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1. Chapter 5Typology of Alternate Strategies I :The Corporate Level
2. LEARNING OBJECTIVES After reading this chapter, you should have a good understanding of: Different levels of organizational strategies, namely corporate, business and functional Corporate level strategies such as grow, turnaround, integration, diversification, retrenchment, divestiture, acquisition, merger, joint venture and global strategies The three generic business level strategies: cost leadership, differentiation and focus Functional level strategies as they make up the components of the value chain
3. KEY LEVELS OF DECISION MAKING Three broad levels of decision making: Corporate Business Functional
4. CORPORATE LEVEL STRATEGIES 1. Strategic management Considered for the overall movement of the organization, not giving the smaller components like departments and product lines much emphasis. Give priority to the movement of the overall organization and decisions will then have to be made at the top corporate level with the inputs and participation from the various divisions. Overall the company should choose between: Stable growth Turnaround Combination strategy
5. Handle from the competition perspective, i.e. how to outwit the competitors in general. The strategies are: Cost leadership Differentiation Focus BUSINESS LEVEL STRATEGIES
6. Consider actions at the various functional or operational levels of the organizations. Look at its: Marketing Finance Operation Management FUNCTIONAL LEVEL GROUPS OF STRATEGIES
7. Concern is for the welfare of the whole corporate in terms of its future, and to bring the entire corporation to a higher level position overall in terms of the group’s share value, profit or any performance measures CORPORATE LEVEL STRATEGIES
8. CORPORATE LEVEL STRATEGIES(cont.) Fig. 5.1 Three levels of corporate strategies II: SECONDARY LEVEL Expand Integrate Backward Forward Horizontal Diversify Concentric Conglomerate Geographical Horizontal D Retrenchment E Divestiture F Liquidation III: TACTICAL LEVEL Organically Joint venture Merger Acquisition Reverse takeover Strategic alliance Licensing/ franchising I: GRAND STRATEGIES: Growth Stable growth C. Turnaround D. Combination
9. CORPORATE LEVEL STRATEGIES (cont.) I Grand Strategies A. Growth B. stable growth C. Turnaround D. combination
10. CORPORATE LEVEL STRATEGIES (cont.) II Secondary Level A. Expand B. Integrate C. Diversify ● Backward ● Concentric ● Foreward ● Conglomerate ●Horizontal ● Geographical ● Horizontal
11. III Tactical level A. Organically B. Acquisition C. Joint venture D. Merger E. Franchising F. Licensing G. Strategic alliance CORPORATE LEVEL STRATEGIES (cont.)
12. IV. International level Home replication Global Multidomestic Transnational CORPORATE LEVEL STRATEGIES (cont.)
13. are generic in nature All organizations most likely select any of these four strategies: A. The Growth strategy: where the rate of growth is higher than that of last year’s THE GRAND STRATEGIES
14. The Stable Growth Strategy to target a growth rate similar to that as achieved in the previous year As shown graphically in Fig 5.3, the slope of the growth rate is the same as that of last year’s. This startegy is selected when times are bad or even if there is a need to consolidate THE GRAND STRATEGIES (cont.)
15. C. The Turnaround Strategy When the company has been experiencing a bad spell and at a certain time decide that it need to do a turnaround. During this situation the growth of the company has been on a negative trend and a decision is made that it will strategize such that the growth rate will be positive again Graphically, it is shown in the Figure 5.4 The sliding trend will be checked and then becomes positive with time. Many well known companies have done this like IBM, Holiday Inn and in Malaysia, Malaysian Airline System and PROTON Not all companies can succeed easily to do a turnaround strategy THE GRAND STRATEGIES (cont.)
16. D. The Combination Strategy For big organization or a Holding Company, sometimes turnaround can only be done by a Combination Strategy where some of the components need to be dismantled or pruned off By this, its leaner status will enable the company to be in the black again. Thus as shown by the graph (Fig. 5.5) some of the components will continue to go down in order for its other components to go up Non-profit making branches or subsidiaries are closed, sold off or liquidated. By this the liabilities are got rid off and only the viable ones remain within the company THE GRAND STRATEGIES (cont.)
17. GRAPHICAL FORM OF TURNAROUND AND COMBINATION STRATEGIES
18. CORPORATE STRATEGIES A company having decided on a Grand strategy, then has to go to the next level of corporate level strategy in order to achieve the grand strategy, another set of alternatives strategies need to be selected and this is called the Secondary strategies
19. THE SECONDARY STRATEGIES Four types of strategies are: 1. Expansion 2. Integration 3. Diversification 4. Turnaround related strategies These could in turn have their own sets of strategies covered under its umbrella
20. THE SECONDARY STRATEGIES (cont.) 1. The Expansion Strategy The strategy basically is to grow and increase its operations through the existing activities. In other words, the measure is to increase the volume of the existing operations. No new product will be introduced and the final measure of an expansion strategy is the volume increase of its current activities
21. 1. EXPANSION STRATEGIES Examples Most banks would go for the expansion strategy if they set up new branches in other parts of the country Supermarkets (Giant, Tesco) Petrol stations (Petronas, Shell) Fast food chain outlets (Kentucky Fried Chicken, Secret recipe) Other franchisees as in Sugar Bun, London Optical and local Restaurants
22. 2. THE INTEGRATION STRATEGY Main objective of an integration strategy is to seek control of its operations. Control here refers to the activities along the supply chain right from the raw material production until the purchase of the final product by the ultimate consumer
23. 2. THE INTEGRATION STRATEGY (cont) As an Example A furniture manufacturer would buy the sawn timber as its raw materials and subject them to a series of processes to finally assemble to a furniture form (dining set). The sawn timber were subjected to planing, cutting to various shapes and sizes, drilling, laminating, moulding, holing, fixing, joining, sand papering, varnishing, painting and perhaps finally aseembling them to dining tables and chairs
24. SEVERAL INTEGRATION STRATEGIES There are several intergration strategies that coud be opted for 1. Backward integration strategy: If the owner of the furniture manufacturer would like to have control of its inputs, then he is going for a backward integration strategy. This strategy enables the owner to have control of the raw material supply in terms of its pricing, quality, delivery, choice of material, source of the supply and various other activities
25. SEVERAL INTEGRATION STRATEGIES (cont.) 2. Foreward Integration Strategy where the owner would prefer to have control on the value added activities down the line once the manufactured products are sold to the wholesaler. The service sector would The activities that follow after a product has been manufactured could be packaging, the bulk sold to the wholesaler for distribution to the retailers and final sales by the retailers to the final consumers through furniture shops or perhaps nowadays to the furniture supermarkets the most reknown globally being IKEA look at other activities that could be added to the customers like financial/investment advice to the banks, clients, membership offers to the hotel clients, hotel chain links to the airline clients, 24 hour after sales service to the automobile buyer and many more The forward and backward integration strategies sometime labelled as vertical integration strategy to differentiate them from the next strategy that follows
26. SEVERAL INTEGRATION STRATEGIES (cont.) 3. Horizontal Integration Strategy Also deals with the objective of wanting to control the business operations. In this concerned person wants to control not the raw material supply or the value-added activities, but the competitors Adopting the horizontal integration strategy reduces this competition as the company opts for an acquisition, joint venture or even strategic alliance as part of its effort to reduce competition. The latter are all tactical strategies which is classified as another level of strategy
27. 3. DIVERSIFICATION STRATEGIES Diversification basically means to add variety Thus a company wanting to diversify is looking from the corporate level at how to increase the variety of its activities
28. SEVERAL DIVERSIFICATION STRATEGIES 1. Concentric Diversification Strategy Suggests that a company would want to increase the variety of its manufactured products that are related to its present operations. Or some would prefer to associate the activities as within its current sector. This strategy not only adds the varieties but would add another source of revenues if the present market is saturated
29. SEVERAL DIVERSIFICATION STRATEGIES (cont.) 2. Conglomerate Diversification Strategy Deciding on a conglomerate diversification strategy would be adding variety in altogether a different or unrelated sector. A furniture manufacturer goes into the hotel business, a food manufacturer builds a few chalets for the tourists, a car dealer sets up a fruit cordial bottling plant and a bread manufacturer starts selling automobiles. All the examples indicate venturing into a totally unrelated sector
30. SEVERAL DIVERSIFICATION STRATEGIES (cont.) 3. Horizontal Diversification Strategy Rarely used nowadays Refers to a company having to diversify because of requests by its regular clients. In order for it to continue doing business with the regular clients, it is somewhat obliged to meet the request. A simple request by a regular customer (in an office) for a car shampoo from a newspaper delivery service could be easily met
31. SEVERAL DIVERSIFICATION STRATEGIES (cont.) 4. Geographical Diversification Strategy This is where a company goes into a new country for the first time to carry out its current business activites. Although no new variety is added, the “new variety” covers the new country as market development strategy (functional level strategy) rarely talks about going into a new country. Again this strategy is rarely used but still has its own domain. Thus going into a new territory or region within the same country is not considered as geographical diversification
32. 4. TURNAROUND STRATEGIES Strategies that are grouped together as they all represent actions commonly used in corporations facing some difficulties in their operations as reflected in their negative performance indicators. Such indicators are like negative growth rate, rate of return, profitablility, dividends payout or even making losses
33. SEVERAL TURNAROUND STRATEGIES A. Retrenchment Strategy The first likely option that is considered is to cut costs
34. SEVERAL TURNAROUND STRATEGIES (cont.) B. Divestiture Strategy Interpreted in several ways: Divestiture refers to “to get rid off”; some treat “divestment” as the same as divestiture
35. SEVERAL TURNAROUND STRATEGIES (cont.) C. Liquidation Strategy Extreme of the turnaround strategy If even after retrenchment and divestment is not able to turnaround the company, then liquidation is the only alternative left
36. THE TACTICAL STRATEGIES All the above mentioned strategies, namely the Grand and the Secondary strategies are not implementable in the sense that there needs to be an enabler or a vehicle for the strategies to be implemented. Figure 5.6 helps to clarify this matter. These enablers are termed as the Tactical Strategies as they are the ones that will allow the various Grand and Secondary strategies to be acted upon
37. THE TACTICAL STRATEGIES (cont.) Organically Joint Venture Merger Acquisition Reverse takeover Strategic alliances Licensing Franchising