BPSM Types of Strategies Classification of Strategies Once

BPSM Types of Strategies

Classification of Strategies • Once a company completes its mission formulation, environment scan & internal appraisal, it has to think about the choice of strategy alternatives to achieve its objectives. • Strategy can be classified as Grand / Generic / Master / Root strategies which deal with overall strategic action, or programmed strategies that deal with implementation on corporate strategy. • Our focus will be on Grand strategies.

Classification of Strategies • Grand / Master / Root strategies can be of the following four types : • Stability Strategy • Growth Strategy • Retrenchment Strategy • Combination Strategy • We examine each of them separately.

Stability Strategy • Also referred to as the Defensive Approach. • Basic principle is “Maintain the present course”. • It can be implemented when the co. is comfortably satisfied with its current performance and there is no significant environment threat i. e it offers scope for safe business. • Some top level managements are reluctant to change, take risks and hence adopt Stability strategy.

Stability Strategy • If a co. has passed through turbulent environment. It tends to adopt Stability Strategy. • If the cost of changing strategy is very high, a co. will adopt Stability Strategy. • Though small amount of adjustments can be made to the present strategies, it is very insignificant and small.

Stability Strategy • Types of Stability Strategy : • Incremental Growth Strategy : Past objectives adjusted for inflation. It is easy and does not disturb routine of the organization. • Profit Strategy : Gives extra support to a particular product in the decline stage. • Sustainable Growth Strategy : Gives extra resources to a product to remain at a current position. • Stability as a pause strategy : For cos. who’s previous strategies are full of growth adopt Stability strategy to take some time to breath and get ready for further growth.

Growth Strategies • A strategy in which an organization increases its level of objectives upward in significant increments, much higher than an exploration of its past achievement level. It indicates on objective to raise the market share or sales objectives significantly. • It should be differentiated from Normal Growth which can be achieved by Learning Curve. • No strategy can however grow more that 1/3 rd of the Market Share. Why?

Growth Strategies • When & Why do cos. adopt Growth Strategies : • If an org. has stabilized after various growth strategies. Growth – Stability – Growth… • If the envt. offers and permits growth. (FERA / FEMA etc ) • Org. has excess funds ( Plough back profits ) • Present products are in the decline stage – High costs and low revenues. • Growth may offer economies of scale. • Will & skill of management permits growth. • Increase prestige, goodwill, reorganization etc.

Growth Strategies • There are two distinct Growth routes : Internal Expansion Vertical Integration Diversification

Growth Strategies External Mergers Acquisitions & Takeovers Joint Ventures

Internal Growth Routes > 1. 2. 3. 4. 5. 6. Expansion. The process of expansion : Determine options for capacity expansion Access future cost & demand of inputs. Access probable technological change Predict capacity addition by competitors Access demand & supply in industry Determine expected cash flow from expansion. 7. Test the analysis for consistency.

Internal Growth Routes • Vertical Integration : • Backward Integration : Takes place when a company looks for various options through which it can own an important source of raw material. • Forward integration : Takes place when a company looks for various options through which it can own a distribution network for its products.

Internal Growth Routes • Diversification : Entry of an organization into a business which is new to an organization either market wise or technology wise or both. • Types of diversification : • Horizontal integration : Entering similar products or product lines. • Concentric Diversification : Some similar factors can be used by diversification. E. g. : A tea company starts producing other food products to take advantage of its distribution network etc. • Conglomerate diversification : Company enters entirely different product – market segments.

External Growth Routes • Mergers / Absorption / Amalgamation / Reconstruction. • Why : • Quick entry into business • Faster growth rate • Diversification advantage • Reduction in competition • Tax advantage • Synergetic effect.

Mergers • Horizontal Merger : Both cos. have similar products / product lines. • Vertical Merger : One co. is a supplier of the other. • Concentric Merger : Two cos. are either related technology wise or market wise. • Conglomerate Merger : Two cos. have entirely different products and markets

External Growth Routes • Acquisition / Takeover Strategy : • Takes place when one company takes control over the other; • Can be a Mutual takeover or a Hostile takeover. • Joint Ventures : Combined effort of two cos. to form a new co. • 3 types of objectives for JV cos. : Objectives of the 1 st co, objectives of the 2 nd co & objectives of the new company. • Arbitration most important.

Retrenchment Strategies • Comes from the HR when a co cuts its size of employees due to recession / reorganization. • Retrenchment strategy follows the saying “Slow down and take a breath, we have to do better”. • In this strategy a co. decides to improve its performance in reaching its objectives by focusing on functional improvement, reduction in costs, reduction in number of functions it performs by becoming a captive co, reduction in the number of products and markets it serves and also liquidation of business.

Types of Retrenchment Strategies • Turnaround Strategy : • Revenue generating : Only promote those products having high demand. • Cost cutting : Encourage VRS, lower promotion costs etc. • Asset Reduction : Sell off assets that are underperforming. • Combination : Of all of the above three.

Types of Retrenchment Strategies • Divestment Strategies : • Organization decides to get out of a certain business & sells off units / divisions. • Probable reasons : • Inadequate growth rate or market potential • Technology change • Management unable to control business

Types of Retrenchment Strategies • • Liquidation Strategy : Sell off business. Probable reasons : Very uncertain future. Accumulated losses. Some co. offers high price. Less resources to continue. Diversify into other businesses.