in
warehousing, wholesaling and retailing (forward). 4 types of integration strategies are:

1. Forward integration: Need to control value added activities down the line like Packaging
2. Backward integration: Need to control availability of resources. The suppliers of inventory
and raw materials example as for hotels, Fishes, meat, vegetables, other ingredients.
3. Horizontal integration: Control over competitors herea company takes over another company
that operates at the same level of the value chain in an industry. Adopting the horizontal
strategy would reduce competition by choosing acquisition, joint venture or strategic alliance.
Competition increase here.
4. Vertical integration is a strategy whereby a company owns or controls its suppliers,
distributors or retail locations to control its value or supply chain. Vertical integration benefits
companies by allowing them to control process, reduce costs and improve efficiencies

Diversification Strategy:Basically, an increase in the number of outputs produced or services

rendered. A company may decide to diversify its activities by expanding into new markets or new
products that are related to its current business. For example, an auto company may diversify by
adding a new car model or by expanding into a related market like trucks.Another strategy is
conglomerate diversification.

There are three types of diversification: concentric, horizontal, and conglomerate.

1. Concentric diversification: adding new, but related products or services to the existing

business. For example, when a computer company that primarily produces desktop computers
starts manufacturing laptops.
2. Horizontal diversification. The company adds new products or services that are often
technologically or commercially unrelated to current products but that may appeal to current
customers. This strategy tends to increase the firm's dependence on certain market segments.
For example, a notebook manufacturer that enters the pen market is pursuing a horizontal
diversification strategy.
3. Conglomerate diversification (or lateral diversification): A strategy that involves adding new
products or services that are significantly different from the organization's present products or
services. Conglomerate diversification occurs when the firm diversifies into an area(s) totally
unrelated to the organization current business. An exampleis a large corporation which was
formed after the merger of many smaller corporations. A rock with many different minerals
contained in its structure.
 4. Geographical diversification can involve investing in new country for first time to carry out its
current business activities. Like developing countries that offer greater growth potential than
developed economies.Example Private Business Partnerships

Reduction or Turnaround Strategy: These strategies are adopted when corporations facing some
difficulties on their operations and reflect their negative performance indicators. Examples Negative
growth rate, Negative rate of return or low profitability.

1. Turnaround strategy is a revival measure for overcoming the problem of industrial sickness.
It is a strategy to convert a loss-making industrial unit to a profitable one. Turnaround is a
restructuring process that converts the loss-making company into a profitable one . Example:
Dell is the best example of a turnaround strategy. In 2006. Dell announced the cost-cutting
measures and to do so; it started selling its products directly, but unfortunately, it suffered huge
losses.
2. Retrenchment strategy also results in reduction of the number of employees, and sale of
assets associated with discontinued product or service line.
3. Divestiture strategy: Divestiture refers to “to get rid of” and involves the sale of the subsidiary
or business line to another company. Types of divestitures: sell-offs, spin-offs and split-ups.
4. Liquidation strategy involves selling a company, in its entirety or in parts, for the value of its
assets. Many small business owners exit their businesses through liquidation. For example,
a retailer that suffered a loss on its business may find no one interested in buying the company
as a going concern. It is also called bankruptcy last resort to any company when all other
attempts of turnaround, captive company, sell out fails

Tactical Level Strategies

Pertain to everyday moves a company makes to improve its market share, competitive pricing,
customer service or other aspects that can give it an advantage. Tactics tend to be short-term
considerations about how to deploy resources to win a battle. Following strategies are used
generically.

1. Organically 5. Reverse Takeover

2. Joint Venture 6. Strategic Alliance
3. Merger 7. Licensing/ Franchising
4. Acquisition

1. Organically: New term introduced describe a company strategy where company decides to
grow by using its available resources like setting a new branch and need not to borrow.There
are many other businesses that have implemented successful organic growth strategies.
For example, Morrison's, Dominos, Apple.
2. Joint Venture: is a business agreement between two companies who make the active
decision to work together, with a collective aim of achieving a specific set of goals and
 increase their respective bottom lines.Example joint venture between the taxi giant UBER and
the heavy vehicle manufacturer Volvo
3. Merger:A merger occurs when two separate entities combine forces to create a new, joint
organizationMerger and Acquisition in Banking Sector.

4. Acquisition: Refers to the takeover of one entity by another. Acquisition takes place when

the financially strong entity acquires the entity which is less strong financially by acquiring
shares worth more than fifty percent. An example of an acquisition is the purchase of a
house example of an acquisition is the purchase of a house
5. Reverse Takeover:Defined as an acquisition of a publicly traded firm by a private business in
order to sell shares and raise capitalwithin a few weeks. Example Mass buying of shares
6. Strategic Alliance: An arrangement between two companies to undertake a mutually
beneficial project while each retains its independence. The agreement is less complex and
less binding than a joint venture, in which two businesses pool resources to create a separate
business entity. Example The alliance between Spotify and Uber.
7. Licensing/ Franchising
Licensinga business arrangement in which one company gives another company permission to
manufacture its product for a specified payment. There are few faster or more profitable ways
to grow your business than by licensing patents, trademarks, copyrights, designs, and other
intellectual property to others.
Franchising: is a joint venture between franchisor and franchisee. The franchisor is the
original business. It sells the right to use its name and idea. The franchisee buys this right to
sell the franchisor's goods or services under an existing business model and trademark.
International Strategies:

International strategies are a kind of expansion strategies that need firms to market their products or
services beyond the domestic market. For this purpose, a firm would have to assess the international
environment, evaluate its own capabilities, and devise strategies to enter foreign markets.

Some firms, when they face slower growth rates at home or a restricted domestic market, open up
new markets in other countries.