Strategic Formulation

Organisational appraisal (vision & mission)

Environmental Analysis (SWOT, TOWS, BCG, GE)

Strategic Formulation
 Corporate Strategies
What you want to achieve (direction): Aligned with
Vision

• Allocating resources among different businesses

of a firm
• Transferring resources from one set of businesses
to others
• Managing & nurturing a portfolio of businesses
• Creating value across businesses in the portfolio
 Corporate Strategies
• Stability strategies (no change, pause or
proceed with caution, profit)
• Expansion strategies (concentration,
integration, diversification,
internationalisation & cooperation)
• Retrenchment strategies (turnaround,
divestment & liquidation)
 I. Stability
Dimensions:
✔ Customer groups (+ institutional)
✔ Customer functions (add on)
✔ Alternative technologies - Incremental
improvement by marginal/operational
change
Special services (customised)
Improvement in services
Different way of doing things (KFC)
1. No change strategy (unchanged environment)
– not inertia but a conscious decision

2. Pause/proceed with caution strategy (testing

the ground) – status quo in all but one area

3. Profit strategy (when “no change” does not

work – ostrich – desperate measures)
 II. Expansion
• High growth (conscious decision)

✔ Environment demands it (Threat)

✔ Competitors strategy
✔ Opportunity (keeping ahead of competition)
✔ Psychological & human tendency for improvement
1. Concentration (defined boundaries)
Ansoff matrix
2. Integration (beyond boundaries)
VERTICAL allows a company to: HORIZONTAL allows a company
• Strengthen its supply chain to:
• Reduce production costs • Increase its size
• Capture upstream or • Diversify its product or service
downstream profits • Achieve economies of scale
• Access downstream distribution • Reduce competition
markets One company • Gain access to new customers
acquires another company that or markets
is either before or after it in • Usually involves the merger or
the supply chain process consolidation of two
Ex: Nike (shoe production and companies in the same
design company) opening a industry
retail store Ex: Disney acquiring Pixar
 3. Diversification strategies (unrelated)
• Concentric/related diversification (business –
level)
✔ Marketing related (ovens + bakeware + cookware)
✔ Technology related (scooters + mopeds + autos + LCV)
✔ Marketing & technology related (geyser + water
heater + vacuum cleaner + washing machine)

• Conglomerate/unrelated diversification
(corporate-level)
✔ ITC, Reliance, Wipro, Godrej, Tata
 Methods of Diversification

• Internal Development (organic growth)

• Acquisition
• Joint Ventures
• Licensing
4. Internationalisation
• Identify examples of companies using each of
the four international strategies.
 International entry modes
• Export
✔ Direct exports
✔ Indirect exports
• Contractual
✔ Licensing
✔ Franchising
✔ Others (technical, service, turnkey, BOT)
• Investment
✔ JV, SA
✔ Independent ventures, wholly owned subsidiaries
5. Cooperative strategies
 III. Retrenchment strategies
• Reduction/Decline in scope of activities
✔ Diagnosis
✔ Analysis

External (new organizations, new dominant

technologies, demand saturation, changing customer
needs & preferences, substitute products)
Internal (Ineffective top management, inappropriate
strategies, resistance to change, poor quality
management, wrong design & structure, excess assets
&high costs, ineffective sales and marketing)
 • Symptoms
❑ Diminishing profitability
❑ Dwindling cash flow
❑ Falling sales
❑ Shrinking markets
❑ Increasing debt
❑ Loss of credibility & goodwill
 1. Turnaround (revival)
• “Sick” unit – vigilant management
✔ Cost efficiencies
✔ Asset retrenchment
✔ Core activities
✔ Future orientation
✔ Reinvigorating leadership
✔ Cultural change
Managing Turnaround
✔ Existing CEO with advisory support
✔ New ad-hoc team (deputed by financial stakeholders)
✔ Replacement of existing team
India
Companies Act, 2013 (5 years incorporated)
Declaration under SICA, 1985 (accumulated losses equal
to or greater than net worth) – Repeal Act on Sick
Industrial Companies, 2003
BIFR (Board for industrial & financial reconstruction) &
AAIFR (Appellate Authority for Industrial & Financial
Reconstruction) – National Company Law Tribunal
(NCLT), National Company Law Appellate Tribunal
(NCLAT)
 2. Divestment strategies
• Also referred to as divestiture or cutback
• Sale or liquidation of a part of the business,
division, SBU
• Adopted only if turnaround strategy has been
unsuccessful
• Can be implemented by (1) separating the sick
entity and operating it as a separate company
in isolation with parent company retaining
partial ownership (2) Outright sale
 3. Liquidation
• Last resort strategy – involves selling off the
assets of the business. A point of no return.
• Legal term in India – Winding up (Companies
Act, 2013
• Can be voluntary by company/creditors or
compulsory by the order of National Company
Law Tribunal
 Strategy Methods
Corporate level Strategy

Stability (1) No change

(2) Pause & Proceed
(3) Profit

Expansion (1) Concentration – Market penetration, market

development, product development,
diversification
(2) Integration – Vertical & Horizontal
(3) Diversification – Concentric & conglomerate
(4) Internationalization – International,
multi-national, global, transnational
(5) Cooperation – JV, M&A, Takeover, Strategic
Alliance

Retrenchment (1) Turnaround

(2) Divestment
 Business-Level Strategies
• Each organisation – many businesses – separate set of
customers – customer needs
• Each business – unique core competencies – competitive
advantage -> competitive strategy
•Competitive strategy
•Industry structure
•Threat of new entrants
•Threat of substitutes
•Rivalry among existing competitors
•Bargaining power of customers
•Bargaining powers of suppliers

•Positioning of firm in Industry

•Competitive advantage
•Competitive scope
Generic Business Strategies(Porter)

BTM

•Overall cost leadership

•Broad differentiation
•Focussed cost leadership
•Focussed differentiation

NTM

LCP/S DP/S
 Cost Leadership
Competence of an organisation to design,
produce & market a comparable product
more efficiently than its competitors.

When core competence/competitive advantage

is lower cost of products/services relative to
competitors. (Value Chain)

Same UTILITY but Lower Cost

Analyse cost drivers in the value chain -> identify
areas for optimisation of costs.
Cost of Production vs. Revenue

One unit – 10 hrs

Labour – Rs. 10 /hr
Every 2000 hrs, maintenance is Rs. 1000
Electricity consumed – Rs. 2/hr
Raw material cost /unit – Rs. 10
 Differentiation
Competitive advantage of an organisation lies in
special features incorporated in
products/services demanded by customers
who are willing to pay for it.
UTILITY that they value.
Stands apart in the market & is distinguishable
by the customers
Premium price – additional cost of providing the
differentiation
 Focus
• Cost/Differentiation – narrow segment
• Niche strategies
• Demographics/Geographic/Lifestyle

• Tyaani / Appollo hospitals

 Integrating cost leadership &
differentiation
• CAD/CAM/Robotics – manufacture small batches
at low cost
• Flexible manufacturing systems (reduce
production costs)
• Economies of scope – used to make small batches
Aravind Eye care – 70-30

Constant review – environmental analysis.