Corporate Level Strategies: Notes | Financial Management & Strategic Management for CA Intermediate PDF Download

 Page 1


 
LEARNING OUTCOMES 
 
 
 CORPORATE LEVEL 
 STRATEGIES 
  
After studying this chapter, you will be able to - 
? Understand and  identify corporate strategies. 
? Identify the various types of corporate strategies. 
? Comprehend the relevance and application of various types of 
corporate strategies. 
? Understand the reasons for adoption of various types of 
corporate strategies. 
Know about combination strategies and strategic alliances. 
Chance favours the prepared mind. Louis Pasteur 
Strategy is a deliberate search for a plan of action that will develop a business 
competitive advantage and compound it. 
Bruce D. Henderson 
CHAPTER 
4 
Page 2


 
LEARNING OUTCOMES 
 
 
 CORPORATE LEVEL 
 STRATEGIES 
  
After studying this chapter, you will be able to - 
? Understand and  identify corporate strategies. 
? Identify the various types of corporate strategies. 
? Comprehend the relevance and application of various types of 
corporate strategies. 
? Understand the reasons for adoption of various types of 
corporate strategies. 
Know about combination strategies and strategic alliances. 
Chance favours the prepared mind. Louis Pasteur 
Strategy is a deliberate search for a plan of action that will develop a business 
competitive advantage and compound it. 
Bruce D. Henderson 
CHAPTER 
4 
 
 
STRATEGIC MANAGEMENT 4.2 
 
 4.1 INTRODUCTION 
Strategies are formulated at different levels of an organization – corporate, business 
and functional. Corporate level strategies occupy the highest level of strategic 
decision making and cover actions dealing with the objective of the firm, acquisition 
and allocation of resources and coordination of strategies of various Strategic 
Business Units for optimal performance. Top management of the organization makes 
strategic decisions. The nature of strategic decisions tends to be value-oriented, 
CHAPTER OVERVIEW 
 
Corporate Strategy Alternatives
Stability
Growth/
Expansion
Internal Growth 
Strategies
Intensification
Market 
Penetration
Market 
Development
Product 
Development
Diversification
Vertically 
Integrated
Backward
Forward
Horizontally 
Integrated
Concentric 
Diversification
Conglomerate 
Diversification
External Growth 
Strategies
Merger & 
Acquisition
Strategic 
Alliance
Retrenchment
Turnaround
Divestment
Liquidation
Combination
Page 3


 
LEARNING OUTCOMES 
 
 
 CORPORATE LEVEL 
 STRATEGIES 
  
After studying this chapter, you will be able to - 
? Understand and  identify corporate strategies. 
? Identify the various types of corporate strategies. 
? Comprehend the relevance and application of various types of 
corporate strategies. 
? Understand the reasons for adoption of various types of 
corporate strategies. 
Know about combination strategies and strategic alliances. 
Chance favours the prepared mind. Louis Pasteur 
Strategy is a deliberate search for a plan of action that will develop a business 
competitive advantage and compound it. 
Bruce D. Henderson 
CHAPTER 
4 
 
 
STRATEGIC MANAGEMENT 4.2 
 
 4.1 INTRODUCTION 
Strategies are formulated at different levels of an organization – corporate, business 
and functional. Corporate level strategies occupy the highest level of strategic 
decision making and cover actions dealing with the objective of the firm, acquisition 
and allocation of resources and coordination of strategies of various Strategic 
Business Units for optimal performance. Top management of the organization makes 
strategic decisions. The nature of strategic decisions tends to be value-oriented, 
CHAPTER OVERVIEW 
 
Corporate Strategy Alternatives
Stability
Growth/
Expansion
Internal Growth 
Strategies
Intensification
Market 
Penetration
Market 
Development
Product 
Development
Diversification
Vertically 
Integrated
Backward
Forward
Horizontally 
Integrated
Concentric 
Diversification
Conglomerate 
Diversification
External Growth 
Strategies
Merger & 
Acquisition
Strategic 
Alliance
Retrenchment
Turnaround
Divestment
Liquidation
Combination
4.3 
 
CORPORATE LEVEL STRATEGIES
 
conceptual and less concrete than decisions at the business or functional level. This 
chapter deals with corporate level strategies and their various types. 
 4.2 TYPOLOGIES OF STRATEGIES 
Businesses follow different types of strategies to enter the market and to stay and 
grow in the market. A large number of strategies with different nomenclatures 
have been employed by different businesses and also suggested by different 
authors on strategy. For instance, William F Glueck and Lawrence R Jauch 
discussed four generic strategies including stability, growth, retrenchment and 
combination. These strategies have also been called Grand Strategies/Directional 
Strategies by many other authors. Michael E. Porter suggested competitive 
strategies including Cost Leadership, Differentiation, Focus Cost Leadership and 
Focus Differentiation which could be used by the corporates for their different 
business units. Besides these, we come across functional strategies in the 
literature on Strategic Management and Business Policy. Functional Strategies are 
meant for strategic management of distinct functions such as Marketing, 
Financial, Human Resource, Logistics, Production etc. 
We can classify the different types of strategies on the basis of levels of the 
organisation, stages of business life cycle and competition as given in the Table –1. 
Table : 1- Different types of strategies on the basis of their classification
Basis of Classification Types
Level of the 
organisation 
Corporate Level 
Business Level 
Functional Level 
Stages of Business Life 
Cycle 
Entry/Introduction Stage - Market Penetration 
Strategy 
Growth Stage - Growth/Expansion Strategy 
Maturity Stage - Stability Strategy 
Decline Stage - Retrenchment/ Turnaround Strategy 
Competition oriented Competitive Strategies - Cost Leadership, 
Differentiation, Focus 
Collaboration Strategies - Joint Venture, Merger & 
Acquisition, Strategic Alliance
Above are the various types of strategies available for an organisation to adopt. 
The organisation adopt either of these depending upon their needs and 
Page 4


 
LEARNING OUTCOMES 
 
 
 CORPORATE LEVEL 
 STRATEGIES 
  
After studying this chapter, you will be able to - 
? Understand and  identify corporate strategies. 
? Identify the various types of corporate strategies. 
? Comprehend the relevance and application of various types of 
corporate strategies. 
? Understand the reasons for adoption of various types of 
corporate strategies. 
Know about combination strategies and strategic alliances. 
Chance favours the prepared mind. Louis Pasteur 
Strategy is a deliberate search for a plan of action that will develop a business 
competitive advantage and compound it. 
Bruce D. Henderson 
CHAPTER 
4 
 
 
STRATEGIC MANAGEMENT 4.2 
 
 4.1 INTRODUCTION 
Strategies are formulated at different levels of an organization – corporate, business 
and functional. Corporate level strategies occupy the highest level of strategic 
decision making and cover actions dealing with the objective of the firm, acquisition 
and allocation of resources and coordination of strategies of various Strategic 
Business Units for optimal performance. Top management of the organization makes 
strategic decisions. The nature of strategic decisions tends to be value-oriented, 
CHAPTER OVERVIEW 
 
Corporate Strategy Alternatives
Stability
Growth/
Expansion
Internal Growth 
Strategies
Intensification
Market 
Penetration
Market 
Development
Product 
Development
Diversification
Vertically 
Integrated
Backward
Forward
Horizontally 
Integrated
Concentric 
Diversification
Conglomerate 
Diversification
External Growth 
Strategies
Merger & 
Acquisition
Strategic 
Alliance
Retrenchment
Turnaround
Divestment
Liquidation
Combination
4.3 
 
CORPORATE LEVEL STRATEGIES
 
conceptual and less concrete than decisions at the business or functional level. This 
chapter deals with corporate level strategies and their various types. 
 4.2 TYPOLOGIES OF STRATEGIES 
Businesses follow different types of strategies to enter the market and to stay and 
grow in the market. A large number of strategies with different nomenclatures 
have been employed by different businesses and also suggested by different 
authors on strategy. For instance, William F Glueck and Lawrence R Jauch 
discussed four generic strategies including stability, growth, retrenchment and 
combination. These strategies have also been called Grand Strategies/Directional 
Strategies by many other authors. Michael E. Porter suggested competitive 
strategies including Cost Leadership, Differentiation, Focus Cost Leadership and 
Focus Differentiation which could be used by the corporates for their different 
business units. Besides these, we come across functional strategies in the 
literature on Strategic Management and Business Policy. Functional Strategies are 
meant for strategic management of distinct functions such as Marketing, 
Financial, Human Resource, Logistics, Production etc. 
We can classify the different types of strategies on the basis of levels of the 
organisation, stages of business life cycle and competition as given in the Table –1. 
Table : 1- Different types of strategies on the basis of their classification
Basis of Classification Types
Level of the 
organisation 
Corporate Level 
Business Level 
Functional Level 
Stages of Business Life 
Cycle 
Entry/Introduction Stage - Market Penetration 
Strategy 
Growth Stage - Growth/Expansion Strategy 
Maturity Stage - Stability Strategy 
Decline Stage - Retrenchment/ Turnaround Strategy 
Competition oriented Competitive Strategies - Cost Leadership, 
Differentiation, Focus 
Collaboration Strategies - Joint Venture, Merger & 
Acquisition, Strategic Alliance
Above are the various types of strategies available for an organisation to adopt. 
The organisation adopt either of these depending upon their needs and 
  
 
STRATEGIC MANAGEMENT 4.4 
requirements. For instance, a start-up or a new enterprise might follow either a 
competitive strategy i.e., entering the market where a number of rivals are already 
operating, or a collaborative strategy, i.e., enter into a joint venture with an 
established company. However, majority of startups are launched on a small scale 
and their main strategy is to penetrate the market and to reach the breakeven 
stage at the earliest and later pursue growth strategy. While a going concern can 
continue with the competitive strategy or resort to collaborative strategy to 
ensure business growth. 
Reality Bite: Patanjali Ayurved adopted market penetration strategy and to be 
successful. It concentrated on product development and high quality at low cost. 
It is now at the growth stage and is following competitive strategies. It is 
competing with both domestic and multinational companies.  
Business conglomerates having multiple product folios formulate strategies at 
different levels, viz., corporate, business unit and functional. Corporate level 
strategies are meant to provide ‘direction’ to the company. Business level 
strategies are formulated for each product/process division known as strategic 
business unit. While for implementation of the corporate and business strategies, 
functional strategies are formulated in business areas like production/operations, 
marketing, finance, human resources etc. In fact, big corporates follow an 
elaborate system of strategy formulation, implementation and control at different 
levels in the company to survive and grow in the turbulent business environment. 
In this chapter, we shall discuss the corporate level strategies.  
The corporate strategies a firm can adopt may be classified into four broad 
categories: 
1.  Stability strategy 
2.  Expansion strategy 
3.  Retrenchment strategy 
4.  Combination strategy 
 
 
 
 
 
 
Figure:-Types of Corporate Strategies 
Corporate Strategy
Stability
Growth/
Expansion
Retrenchment Combination
Page 5


 
LEARNING OUTCOMES 
 
 
 CORPORATE LEVEL 
 STRATEGIES 
  
After studying this chapter, you will be able to - 
? Understand and  identify corporate strategies. 
? Identify the various types of corporate strategies. 
? Comprehend the relevance and application of various types of 
corporate strategies. 
? Understand the reasons for adoption of various types of 
corporate strategies. 
Know about combination strategies and strategic alliances. 
Chance favours the prepared mind. Louis Pasteur 
Strategy is a deliberate search for a plan of action that will develop a business 
competitive advantage and compound it. 
Bruce D. Henderson 
CHAPTER 
4 
 
 
STRATEGIC MANAGEMENT 4.2 
 
 4.1 INTRODUCTION 
Strategies are formulated at different levels of an organization – corporate, business 
and functional. Corporate level strategies occupy the highest level of strategic 
decision making and cover actions dealing with the objective of the firm, acquisition 
and allocation of resources and coordination of strategies of various Strategic 
Business Units for optimal performance. Top management of the organization makes 
strategic decisions. The nature of strategic decisions tends to be value-oriented, 
CHAPTER OVERVIEW 
 
Corporate Strategy Alternatives
Stability
Growth/
Expansion
Internal Growth 
Strategies
Intensification
Market 
Penetration
Market 
Development
Product 
Development
Diversification
Vertically 
Integrated
Backward
Forward
Horizontally 
Integrated
Concentric 
Diversification
Conglomerate 
Diversification
External Growth 
Strategies
Merger & 
Acquisition
Strategic 
Alliance
Retrenchment
Turnaround
Divestment
Liquidation
Combination
4.3 
 
CORPORATE LEVEL STRATEGIES
 
conceptual and less concrete than decisions at the business or functional level. This 
chapter deals with corporate level strategies and their various types. 
 4.2 TYPOLOGIES OF STRATEGIES 
Businesses follow different types of strategies to enter the market and to stay and 
grow in the market. A large number of strategies with different nomenclatures 
have been employed by different businesses and also suggested by different 
authors on strategy. For instance, William F Glueck and Lawrence R Jauch 
discussed four generic strategies including stability, growth, retrenchment and 
combination. These strategies have also been called Grand Strategies/Directional 
Strategies by many other authors. Michael E. Porter suggested competitive 
strategies including Cost Leadership, Differentiation, Focus Cost Leadership and 
Focus Differentiation which could be used by the corporates for their different 
business units. Besides these, we come across functional strategies in the 
literature on Strategic Management and Business Policy. Functional Strategies are 
meant for strategic management of distinct functions such as Marketing, 
Financial, Human Resource, Logistics, Production etc. 
We can classify the different types of strategies on the basis of levels of the 
organisation, stages of business life cycle and competition as given in the Table –1. 
Table : 1- Different types of strategies on the basis of their classification
Basis of Classification Types
Level of the 
organisation 
Corporate Level 
Business Level 
Functional Level 
Stages of Business Life 
Cycle 
Entry/Introduction Stage - Market Penetration 
Strategy 
Growth Stage - Growth/Expansion Strategy 
Maturity Stage - Stability Strategy 
Decline Stage - Retrenchment/ Turnaround Strategy 
Competition oriented Competitive Strategies - Cost Leadership, 
Differentiation, Focus 
Collaboration Strategies - Joint Venture, Merger & 
Acquisition, Strategic Alliance
Above are the various types of strategies available for an organisation to adopt. 
The organisation adopt either of these depending upon their needs and 
  
 
STRATEGIC MANAGEMENT 4.4 
requirements. For instance, a start-up or a new enterprise might follow either a 
competitive strategy i.e., entering the market where a number of rivals are already 
operating, or a collaborative strategy, i.e., enter into a joint venture with an 
established company. However, majority of startups are launched on a small scale 
and their main strategy is to penetrate the market and to reach the breakeven 
stage at the earliest and later pursue growth strategy. While a going concern can 
continue with the competitive strategy or resort to collaborative strategy to 
ensure business growth. 
Reality Bite: Patanjali Ayurved adopted market penetration strategy and to be 
successful. It concentrated on product development and high quality at low cost. 
It is now at the growth stage and is following competitive strategies. It is 
competing with both domestic and multinational companies.  
Business conglomerates having multiple product folios formulate strategies at 
different levels, viz., corporate, business unit and functional. Corporate level 
strategies are meant to provide ‘direction’ to the company. Business level 
strategies are formulated for each product/process division known as strategic 
business unit. While for implementation of the corporate and business strategies, 
functional strategies are formulated in business areas like production/operations, 
marketing, finance, human resources etc. In fact, big corporates follow an 
elaborate system of strategy formulation, implementation and control at different 
levels in the company to survive and grow in the turbulent business environment. 
In this chapter, we shall discuss the corporate level strategies.  
The corporate strategies a firm can adopt may be classified into four broad 
categories: 
1.  Stability strategy 
2.  Expansion strategy 
3.  Retrenchment strategy 
4.  Combination strategy 
 
 
 
 
 
 
Figure:-Types of Corporate Strategies 
Corporate Strategy
Stability
Growth/
Expansion
Retrenchment Combination
 
 
4.5 
 
CORPORATE LEVEL STRATEGIES 
 
Before proceeding further, let us discuss the basic features of all the types of 
corporate strategies to get the bird’s eye view. The basic features of the corporate 
strategies are as follows: 
Table:2- Basic Features of Corporate Strategies 
Strategy Basic Feature 
Stability  The firm stays with its current businesses and product markets; 
maintains the existing level of effort; and is satisfied with 
incremental growth. 
Expansion Here, the firm seeks significant growth-maybe within the 
current businesses; maybe by entering new business that are 
related to existing businesses; or by entering new businesses 
that are unrelated to existing businesses. 
Retrenchment  The firm retrenches some of the activities in some business 
(es), or drops the business as such through sell-out or 
liquidation. 
Combination The firm combines the above strategic alternatives in some 
permutation/combination so as to suit the specific 
requirements of the firm. 
4.2.1. Stability Strategy 
One of the important goals of a business enterprise is stability strategy is to 
stabilise- it may be opted to safeguard its existing interests and strengths, to 
pursue well established and tested objectives, to continue in the chosen business 
path, to maintain operational efficiency on a sustained basis, to consolidate the 
commanding position already reached, and to optimise returns on the resources 
committed in the business.  
A stability strategy is pursued by a firm when: 
? It continues to serve in the same or similar markets and deals in same or 
similar products and services. 
? This strategy is typical for those firms whose product have reached the 
maturity stage of product life cycle or those who have a sufficient market 
share but need to retain that. They have to remain updated and have to 
pace with the dynamic and volatile business world to preserve their market 
share. Hence, stability strategy should not be confused with ‘do nothing’ 
strategy. Small organizations may also follow stability strategy to