Corporate Performance Management STRATEGY Corporate Performance Management STRATEGY.
Corporate Strategy
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Transcript of Corporate Strategy
Choice of direction for the corporation as a whole
Corporate strategy involves decisions relating to choice of businesses, allocation of resources among different
businesses, Transferring skills & capabilities Nurturing a portfolio of businesses so as to
obtain synergies
1. What businesses should the 1. What businesses should the corporation be in?corporation be in?
2. How should the corporate office 2. How should the corporate office manage the array of business units?manage the array of business units?
Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts
Key Questions of Corporate StrategyKey Questions of Corporate Strategy
Stability strategy Expansion strategy Retrenchment strategy Combination strategy
Abundant environmental opportunities
Critical environmental threats
Continuing the current activities without any significant change
Firms attempt to maintain their size, level of production and sales
Serving almost the same customer groups, performing same customer functions
If the firm is doing well and perceives itself as successful, it is less easy & comfortable to follow this strategy
Managers of small business desire a satisfactory level of profits rather than increased profits
Changes of any form may disrupt the current working relationships & may be detrimental to organization
If the external environment is highly dynamic and unpredictable it is less risky to follow stability strategy
Change may upset smooth operations & result in poor performance
Changing operations to pursue growth strategy requires an increased investment. Firm’s which can not provide resources may continue stability
Firms may find that the cost of growth is more than the benefits of same
Pause/ proceed with caution strategy No change strategy Profit strategy/ sustainable growth strategy
There is a danger of product obsolescence due to changing environment in following stability strategy. Hence, firms plan for adopting growth strategies.
Internal Growth by expanding firm’s operations External growth through mergers. Acquisitions,
JVs or strategic alliances
Reasons for pursuing growth strategy: To obtain economies of scale To increase profits To be market leader To fulfill natural urge for growth To ensure survival
Types of Growth StrategiesTypes of Growth Strategies
Organizational
Growth
HorizontalIntegration:
Along Value Chain
International Concentration
Diversification•Related Businesses•Unrelated Businesses
Vertical Integration•Related Businesses•Unrelated Businesses
Organization concentrates on its primary lines of business and looks for ways to meet its growth objectives through increasing its level of capability in this primary business
Product-Product-Market Market
ExploitationExploitation
Product Product DevelopmentDevelopment
Market Market Focused Focused
DevelopmentDevelopment
Product/Product/Market Market
DiversificatioDiversificationn
Cu
stom
ers
Product(s)
Present
New
Present New
Focusing intensely on existing market with present products
Selling more products to the same market
Increasing Usage of product byLow pricing
Attractive offersother strategies,
Ex- Colgate toothpaste
Attracting competitor’s customers byIncreasing promotional effortsestablishing sharper brand differentiationprice cuts
Attracting nonusers to buy the product byInducing trial use through samplingAdvertise new usesOffer special prices Increase product availability
Current markets are not saturated Usage rate of present customers is low Economies of scale can bring down the
costs Market share of major competitors are
declining
Selling same products to new markets Entering other channels of distribution Attracting new users for existing product
For example: Offering same product with a different pricing to a different set of customers-
“RIN supreme” was launched with a name of “RIN shakti” for the middle class users of detergent cake.
Clinic plus shampooCadbury’s dairy milk
New untapped markets exist New channels of distribution are
available Firm has excess production capacity Firm’s industry is becoming rapidly
global The firm has resources for expanded
operations
Selling new products to the same markets Introducing newer products in the existing
markets. Change styles, options and colours
available Example:
Fair n handsome Bournvita for women Variety of shampoos
Firm’s product are in maturity stage Rapid technological developments are
there in industry Firm is in a high growth industry Competitors bring out improved quality
products from time to time Firm has strong R & D capabilities
Benefits of adopting concentration strategies
It is less risky
Involves minimal organizational changes
Firms may gain specialization
enables a firm to develop competitive advantage
Higher level of predictability
Limitations of concentration strategies Risk of being heavily dependent on one
industry
Threats like product obsolescence , substitute products, emergence of new technologies may be detrimental to a firm
Sometimes this may create an organizational inertia
This strategy may lead to cash flow problems
Few examples of concentration strategies Unilever to introduce Sunsilk shampoo
in US. Currently sold in Europe, Latin America and Asia.
Coca-Cola to launch Diet Coke Sweetened with Splenda
Campbell plans advertising campaign for its soups.
Frito-Lay removes trans fats from its salty snack products.
Reasons for change of a firm from concentration strategy
Temptation of diversification Underestimation of present
opportunities Impatience to grow Overconfidence Siren song of integration Pressure to use idle capacity
Integration strategies
Combining activities related to the present activity of a firm.
Firm may move up or down the value chain
More comprehensive concentration on the customer groups and needs that firm is already serving
Widening the scope of business definition
Retailer
Raw Materials
Distributor
Product Producer
Primary Manufacturing
Retailer
Backward Integration
Forward Integration
Horizontal Integration
Horizontal IntegrationHorizontal Integration
– Seeking ownership or increased control Seeking ownership or increased control over competitors through acquisition and over competitors through acquisition and mergermerger
– Results in bigger size with concomitant Results in bigger size with concomitant benefits of a stronger competitive position benefits of a stronger competitive position in the industryin the industry
– Ex- horizontal integration by the Ex- horizontal integration by the amalgamation of United western bank into amalgamation of United western bank into IDBIIDBI
Few more examples..
An automobile company’s acquisition of a sport utility vehicle manufacturer
A media company's ownership of Radio, television, newspaper, magazines or books
A shoe manufacturing company’s acquisition of a sport shoe manufacturing company
Advantages of Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by federal government
Competes in growing industry
Increased economies of scale provide major competitive advantages
Increased product differentiation
Reduction in industry rivalry
RISKS ASSOCIATED WITH HORIZONTAL INTEGRATION
Horizontal integration increases size which may attract the provisions of MRTP Act or other anti-trust laws
Faltering due to lack of managerial expertise or need for particular resources
Integration StrategiesIntegration Strategies
Vertical Integration Strategies
Forward Integration
Backward Integration
Vertical Integration strategiesVertical Integration strategies
Allow a firm to gain control over:Allow a firm to gain control over: DistributorsDistributors SuppliersSuppliers competitorscompetitors
Vertical Integration Strategies
Forward Integration –Forward Integration –
– Gaining ownership or increased control Gaining ownership or increased control over distributors or retailersover distributors or retailers
Present distributors are expensive, unreliable, or incapable of meeting firm’s needs
Availability of quality distributors is limited
When firm competes in an industry that is expected to grow markedly
Organization has both capital and human resources needed to manage new business of distribution
Advantages of stable production are high
Present distributors have high profit margins
Guidelines for Forward Integration Guidelines for Forward Integration
Wockhardt Group is present in pharma and biotechnology
The company has entered into collaboration with Dr Umesh Gupta of Umkal Group to set-up a multi super-specialty hospital. Umkal group is presently running multi-specialty healthcare institutions at Gurgaon and New Delhi with over 150 beds.
Backward Integration Strategies
Backward Integration –Backward Integration –
– Seeking ownership or increased Seeking ownership or increased control of a firm’s supplierscontrol of a firm’s suppliers
When present suppliers are expensive, unreliable, or incapable of meeting needs
Number of suppliers is small and number of competitors large
High growth in industry sector Firm has both capital and human resources to
manage new business Advantages of stable prices are important Present supplies have high profit margins
Guidelines for Backward IntegrationGuidelines for Backward Integration
Oil and petroleum exploration & production
Advantages of vertical integration
Secure supply of raw materials or distribution channels
Control over the inputs of production & distribution channel
Access to new business opportunities Firm can lower down the selling prices
to end users
Pitfalls in using Vertical integration strategies Increased cost of coordinating integration over
multiple stages of value chain Uneven productivity across different value chain
activities may create either excess capacity or under utilization of resources
Increased mobility and exit barriers Calls for radically different skills and capabilities Outsourcing of component parts may be
cheaper and less complicated than in-house manufacturing
Adding new businesses to the existing business
Diversification StrategiesDiversification Strategies
Diversification Strategies
Concentric Diversification
Conglomerate Diversification
Horizontal Diversification
Diversification StrategiesConcentric Diversification –Concentric Diversification –Adding new, but related, products or Adding new, but related, products or
servicesservices
Technology- related diversification- Technology- related diversification- Addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd.
Marketing related diversification- Marketing related diversification- HUL selling its HUL selling its different products in home & personal care, as well as in different products in home & personal care, as well as in food products through the same retail stores.food products through the same retail stores.
Diversification Strategies
Guidelines for Concentric Diversification –Guidelines for Concentric Diversification –
Competes in no- or slow-growth industry Adding new & related products increases sales of
current products New & related products offered at competitive prices Current products are in decline stage of the product
life cycle Strong management team
Diversification Strategies
Conglomerate Diversification –Conglomerate Diversification –
Adding new, unrelated products or Adding new, unrelated products or servicesservices
Diversification Strategies
Guidelines for Conglomerate Diversification –Guidelines for Conglomerate Diversification –
Declining annual sales and profits Capital and managerial talent to compete
successfully in a new industry Financial synergy between the acquired and
acquiring firms Existing markets for present products are saturated
Metals Automobiles Energy Engineering Chemicals Pharmaceuticals
Consumer Products Services Agro Industries IT and Communication Exports Finance
Hindalco industries- Aluminium, copper, mineral resources Cement- Grasim, ultratech, shri digvijay Carbon black- Aditya Birla Nuvo Ltd,Thai carbon black co.ltd Textiles- Grasim industries ltd, AV cell Inc., Aditya Birla
Nuvo(jay shree textiles) Fertilizers- IndoGulf, birla copper Chemicals- Aditya Birla chemicals India Ltd. Mining- Essel mining & industries ltd Fatty alcohol/ Fatty acids- pan century surfactants Inc. Insulators, Softwares, BPO, Finance and insurance Telecom- Idea Retail- more
Diversification Strategies
Horizontal Diversification –Horizontal Diversification –
Adding new, unrelated products or Adding new, unrelated products or services for present customersservices for present customers
Guidelines for Horizontal Guidelines for Horizontal DiversificationDiversification
Revenues from current products/services would increase significantly by adding the new unrelated products
Highly competitive and/or no-growth industry w/low margins and returns
Present distribution channels can be used to market new products to current customers
New products have counter cyclical sales patterns compared to existing products