Strategy Formulation: By-Chintan Prajapati

STRATEGY FORMULATION
BY- CHINTAN PRAJAPATI

THINKING STRATEGICALLY
 To help managers answer questions such as:
 Where is the organization now?
 Where does the organization want to be?
 What changes are among competitors?
 What courses of action will help us achieve our
goals?
 Answers define an overall direction for the
organization's grand strategy.
GRAND STRATEGY
 General plan of action to achieve long-term
objectives
1. Growth
2. Stability
3. Retrenchment.
GROWTH
 Can be promoted internally by investing in
expansion or externally by acquiring additional
business divisions.
STABILITY
 Remain same size or grow steadily and in a
controlled fashion.
RETRENCHMENT
 Forced decline by either shrinking current
business units or selling off or liquidating entire
businesses.
GLOBAL STRATEGY
 Globalization: product design and advertising
strategies are standardized around the world
 Multidomestic: adapt product and promotion for
each country
 Transnational: combine global coordination with
flexibility to meet specific needs in various
countries.
CORPORATE-LEVEL STRATEGY ("WHAT BUSINESS ARE WE IN?")
 Acquisition of new businesses

 Additions or divestment of business units, plants,
or product lines
 Joint ventures with other companies in new areas.
CONT…
 Growth strategies expand the company’s
activities.
 Stability strategies make no change to the
company’s current activities.
 Retrenchment strategies reduce the company’s
level of activities.
 Combination strategies is the combination of
the above three strategies.
BUSINESS-LEVEL STRATEGY ("HOW DO WE COMPETE?")
 Advertising
 Direction and extent of R&D
 Product changes
 New product development
 Equipment and facilities
 Expansion or contraction of product lines.
CUSTOMER
 Who
 Demographic
 Socioeconomic
 Geographic
 Psychological
 Consumption pattern
 What
 Which Customer needs to satisfy
 How
 Core competencies
FIVE BUSINESS LEVEL STRATEGIES
CONT…
 Flexible manufacturing systems
 Information networks
 Total quality management systems
FUNCTION-LEVEL STRATEGY ("HOW DO WE SUPPORT
BUSINESS-LEVEL STRATEGY?")
 Production
 Distribution
 Finance.
CONT…
 Outsourcing
 Marketing strategy
 Financial strategy
 R & D strategy
 Operations strategy
 Purchasing strategy
 Logistic strategy
 HRM strategy
 IT strategy
DIVERSIFICATION
 Reasons for diversification
 Economies of scope
 Sharing activities
 Transferring core competencies
 Market power
 Blocking competitors through multipoint competition
 Vertical integration
 Financial economies
 Efficient internal capital allocation
 Business restructuring
CONT…
 Concentric Diversification (Related)
 Conglomerate Diversification (Unrelated)
TYPES OF DIVERSIFICATION
 Vertical scope
 Horizontal scope
STRATEGIC ALLIANCE
 Strategic alliances are linkages between companies
designed to achieve an objective faster or more
efficiently than if either firm attempted to do so on
its own.
 Example: In the computer hardware industry,
Toshiba and Samsung have formed a strategic
alliance for manufacturing advanced memory
chips.
 Also known as Cooperative business strategy.
REASONS FOR FORMING STRATEGIC ALLIANCES
 To gain access to foreign markets

 To reduce financial risks
 To bring complementary skills
 To reduce political risks
 To achieve competitive advantage
 To set technological standards
 To shape industry evolution
TYPES OF STRATEGIC ALLIANCES
 Joint Venture
 Equity alliance
 Nonequity alliance
 Sole- sourcing
 Just-in-time supply agreements
 Licensing
 Cobranding
 Franchising
BUSINESS LEVEL STRATEGIC ALLIANCE
 Complementary strategic alliances
 Vertical
 horizontal
 Competition response strategy
 Uncertainty-reducing strategy
 Competition- reducing strategy
CORPORATE LEVEL STRATEGIC ALLIANCE
 Diversifying alliances
 Synergistic alliances
 Franchising
 International strategic alliances

 Network strategic alliances
JOINT VENTURE
 Alliance in which two firms make equity
investment in a third legal entity.
 Team up with joint venture partners and establish
a mutually beneficial relationship, (and start
making a profit from your project in less time
than you ever thought possible.)
CONT…
 You and JV partners can share prices associated
with advertising, product or service
improvement, and other expenditures, reducing
your monetary burden.
 With each other you plus a JV accomplice may
have greater credit or far more assets to obtain
bigger resources for loans and grants than you
could obtain on your own.
CONT….
 You could possibly want entry to technological
assets you couldn't afford personally, or vice versa.
 combine client and contacts with each other or even
create a joint products or services that accesses new
markets.
 able to share suggestions to produce a product that's
a lot more competitive within your industry.
 get your joint item into the market place quicker and
a lot more efficient.
CONT…
 able to better compete against another business
leader by means of the combination of markets,
 Bringing your product or service to market place
cheaper where the client can take pleasure in the
price savings. technologies, and innovation.
MERGERS & ACQUISITIONS
 A merger is a transaction that result in the transfer
of ownership and control of a corporation.
 When one company purchases another company
of an approximately similar size. The two
companies come together to become one.
 A merger is a strategy through which two firms
agree to integrate their operations on a relatively
coequal basis.
CONT…
 Examples:
 Rajasthan bank and ICICI bank
 Arcelor Mittal
 Renault and Nissan
 Lipton India and Brooke Bond.
 Associated Cement Companies Ltd Damodar Cement.
 Bank of Mathura with ICICI Bank.
 Types of merger:
 Conglomerate
 Pure conglomerate merger
 Mixed conglomerate merger
 Vertical
 Horizontal
CONT…
 Ways of merger – A merger can take place in
following ways:
 By purchasing of assets
 By purchase of common shares
 By exchanging of shares for assets
 By exchanging of shares for shares
 Reasons of merger
 Future goals
 Mutual benefits
 Maximizing profits
 Expansion of business
 Economy of scale
 Increase market share

 Cost maximization
 Diversification of risk
 Goodwill
 Product improvement
ACQUISITIONS
 When one company takes over another and clearly
established itself as the new owner, the purchase is called an
acquisition. E.g.: TATA & Jaguar
 SYNERGIES RELATED TO ACQUISITION:
 Economies of scale
 Staff reductions
 Acquiring new technology
 Improved market reach and industry visibility
 Taxation
CONT…
 Hostile acquisition
 Friendly acquisition
WHY SHOULD FIRMS ACQUIRE?
 To gain opportunities of market growth more quickly than
through internal means
 To seek to gain benefits from economies of scale
 To seek to gain a more dominant position in a national or global
market
 To acquire the skills or strengths of another firm to complement
the existing business
 To acquire a speedy access to revenue streams that it would be
difficult to build through normal internal growth
 To diversify its product or service range to protect itself against
downturns in its core markets
INTERNATIONAL BUSINESS STRATEGY
 An international strategy is a strategy through
which the firm sells its goods or services outside
its domestic market.
 Identify international opportunities
 Increased market size
 Return on investment
 Economies of scale and learning
 Location advantages
CONT…
 Explore resources and capabilities
 International business level strategy
 Multidomestic strategy
 Global strategy
 Transnational strategy
 Use core competence
 Exporting
 Licensing
 Strategic alliances
 Acquisition
 New wholly owned subsidiary
STRATEGIES FOR THE BOTTOM-OF-THE-PYRAMID
 Making product and services affordable to poor

people…
 Asking for easy payments in installments
 Dramatic cost cutting
 Offering products in small packages
 Charging prices by pay-by-use
 Direct distribution by avoiding costly marketing
intermediaries

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STRATEGY FORMULATION

BY- CHINTAN PRAJAPATI

 Acquisition of new businesses

 To gain access to foreign markets

 International strategic alliances

 Increase market share

 Acquiring new technology

 Improved market reach and industry visibility

 Making product and services affordable to poor

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