Corporate Level Strategy(1)

7/30/2019 Corporate Level Strategy(1)

1/47

CORPORATE LEVEL STRATEGIC MANAGEMENT

CHAPTER 1

INTRODUCTION TO STRATEGY

INTRODUCTION TO STRATEGY:

The word strategy is derived from the Greek word strategos; stratus (meaning army)

and ago (meaning leading/moving).

Strategy is an action that managers take to attain one or more of the organizations goals.

Strategy can also be defined as A general direction set for the company and its various

components to achieve a desired state in the future. Strategy results from the detailed

strategic planning process.

A strategy is all about integrating organizational activities and utilizing and allocating the

scarce resources within the organizational environment so as to meet the present

objectives. While planning a strategy it is essential to consider that decisions are not

taken in a vaccum and that any act taken by a firm is likely to be met by a reaction from

those affected, competitors, customers, employees or suppliers.

Strategy can also be defined as knowledge of the goals, the uncertainty of events and the

need to take into consideration the likely or actual behavior of others. Strategy is the

blueprint of decisions in an organization that shows its objectives and goals, reduces the

key policies, and plans for achieving these goals, and defines the business the company is

- 1 -


2/47


to carry on, the type of economic and human organization it wants to be, and the

contribution it plans to make to its shareholders, customers and society at large

DEFINITION:

Strategy is a well defined roadmap of an organization. It defines the overall mission,

vision and direction of an organization. The objective of a strategy is to maximize an

organizations strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between where we are and where we want to be.

FEATURES OF STRATEGY:

1. Strategy is Significant because it is not possible to foresee the future. Without a

perfect foresight, the firms must be ready to deal with the uncertain events which

constitute the business environment.

2. Strategy deals with long term developments rather than routine operations, i.e. it

deals with probability of innovations or new products, new methods of productions, or

new markets to be developed in future.

3. Strategy is created to take into account the probable behavior of customers and

competitors. Strategies dealing with employees will predict the employee behavior.

- 2 -


3/47


CHAPTER 2

INTRODUCTION TO STRATEGIC

MANAGEMENT

MEANING OF STRATEGIC MANAGEMANT:

Strategic management analyzes the major initiatives taken by a company's top

management on behalf of owners, involving resources and performance in external

environments. It entails specifying the organization's mission, vision and objectives,

developing policies and plans, often in terms of projects and programs, which are

designed to achieve these objectives, and then allocating resources to implement the

policies and plans, projects and programs. Abalanced scorecard is often used to evaluate

the overall performance of thebusiness and its progress towards objectives. Recent

studies and leading management theorists have advocated that strategy needs to start with

stakeholders expectations and use a modified balanced scorecard which includes all

stakeholders. Strategic management is the modern version of what was earlier called as

Business Policy

CHARACTERICTICS OF STRATEGIC MANAGEMENT:

1. Uncertain: Strategic management deals with future-oriented non-routine situation.

They create uncertainly. Managers are unaware about the consequences of their

decisions.

- 3 -
http://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Organizationhttp://en.wikipedia.org/wiki/Mission_statementhttp://en.wikipedia.org/wiki/Balanced_scorecardhttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Organizationhttp://en.wikipedia.org/wiki/Mission_statementhttp://en.wikipedia.org/wiki/Balanced_scorecardhttp://en.wikipedia.org/wiki/Business


4/47


2. Complex: Uncertainly brings complexity for strategic management. Managers

face environment which is difficult to comprehend. External and

internal environment is analyzed.

3. Organization wide: Strategic management has organization wide implication. It is

not operation specific. It is a systems approach. It involves strategic choice.

4. Fundamental: Strategic management is fundamental for improving the long-term

performance of the organization.

5. Long-term implication: Strategic management is not concerned with day-to-day

operation. It has long-term implications. It deals with vision, mission and

objective.

6. Implication: Strategic management ensures that strategic is put into action,

implementation is done through action plans.

CHAPTER 3

- 4 -


5/47


LEVELS OF STRATEGIC MANAGEMENT

LEVELS OF STRATEGIC MANAMEGENT AT DIFFERENT LEVELOF BUSINESS:

Strategies exist at several levels in any organisation - ranging from the overall business

(or group of businesses) through to individuals working in it.

Corporate Strategy

Corporate level strategy is concerned with the overall purpose and scope of the business

to meet stakeholder expectations. This is a crucial level since it is heavily influenced by

investors in the business and acts to guide strategic decision-making throughout the

business. Corporate strategy is often stated explicitly in a "mission statement".

Business Unit Strategy

- 5 -


6/47


Business level strategy is concerned more with how a business competes successfully in a

particular market. It concerns strategic decisions about choice of products, meeting needs

of customers, gaining advantage over competitors, exploiting or creating new

opportunities etc.

Operational Strategy

Operational level strategy is concerned with how each part of the business is organised to

deliver the corporate and business-unit level strategic direction. Operational strategy

therefore focuses on issues of resources, processes, people etc.

CHAPTER-4

- 6 -


7/47


INTRODUCTION TO CORPORATE LEVEL

STRATEGIES

INTRODUCTION:

Corporate-level strategies address the entire strategic scope of the enterprise. This is the

"big picture" view of the organization and includes deciding in which product or service

markets to compete and in which geographic regions to operate. For multi-business firms,

the resource allocation processhow cash, staffing, equipment and other resources are

distributedis typically established at the corporate level. In addition, because market

definition is the domain of corporate-level strategists, the responsibility for

diversification, or the addition of new products or services to the existing product/service

line-up, also falls within the realm of corporate-level strategy. Similarly, whether to

compete directly with other firms or to selectively establish cooperative relationships

strategic alliancesfalls within the purview corporate-level strategy, while requiring

ongoing input from business-level managers.

Critical questions answered by corporate-level strategists thus include:

What should be the scope of operations; i.e.; what businesses should the firm be in?

How should the firm allocate its resources among existing businesses?

What level of diversification should the firm pursue; i.e., which businesses represent

the company's future? Are there additional businesses the firm should enter or are

there businesses that should be targeted for termination or divestment?

- 7 -


8/47


How diversified should the corporation's business be? Should we pursue related

diversification; i.e., similar products and service markets, or is unrelated

diversification; i.e., dissimilar product and service markets, a more suitable approach

given current and projected industry conditions? If we pursue related diversification,

how will the firm leverage potential cross-business synergies? In other words, how

will adding new product or service businesses benefit the existing product/service

line-up?

How should the firm be structured? Where should the boundaries of the firm be

drawn and how will these boundaries affect relationships across businesses, with

suppliers, customers and other constituents? Do the organizational components such

as research and development, finance, marketing, customer service, etc. fit together?

Are the responsibilities or each business unit clearly identified and is accountability

established?

Should the firm enter into strategic alliancescooperative, mutually-beneficial

relationships with other firms? If so, for what reasons? If not, what impact might this

have on future profitability?

DEFINATION:

Corporate strategy is the highest level of firm strategy. It is the strategy that affects the

corporation as a whole, which may include several different business units. Corporate

strategies are, therefore, very broad in their scope, as they must deal with issues that are

common to the various business units. Corporate strategies are typically developed by the

- 8 -


9/47


top management team, although they may seek the input of line managers and front-line

employees.

Corporate strategies represent the long-term direction for the organization. Issues

addressed as part of corporate strategy include those concerning diversification,

acquisition, divestment, strategic alliances, and formulation of new business ventures.

Corporate strategies deal with plans for the entire organization and change as industry

and specific market conditions warrant.

Top management has primary decision making responsibility in developing corporate

strategies and these managers are directly responsible to shareholders. The role of the

board of directors is to ensure that top managers actually represent these shareholder

interests. With information from the corporation's multiple businesses and a view of the

entire scope of operations and markets, corporate-level strategists have the most

advantageous perspective for assessing organization-wide competitive strengths and

weaknesses. Corporate strategists are paralyzed without accurate and up-to-date

information from managers at the business-level.

CORPORATE GROWTH STRATEGIES

Corporate-level strategists have a tremendous amount of both latitude and responsibility.

The myriad decisions required of these managers can be overwhelming considering the

potential consequences of incorrect decisions. One way to deal with this complexity is

through categorization; one categorization scheme is to classify corporate-level strategy

decisions into three different types, or grand strategies. These grand strategies involve

- 9 -


10/47


efforts to expand business operations (growth strategies), decrease the scope of business

operations (retrenchment strategies), or maintain the status quo (stability strategies).

Growth / Expansion Strategies:

Growth strategies are designed to expand an organization's performance, usually as

measured by sales, profits, product mix, market coverage, market share, or other

accounting and market-based variables.

Typical growth strategies involve one or more of the following:

With a concentration strategy the firm attempts to achieve greater market penetration

by becoming highly efficient at servicing its market with a limited product line (e.g.,

McDonalds in fast foods).

By using a vertical integration strategy, the firm attempts to expand the scope of its

current operations by undertaking business activities formerly performed by one of its

suppliers (backward integration) or by undertaking business activities performed by a

business in its channel of distribution (forward integration).

A diversification strategy entails moving into different markets or adding different

products to its mix. If the products or markets are related to existing product or

service offerings, the strategy is called concentric diversification. If expansion is into

products or services unrelated to the firm's existing business, the diversification is

called conglomerate diversification.

- 10 -


11/47


REASONS FOR ADOPTING GROWTH STRATEGY:

In the long run, growth is necessary for the very survival of the organizations

themselves, particularly when the environment is quite volatile

Growth offers many economies because of large scale operations

Growth Strategy is taken up because of managerial motivation to do so.

Managers with high degree of achievement and recognition always prefer to grow

There are certain intangible advantages of growth. These may be in the form

of increased prestige of the organization, satisfaction to employees and social

benefits.

Example: Growing companies have high level of prestige in the corporate world,e.g.,

Reliance, Infosys, Hindustan Unilever, etc.

Stability Strategies

When firms are satisfied with their current rate of growth and profits, they may decide to

use a stability strategy. This strategy is essentially a continuation of existing strategies.

Such strategies are typically found in industries having relatively stable environments.

The firm is often making a comfortable income operating a business that they know, and

see no need to make the psychological and financial investment that would be required to

undertake a growth strategy.

- 11 -


12/47


TYPES OF STABILITY STRATEGIES

Maintenance of Status Quo:

Firms adopting this strategy maintain the same level of operations Small business

firms desire satisfactory level of operations rather than growth

Sustainable Growth:

Slow growth is more desired rather than maintenance of status quo A sustainable

growth strategy is more optimistic than the zero growth

REASONS FOR ADOPTING STABILITY

Managers of small business desire satisfactory level of profits rather than

increased profits

Maintenance of status quo involves less risk than a more growth strategy Change

may upset the smooth operations and result in poor performance especially, if the

firm considers itself successful with the present level of operations

Changing operations to pursue a more aggressive growth strategy usually requires

an increased investment and managerial support. Firms, which cannot provide

resources, may continue with the stability strategy

Some executives maintain with the stability strategy due to inertia for change

In some cases, firms are forced to adopt stability strategy, if they operate in a low-

growth or no-growth industry

Sometimes, firms may find that the cost of growth is more than the benefits of the

same

- 12 -


13/47


Firms that dominate its industry through their superior size and competitive

advantage may pursue stability to reduce their chances of being prosecuted for

engaging in monopolistic practices

Smaller firms that concentrate on specialized products or services may choose

stability because of their concern that growth will result in reduced quality and

customer service.

STABILITY STRATEGY OF INDIAN COMPANIES

Many companies in different industries have been forced to adopt stability

strategy because of over capacity in the industries concerned.

For Example:

Steel Authority of India has adopted stability strategy because of over capacity in steel

sector. Instead it has concentrated on increasing operational efficiency of its various

plants rather than going for expansion. Others industries are heavy commercial vehicle,

coal industry.

Example:

Apart from over capacity, regulatory restrictions in some industries have forced

companies to adopt stability strategy.

Cigarette, liquor industries fall in this category because of strict control over capacity

expansion. Both these industries require license under the provisions of Industries

(Development and regulations) Act, 1951.

- 13 -


14/47


Example: Many companies in public sector have been forced to adopt stability strategy

because of governments policy of cutting the role of public sector and budgetary support

for expansion of these companies has been withdrawn.

- 14 -


15/47


CHAPTER 5

RETRENCHMENT STRATEGIES

INTRODUCTION:

Retrenchment strategies involve a reduction in the scope of a corporation's activities,

which also generally necessitates a reduction in number of employees, sale of assets

associated with discontinued product or service lines, possible restructuring of debt

through bankruptcy proceedings, and in the most extreme cases, liquidation of the firm.

- 15 -


16/47


Firms pursue a turnaround strategy by undertaking a temporary reduction in

operations in an effort to make the business stronger and more viable in the

future. These moves are popularly called downsizing or rightsizing. The hope is

that going through a temporary belt-tightening will allow the firm to pursue a

growth strategy at some future point.

A divestment decision occurs when a firm elects to sell one or more of the

businesses in its corporate portfolio. Typically, a poorly performing unit is sold to

another company and the money is reinvested in another business within the

portfolio that has greater potential.

Bankruptcy involves legal protection against creditors or others allowing the firm

to restructure its debt obligations or other payments, typically in a way that

temporarily increases cash flow. Such restructuring allows the firm time to

attempt a turnaround strategy. For example, since the airline hijackings and the

subsequent tragic events of September 11, 2001, many of the airlines based in the

U.S. have filed for bankruptcy to avoid liquidation as a result of stymied demand

for air travel and rising fuel prices. At least one airline has asked the courts to

allow it to permanently suspend payments to its employee pension plan to free up

positive cash flow.

Liquidation is the most extreme form of retrenchment. Liquidation involves the

selling or closing of the entire operation. There is no future for the firm;

employees are released, buildings and equipment are sold, and customers no

- 16 -


17/47


longer have access to the product or service. This is a strategy of last resort and

one that most managers work hard to avoid.

TYPES OF RETRECHMENT STRATEGY

Turnaround Strategy:

If the firm chooses to focus on ways and means to reverse the process of decline,

it adopts a turnaround Strategy

Approaches of Turnaround Strategy

Surgical Approach:

It is mostly mechanic and requires tough attitude of the top executive. The

executive issues direction for change, fire employees, close down divisions/plants,

drops the product lines, replaces the machinery, issues production, marketing and

finance controls, fixation of accountability for results

.This approach continues until the firm is turned around. Later the chief

executives relax the tough environment and controls.

Human Resources Development Approach

Chief Executive conducts a series of meetings, encourages the managers to be

open, understand each other, understand the problems and diagnose the root cause

for poor performance of the firm

He encourages the employees to suggest methods of turning around

- 17 -


18/47


He encourages the managers and employees to implement the solutions offered

by them in a highly coordinated, committed team spirit

CASE STUDY:

Rehabilitation package for Metal Box India Ltd.

Metal Box India Ltd. a reputed company in the packaging industry, turned sick due to

its wrong strategic move of diversifying into bearings manufacture in the early

eighties. Eight of its nine units closedown as a results of which the BIFR and the

ICICI formulated a rehabilitation package for the turnaround of the company

The BIFR-ICICI package covers the following

Closure of three unprofitable units at Calcutta, Bombay and Cochin

Retrenchment of 3000 workers drawn from all the nine through compensation

A flat 20 percent cut in wages for the remaining workers

Write-off or conversion of outstanding loans from financial institutions and

banks

Concessions and relief of up to 50 percent in sales, octroi, and turnover taxes,

among others from the state governments

Introduction of a new promoter in place of the parent multinational Metal

Box, plc, of UK which wanted to divest its 33.02 % shareholding

- 18 -


19/47


CHAPTER 6

DIVESTMENT STRATEGY

MEANING:

Divestment strategy involves the sale or liquidation of a portion of business or a

major division, profit centre

or SBU. Divestment is usually a part of rehabilitation or restructuring plan and is adopted

when a turnaround has been attempted but has proved unsuccessful. The option of a

turnaround may even be ignored if it is obvious that divestment is the only answer.

Approaches to divestment:

A firm may choose to divest in two ways. A part of the company is divested by spinning

it off as a financially and managerially independent company, with the parent company

retaining or not retaining partial ownership. Alternatively, the firm may sell a unit

outright. In the latter case, a marketing concept approach is advisable where a buyer is

found who may consider the divested unit (by the selling firm) to be a strategic fit. In

this way, the likelihood of the unit being sold profitably is high.

Decision to divest:

The decision to divest is a painful one for the management as it amounts to admitting a

failure. This is the reason why many firms fail to divest even though the strategic

alternative is apparent. With an increasing pressure to streamline and the

restructure businesses and the emergence of professional management, divestment

strategies have become quite popular in the Indian industry. Another reason why

- 19 -


20/47


divestment is a preferred option is the fact that several family business houses as well as

public sector companies in India have always been widely diversified. This made sense

when licensing was prevalent and expansion opportunities were severely limited.

Companies had no option but to diversify. With a wide-ranging portfolio of businesses,

companies now face the problem of diffusion of core competencies. This is the reason

why several companies in India are employing divestment as a strategy to streamline

their business portfolio and emerge as a focused organization

CASE STUDY:

Divestment of TOMCO

Tata group is a highly-diversified entity with a range of businesses under its fold.

They identified their non core businesses for divestment. TOMCO was divested

and sold to Hindustan Levers as soaps and detergents were not considered a core

business for the Tatas.

Divestment of VST

VST Natural Products, the food business company of VST, the tobacco firm,

was divested to the Global Green Company of the Thapar group. The reasons

for divestment were: non availability of raw materials and inadequate working

capital infusion. VST, the parent company, could not invest more as it was itself

running under a loss.

- 20 -


21/47


LIQUIDATION STRATEGY

This involves closing down a firm and selling its assets. It is considered as a last

resort because it leads to serious consequences such as loss of employment for

workers and other employees, termination of opportunities where a firm could pursue

any future activities, and stigma of failure

The psychological implications

The prospects of liquidation create a bad impact on the companys reputation.

For many executives who are closely associated firms, liquidation may be a traumatic

experience.

LEGAL ASPECTS OF LIQUIDATION:

Under the Companies Act 1956, liquidation is termed as winding up. The Act defines

winding up of a company as the process whereby its life is ended and its property

administered for the benefit of its creditors and members. The Act provides for

liquidators who takes control of the company, collects its assets, pay it debts, and

finally distributes any surplus among the members according to their rights. The

stability grand strategy is adopted by an organization when it attempts at an

incremental improvement of its functional performance by marginally changing one

or more of its businesses in terms of their respective customer groups, customer

functions, and alternative technologies either singly or collectively

- 21 -


22/47


E.g.:A copier machine company provides better after sales service to its existing

customer to improve its company product image, and increase the sale of

accessories and consumables

Thisstrategy may be relevant for a firm operating in a reasonably certain and pred

ictable environment. Stability strategy can be of three types No Change

Strategy, Profit Strategy, Pause/ Proceed with caution Strategy.

1. No-Change Strategy

It is a conscious decision to do nothing new. The firm will continue with its

present business definition. When a firm has a stable internal and external

environment the firm will continue with its present strategy. The firm has no new

strengths and weaknesses within the organization and there is no an opportunity

or threats in the external environment. Taking into account this situation the firm

decides to maintain its strategy.

Several small and medium sized firm operating in a familiar market- more

often a niche market that is limited in scope and offering products

or services through a time tested technology rely on the No Change Strategy.

2. Profit Strategy

No firm can continue with the No Change Strategy. Sometimes things do

change and the firm is faced with the situation where it has to do something. A

firm may assess the situation and assume that its problem are short lived and will

- 22 -


23/47


go away with time. Till then a firm tries to sustain its profitability by adopting a

profit strategy

For instance in a situation when the profit is becoming lower firm takes measures

to reduce investments, cut costs, raise prices, increase productivity and adopt

other measures to solve the temporary difficulties. The problem arises due to

unfavorable situation like economic recession, government attitude, and industry

down turn, competitive pressures and like. During this kind of situation that the

firm assumes to be temporary it would adopt profit strategies Some firms to

overcome these difficulties would sell off assets such as prime land in a

commercial area and move to suburbs. Others have removed some of its non-core

business to raise money, while others have decided to provide outsourcing

service to other organizations.

3. Pause/ Proceed with Caution Strategy

It is employed by the firm that wish to test the ground before moving ahead with

a full fledged grand strategy, or by firms that have an intense pace of expansion

and wish to rest for a while before moving ahead. The purpose is to allow all the

people in the organization to adapt to the changes. It is a deliberate and conscious

attempt to postpone strategic changes to a more opportune time.

E.g: In the India shoe market dominated by Bata and Liberty, Hindustan Levers

better known for soaps and detergents, produces substantial quantity of shoes and

shoe uppers for the export market. In late 2000, it started selling a few thousand

- 23 -


24/47


pairs in the cities to find out the market reaction. This is a pause proceed with

caution strategy before it goes full steam into another FMCG sector that has a lot

of potential

INTENSIFICATION STRATEGY:

Intensification refers to growth by working with its current businesses more vigorously.

Intensification, in turn, encompasses three alternative routes:

Alternative Routes

1. Market Penetration:

It refers to concentrating on the current business and directing resources and efforts to the

profitable growth of a single product, in a single market, and with a single technology.

It aims at reaching deeply into each segment of current market for existing products and

also increasing consumption of existing customers.

2. Market Development:

It consists of selling existing products, to new customers in related market areas byadding different channels of distribution or by changing the content of advertising or the

promotional media.

3. Product Development:

It involves substantial modification of existing products or creation of new but related

items that can be marketed to current customers through established channels.

- 24 -


25/47


CHAPTER 7

DIVERSIFICATION STRATEGIES

DIVERSIFICATION STRATEGY

Diversification is the process of entry into a business which is new to an organization

either marketwise or technology wise or both. Diversification may involve internal

or external, related or unrelated, horizontal or vertical, and active or passive dimensions--

either singly or collectively.

Diversification Strategy

Eg.: Kesoram Cotton Mills into textiles, cellophane paper, firebricks, cast-iron pipes,

and cement.ITC Ltd. (a cigarette major) into hotel, paper and packaging; edible

oils,etc.

- 25 -


26/47


TYPES OF DIVERSIFICATION STRATEGY

Horizontal Integration

Vertical Integration

Concentric Diversification

Conglomerate Diversification

Concentric Diversification

When an organization takes up an activity in such a manner that it is related to the

existing business definition of one or more of a firms business, either in terms

of customer groups, customer functions or alternative technologies, it is called Concentric

Diversification.

Types of Concentric Diversification

Marketing-related Concentric Diversification:

When a similar type of product is offered with the help of unrelated technology

For example: a company in the sewing machine business diversifies into kitchenware

and household appliances, which are sold to housewives through a chain of retail stores.

Technology-related Concentric Diversification:

When a new type of product or service is provided with the help of related technology

For example, a leasing firm offering hire-purchase services to institutional customers

also starts consumer financing for the purchase of durables to individual customers.

Marketing-and-Technology-related Concentric Diversification:

When a similar type of product or service is provided with the help of related technology

- 26 -


27/47


for example a raincoat manufacturer makes other rubber-based items, such

as, waterproof shoes and rubber gloves, sold through the same retail outlets.


When an organization adopts a strategy which requires taking up those activities which

are unrelated to the existing business definition of one or more of its business, either in

terms of their respective customer groups, customer functions or alternative technologies


For Example:

ITC, a cigarette company diversifying into the hotel industry Essar Group in shipping,

marine construction, oil support services, and iron and steel Shriram Fibres Ltd. In

nylon industrial yarn, synthetic industrial fabrics, nylon tyre cords, fluoro chemicals,

fluorocarbon refrigerant gases, ball and needle bearings, auto electrical, hire-purchase

and leasing, and financial services

Reasons for adopting Diversification Strategies

To minimize the risk by spreading it over several businesses

To capitalize on organizational strengths or minimize weaknesses

Diversification may be the only way out if growth in existing business is blocked

due to environmental and regulatory factors

- 27 -


28/47


CASE STUDY:

Managing Diversification at the Munjal Group

In 1978, the Munjal Group of Ludhiana, Punjab established manufacturers of Hero

Bicycle-planned to diversify into yarn manufacture. The reasons for diversification were:

95 % of acrylic yarn used in India comes to Ludhiana

A lot of cotton grows in Punjab and could be used in manufacturing yarn

Group philosophy to involve it self in providing basic inputs to industry

- 28 -


29/47


In the seventies, yarn was a profitable sector

But the company (Hero Fibres) faced many problems like a downsizing in the

cotton and acrylic yarn market, differing work ethos in the yarn industry as compared to

that in the light engineering industry, and a high rate of turnover. The problems were

resolved by adopting a plan under which the following steps were taken:

1. Close involvement of the top management and personnel from existing companies took

place

2. Avoiding employment of groups of workers to prevent the formulation of a coterie, the

orientation and training of managers and workers, and providing jobs to family members

of workers to make migration of labor difficult.

This case of Hero Fibers illustrates that despite strong reasons for diversification, the

actual implementation of plans is crucial to the success of diversification strategies

- 29 -


30/47


CHAPTER 8

INTEGRATION STRATEGIES

MEANING:

When firms use their existing base to expand in the direction of their raw materials or the

ultimate consumers, or, alternatively they acquire complimentary or adjacent businesses,

integration takes place. Integration basically means combining activities related to the

present activity of a firm

Reason for Adopting Integration Strategy

Transaction cost economics

- make or buy decision (move up the value chain)

- make it sell or sell (move down the value chain)

TYPES OF INTEGRATION STRATEGY




When an organization starts making new products that serve its own needs, vertical

integration takes place. Any new activity undertaken with the purpose of either supplying

- 30 -


31/47


inputs (such as raw materials) or serving as a customer for outputs (such as, marketing of

firms product) is vertical integration

TYPES OF VERTCAL INTEGRATION

Backward Integration: retreating to the source of raw materials

Forward Integration: moves the organization nearer to the ultimate customer

Vertical Integration at Reliance Industries

Reliance started its business with textiles and went for backward integration to

produce PFY and PSF, critical raw materials for textiles, PTA and MEG-raw materials

for PSF and PFY, propylene-raw materials for PTA and MEG, and finally naphtha for

producing propylene.

Vertical Integration at Reliance Industries

Naphtha Propylene PTA + MEG

PSf (fibers) and PFY yarns Textiles

CASE STUDY

Vertical Integration at Modern Group

Expansion strategies at Modern Group, consisting of five companies having a combined

turnover of Rs.115 crore in1989, involved diversification in the form of backward and

forward integration.

- 31 -


32/47


Forward integration took place at Modern Suiting when it diversified into worsted

suiting. With an investment of Rs.7 crore, it acquired sulzer looms, sophisticated fabric

processing facilities and other sophisticated equipments to manufacture a premium terry

wool suiting with the brand name Amadeus

Backward integration at Modern Woolens involved collaboration with Schild

of Switzerland for wool processing, combing, and woolen tops which are necessary for

the production of woolen textiles.

In this manner, a number of backward and forward linkages were being attempted within

the Modern Group with the objective of raising the turnover to Rs.250 crore by 1992


When an organization takes up the same type of products at the same level of production

or marketing process, it is said to follow a strategy of horizontal integration

For E.g.: When a luggage company takes over its rival luggage company

Horizontal Integration strategy may be frequently adopted with a view to expand

geographically by buying a competitors business, to increase the market share or to

benefit from economies of scale.

Solidaire India Ltd. is a prominent manufacturer of TVs and has a sizeable

presence in the market in southern India. It started with the name of Hi Beam

Electronics Ltd. in 1974.Subsequently; this unit was merged with two other units

- 32 -


33/47


to form a consortium called Tri-Star Electronics. In 1978, the brand name

Solidaire was adopted. In this manner the growth strategy of the company started

with Horizontal Integration.

Takeover of Neyveli Ceramics and Refractories Ltd. (Neycer) by Spartek

Ceramics India Ltd. in the early 1990s.Both the companies were in sanitary ware

and tile production. By acquiring Neycer,Spartek became the largest ceramic tile

manufacturer in the country.

- 33 -


34/47


CHAPTER 9

MERGER STRATEGY

Merger Strategy Meaning:

A merger is a combination of two or more organizations in which one acquires the assets

and liabilities of the other in exchange for shares or cash, or both the organizations are

dissolved, and the assets and liabilities are combined and new stock is issued.

Examples

Polyolefin Industries with NOCIL

TVS Whirlpool Ltd. with Whirlpool of India Ltd.

Sandoz (India Ltd.) with Hindustan Ciba Geigy Ltd

.Nirma Detergents Ltd., Nirma Soaps and Detergents Ltd., and Shiva Soaps and

Detergent Ltd. With Nirma Ltd.

TYPES OF MERGERS

Horizontal Mergers:

Combination of firms engaged in the same business

E.g.: Footwear Company combines with another footwear company

Vertical Mergers:

Combination of different firms engaged in activities complimentary to each other like

supply of raw materials, production of goods and marketing

E.g.: Footwear Company combines with a leather tannery or with a chain of shoe retail

stores

- 34 -


35/47


Concentric merger:

Combination of firms related to each other in terms of customer groups or customer

functions or alternative technologies

E.g.: Footwear Company combines with a hosiery firm making socks or with a

leather goods company making purses, handbags, and so on.

Conglomerate Merger:

Combination of firms unrelated to each other in terms of customer groups or customer

functions or alternative technologies

E.g. Footwear Company combines with a pharmaceutical firm

Important Issues in Mergers:

Valuation issue:

It relates to the valuation of the seller firm and the sources of financing for mergers to

take place. Value may be assessed keeping in view the assets, market standing and

opportunity, earnings potential, or stock value.

Financial issues:

The basic point is to arrive at a valuation model where the impact on the EPS of the

merging firm is either positive or neutral

E.g.: Where this took place successfully is the

Ranbaxy-Crosslands merger where there was a considerable appreciation of the EPS

of the merged identity

-E.g. Where it did not took place is the case of

- 35 -


36/47


Punjab National Bank New Bank of India

merger where the EPS of the merged entity became negative

Managerial Issues:

It relate to the problems of managing firms after the merger has taken place

Usually, mergers are followed by the changes in staff, specially chief executives and top

managers

Legal issues in Merger:

It relate to the provisions made in law for the purpose of mergers.

Acquisition or Takeover Strategy:

Acquisition or Takeover is the attempt of one firm to acquire ownership or control

over another firm against the wishes of the latters management.

But in practice it can be hostile or friendly

Controversies created by Acquisition or Takeover Strategy

Takeover attempt of Escorts and DCM by Swaraj Paul, a non resident Indian

based at London, created lot of resentment in Indian Business scene in 1990s

Takeover of Raasi Cement by India Cement have generated lot of tension

Friendly Takeover: Tata Teas takeover of Consolidated Coffee (a grower of

coffee beans) and Asian Coffee (a Processor)

- 36 -


37/47


CHAPTER 9

JOINT VENTURE STRATEGY

Joint Venture Strategy:

Joint ventures are a special case of consolidation where two or more companies from a

temporary form a temporary partnership (also called a consortium) for a specified

purpose. They occur when an independent firm is created by at least two other firms.

Joint ventures may be useful to gain access to a new business mainly under these

conditions

Joint Ventures are partnerships in which two or more firms carry out a specific project or

corporate in a selected area of business.

It can be temporary, disbanding after the project is finished, or long-term.

Ownership of the firms remains unchanged.

Even a successful joint venture may not last forever. Nor does the collapse of

a joint venture always imply failure. Actually, corporate partnerships are formed

for specific and time bound objectives which, once achieved, leave little reason for

the alliance to be continued. Joint Ventures that last longer do so because

their objectives have been redesigned.

- 37 -


38/47


Strategic Issues in Joint Venture Strategy

It offers the advantages of achieving objectives mutually by the participating firms

Eliminating, controlling, or reducing competition may be of strategic importance

An increase in market share

If technology is a critical variable in strategy, then Joint Ventures with foreign

companies can be feasible

Examples of Joint Venture

IBM World Trade Corporation and Tata Industries Ltd. Created joint venture to form

Tata Information Systems Ltd. The stated purpose was to make it Indias top information

technology company

Cummins Engine Company and TELCO formed joint venture to manufacture

TelcoEngines

Reliance Industries and Nynex Corporation

Tata Industries and Bell Canada

Ashok Leyland and Singapore Telecom

- 38 -


39/47


CHAPTER 10

CONTINGENCY STRATEGY

CONTINGENCY STRATEGY:

A contingency plan is a plan devised for an outcome other than in the usual (expected)

plan. It is often used forrisk management when an exceptional risk that, though unlikely,

would have catastrophic consequences. Contingency plans are often devised by

governments orbusinesses. For example, suppose many employees of a company are

traveling together on an aircraft which crashes, killing all aboard. The company could be

severely strained or even ruined by such a loss. Accordingly, many companies have

procedures to follow in the event of such a disaster. The plan may also include standing

policies to mitigate a disaster's potential impact, such as requiring employees to travel

separately or limiting the number of employees on any one aircraft.

During times of crisis, contingency plans are often developed to explore and prepare for

any eventuality. During the Cold War, many governments made contingency plans to

protect themselves and their citizens from nuclear attack. Examples of contingency plans

designed to inform citizens of how to survive a nuclear attack are the booklets Survival

Under Atomic Attack, Protect and Survive, and Fallout Protection, which were issued by

the British and American governments. Today there are still contingency plans in place to

deal with terrorist attacks or other catastrophes.

- 39 -
http://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Governmentshttp://en.wikipedia.org/wiki/Businesseshttp://en.wikipedia.org/wiki/Cold_Warhttp://en.wikipedia.org/wiki/Nuclear_warfarehttp://en.wikipedia.org/wiki/Survival_Under_Atomic_Attackhttp://en.wikipedia.org/wiki/Survival_Under_Atomic_Attackhttp://en.wikipedia.org/wiki/Protect_and_Survivehttp://en.wikipedia.org/wiki/Fallout_Protectionhttp://en.wikipedia.org/wiki/Terrorist_attackshttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Governmentshttp://en.wikipedia.org/wiki/Businesseshttp://en.wikipedia.org/wiki/Cold_Warhttp://en.wikipedia.org/wiki/Nuclear_warfarehttp://en.wikipedia.org/wiki/Survival_Under_Atomic_Attackhttp://en.wikipedia.org/wiki/Survival_Under_Atomic_Attackhttp://en.wikipedia.org/wiki/Protect_and_Survivehttp://en.wikipedia.org/wiki/Fallout_Protectionhttp://en.wikipedia.org/wiki/Terrorist_attacks


40/47


Developing strategies for how a business will use its money, materials and people to

accomplish its goals is part of starting and running a business. Within the strategic

planning process, a contingency plan serves as a backup in cases where a business veers

off course from one or more intended outcomes. Strategic contingency planning attempts

to lessen the effects of less than favorable circumstances and keep a business afloat

during difficult periods.

In the process of developing a companys overall strategic plan, business managers may

develop alternative strategies as a means to accommodate unexpected conditions or

events, such as economic recessions or catastrophic events. Contingency planning

involves having alternative strategies in place as a way of preparing for the unexpected.

These types of plans may also be categorized as disaster recovery plans or business

continuity plans, depending on the overall purpose of the plan. The primary purpose for a

contingency plan provides a strategy for minimizing the effects of unexpected

circumstances. By doing so, business managers increase the likelihood that a business

main operations will continue with minimal losses or damages.

DISINVESTMENT STRATEGY:

At the very basic level, disinvestment can be explained as follows:

Investment refers to the conversion of money or cash into securities, debentures, bonds

or any other claims on money. As follows, disinvestment involves the conversion of

money claims or securities into money or cash.

- 40 -


41/47


Disinvestment can also be defined as the action of an organisation (or government)

selling or liquidating an asset or subsidiary. It is also referred to as divestment or

divestiture.

In most contexts, disinvestment typically refers to sale from the government, partly or

fully, of a government-owned enterprise.

A company or a government organisation will typically disinvest an asset either as a

strategic move for the company, or for raising resources to meet general/specific needs.

Objectives of Disinvestment

The new economic policy initiated in July 1991 clearly indicated that PSUs had shown a

very negative rate of return on capital employed. Inefficient PSUs had become and were

continuing to be a drag on the Governments resources turning to be more of liabilities to

the Government than being assets. Many undertakings traditionally established as pillars

of growth had become a burden on the economy. The national gross domestic product

and gross national savings were also getting adversely affected by low returns from

PSUs. About 10 to 15 % of the total gross domestic savings were getting reduced on

account of low savings from PSUs. In relation to the capital employed, the levels of

profits were too low. Of the various factors responsible for low profits in the PSUs, the

following were identified as particularly important:

Price policy of public sector undertakings

- 41 -


42/47


Underutilisation of capacity

Problems related to planning and construction of projects

Problems of labour, personnel and management

Lack of autonomy

Hence, the need for the Government to get rid of these units and to concentrate on core

activities was identified. The Government also took a view that it should move out of

non-core businesses, especially the ones where the private sector had now entered in a

significant way. Finally, disinvestment was also seen by the Government to raise funds

for meeting general/specific needs.

In this direction, the Government adopted the 'Disinvestment Policy'. This was identified

as an active tool to reduce the burden of financing the PSUs. The following main

objectives of disinvestment were outlined:

To reduce the financial burden on the Government

To improve public finances

To introduce, competition and market discipline

To fund growth

To encourage wider share of ownership

To depoliticise non-essential services

- 42 -


43/47


Importance of Disinvestment:

Presently, the Government has about Rs 2 lakh crore locked up in PSUs. Disinvestment

of the Government stake is, thus, far too significant. The importance of disinvestment lies

in utilization of funds for:

Financing the increasing fiscal deficit

Financing large-scale infrastructure development

For investing in the economy to encourage spending

For retiring Government debt- Almost 40-45% of the Centers revenue receipts go

towards repaying public debt/interest

For social programs like health and education

Disinvestment also assumes significance due to the prevalence of an increasingly

competitive environment, which makes it difficult for many PSUs to operate profitably.

This leads to a rapid erosion of value of the public assets making it critical to disinvest

early to realize a high value.

Conclusion:

If disinvestment policy is to be in wider public interests, it is necessity to examine

systematically issues such as correct valuation of shares and appropriate use of

disinvestment proceeds. The disinvestment of public sector units which is, in fact, the

publics money is done without even due amount of debate in the parliament. This,

therefore, calls for utmost care and meticulous planning.

- 43 -


44/47


CHAPTER 11

MODERNIZATION STRATEGY

MORDERNIZATION MEANING:

Modernization refers to a model of an evolutionary transition from a 'pre-modern' or

'traditional' to a 'modern' society. The teleology of modernization is described in social

evolutionism theories, existing as a template that has been generally followed by societies

that have achieved modernity. While it may theoretically be possible for some societies to

make the transition in entirely different ways, there have been no counterexamples

provided by reliable sources.

Historians link modernization to the processes of urbanization and industrialisation, as

well as to the spread of education. As Kendall (2007) notes, "Urbanization accompanied

modernization and the rapid process of industrialization." In sociological critical theory,

modernization is linked to an overarching process ofrationalisation. When modernization

increases within a society, the individual becomes that much more important, eventually

replacing the family or community as the fundamental unit of society.

Modernization theory and history have been explicitly used as guides for countries eager

to develop rapidly, such as China. Indeed, modernization has been proposed as the most

useful framework forWorld history in China, because as one of the developing countries

that started late, "China's modernization has to be based on the experiences and lessons of

other countries.

- 44 -
http://en.wikipedia.org/wiki/Societyhttp://en.wikipedia.org/wiki/Teleologyhttp://en.wikipedia.org/wiki/Social_evolutionismhttp://en.wikipedia.org/wiki/Social_evolutionismhttp://en.wikipedia.org/wiki/Modernityhttp://en.wikipedia.org/wiki/Urbanizationhttp://en.wikipedia.org/wiki/Industrialisationhttp://en.wikipedia.org/wiki/Sociologicalhttp://en.wikipedia.org/wiki/Critical_theoryhttp://en.wikipedia.org/wiki/Rationalization_(sociology)http://en.wikipedia.org/wiki/Modernization_theoryhttp://en.wikipedia.org/wiki/World_historyhttp://en.wikipedia.org/wiki/Societyhttp://en.wikipedia.org/wiki/Teleologyhttp://en.wikipedia.org/wiki/Social_evolutionismhttp://en.wikipedia.org/wiki/Social_evolutionismhttp://en.wikipedia.org/wiki/Modernityhttp://en.wikipedia.org/wiki/Urbanizationhttp://en.wikipedia.org/wiki/Industrialisationhttp://en.wikipedia.org/wiki/Sociologicalhttp://en.wikipedia.org/wiki/Critical_theoryhttp://en.wikipedia.org/wiki/Rationalization_(sociology)http://en.wikipedia.org/wiki/Modernization_theoryhttp://en.wikipedia.org/wiki/World_history


45/47


Instead of being dominated by tradition, societies undergoing the process of

modernization typically arrive at governance dictated by abstract principles. Traditional

religious beliefs and cultural traits usually become less important as modernization takes

hold.

Modernization Performance Indicators:

Percent customer satisfaction

Number of databases normalized, standardized, and NIEM conformant

Number of common services provided

Percent of ATF databases or functionality made available through a common services

platform

Percent of technology service categories within a current ATF enterprise standard

Percent of investment $ expenditures in alignment with enterprise standards

Percent of technology capital investment compared to operating expenditures

Percent of Lab infrastructure within its recommended useful life

Percent of NIBIN infrastructure within its recommended useful life

- 45 -


46/47


CHAPTER 12

CONCLUSION

Corporate strategy is an important aspect as it is related to other strategies such as

specific business unit strategies or marketing strategies. Corporate strategies play an

important role by influencing these more specific strategies. For example, if a corporate

strategy calls for a narrow focus on a specific type of business, then the individual

business strategies will need to align with this. Corporate strategy is important to

businesses because it provides an overall direction for the firm. This allows the business

to be proactive, rather than reactive. This means that the business can plan for the future

and take advantage of opportunities, instead of simply reacting to changes in the

marketplace as they happen. This can increase the firm's productivity, efficiency and

profits.

- 46 -


47/47


Date post:	04-Apr-2018
Category:	Documents
Upload:	cutyphorum2160
View:	220 times
Download:	0 times

Corporate Level Strategy(1)

Documents