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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 toRead More
FAQs on Corporate Level Strategies: Notes - Financial Management & Strategic Management for CA Intermediate
| 1. What are corporate level strategies? |  |
Corporate level strategies refer to the overall strategies adopted by a company to achieve its goals and objectives at the organizational level. These strategies involve decisions related to the company's scope of operations, the industries it operates in, and the allocation of resources across its various business units.
| 2. What are the different types of corporate level strategies? | |
There are several types of corporate level strategies, including:
1. Growth strategies: These strategies focus on expanding the company's market share, revenue, and profitability through methods such as market penetration, market development, product development, and diversification.
2. Stability strategies: These strategies aim to maintain the current position of the company without seeking significant growth or expansion. This could involve maintaining a stable market share, focusing on cost reduction, or improving operational efficiency.
3. Retrenchment strategies: These strategies involve a reduction in the scope or scale of the company's operations. This could include divestment of underperforming business units, cost-cutting measures, or restructuring to improve profitability.
4. Combination strategies: These strategies involve a combination of growth, stability, and retrenchment strategies. For example, a company may focus on growing its core business while divesting non-core assets.
| 3. How are corporate level strategies formulated? | |
Corporate level strategies are formulated through a systematic process that involves analyzing the company's internal and external environment, identifying strategic options, and selecting the most suitable strategy. The process typically includes the following steps:
1. Situation analysis: This involves assessing the company's internal strengths and weaknesses, as well as the external opportunities and threats it faces in the market.
2. Strategy formulation: Based on the situation analysis, strategic options are identified and evaluated. This could involve considering factors such as market potential, competitive advantage, and resource allocation.
3. Strategy selection: The most appropriate strategy is selected based on its alignment with the company's goals, resources, and competitive position. This decision may involve considering factors such as risk, feasibility, and potential returns.
4. Strategy implementation: Once a strategy is selected, it needs to be effectively implemented. This involves developing action plans, allocating resources, and monitoring progress towards strategic objectives.
| 4. How do growth strategies contribute to corporate success? | |
Growth strategies can contribute to corporate success in several ways:
1. Increased market share: By implementing growth strategies such as market penetration or market development, a company can increase its market share and become a dominant player in its industry. This can lead to higher sales, revenue, and profitability.
2. Diversification and innovation: Growth strategies such as product development or diversification can enable a company to expand into new markets or introduce new products. This can help the company stay competitive, attract new customers, and generate additional revenue streams.
3. Economies of scale: As a company grows, it can benefit from economies of scale, which result in lower production costs and higher efficiency. This can lead to higher profit margins and a competitive advantage over smaller competitors.
4. Enhanced bargaining power: A larger company with a higher market share has more bargaining power with suppliers, customers, and other stakeholders. This can lead to better terms, lower costs, and improved relationships, further contributing to corporate success.
| 5. What are the potential risks associated with corporate level strategies? | |
Corporate level strategies come with certain risks that companies need to consider:
1. Market volatility: The success of growth strategies is dependent on the market conditions. Changes in the economy, consumer preferences, or competitive landscape can impact the effectiveness of these strategies.
2. Resource allocation: Implementing growth strategies may require significant investments in terms of capital, human resources, and time. If these resources are not allocated effectively, it can strain the company's financial position and operational capabilities.
3. Integration challenges: Diversification or acquisition strategies can bring about integration challenges, such as cultural differences, operational conflicts, or resistance from employees. These challenges can hinder the successful implementation of the strategy.
4. Competitive response: When a company adopts a growth strategy, competitors may respond by intensifying competition or launching their own growth initiatives. This can lead to price wars, market saturation, or erosion of market share.
5. Risk of failure: Any strategic decision carries a certain level of risk. The chosen strategy may not yield the desired results, leading to financial losses, reputational damage, or even business failure. It is important for companies to carefully assess and manage these risks.
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