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Chapter 5 - Corporate Level Strategy

This chapter discusses corporate level strategies including growth strategies like organic and inorganic expansion, stability strategies, and retrenchment strategies. It covers strategic tools like the BCG growth-share matrix and explains various types of corporate growth through mergers, acquisitions, alliances, and diversification. The key aspects of defining a corporate profile and pursuing global strategies are also summarized.

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Ngan Nguyen
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144 views23 pages

Chapter 5 - Corporate Level Strategy

This chapter discusses corporate level strategies including growth strategies like organic and inorganic expansion, stability strategies, and retrenchment strategies. It covers strategic tools like the BCG growth-share matrix and explains various types of corporate growth through mergers, acquisitions, alliances, and diversification. The key aspects of defining a corporate profile and pursuing global strategies are also summarized.

Uploaded by

Ngan Nguyen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 5

Corporate Level
Strategy

Chapter 5 – Corporate Level Strategy 1


Learning Objective

 To understand process of defining and


identification of the corporate profile
 To understand how organisation makes decision
on single / multi business
To understand the Growth and Stability strategy
To learn about retrenchment strategy
 To understand BCG growth share matrix
To evaluate global corporate strategy

Chapter 5 – Corporate Level Strategy 2


Introduction to Corporate Level Strategy

• With scale and complexity of modern business are


becoming volatile and global

• Market expects continuous innovation

• Corporate strategy is a long term strategy


encompassing the organisation, formulated to deal
with complexity and foster innovation

• Corporate strategy must ensure organisational


compliance to achieve the stated goals
Chapter 5 – Corporate Level Strategy 3
Corporate Profile

• Top management is entrusted with clearly defining the


corporate profile of the organisation

• With deliberations, top management may choose to


operate in any of the following types of businesses-
• Operate in single industry
• Operate in multiple related industry
• Operate in multiple unrelated industry

• Companies operating in single industry are


susceptible to cyclical downturns and any adverse
changes in the business environment
Chapter 5 – Corporate Level Strategy 4
Corporate Profile

• The motivation of a company to diversify comes from


the fact that it complements its core business and
helps the organisation to mitigate uncertainty and
risks

• Diversification enables a company to grow its


revenues, profits, potentially use its resources more
effectively

• The strategy to become successful is to analyse the


entire market landscape and identify right fit that
complements the company’s strategy
Chapter 5 – Corporate Level Strategy 5
Corporate level strategies

• Corporate level strategies include


• Organic Growth
• Inorganic Growth
• Stability Strategy
• Retrenchment strategy
• Turnaround Strategy
• Divestment Strategy
• Liquidation Strategy

• Inorganic Growth involves Horizontal Integration,


vertical integration, conglomerate diversification and
mergers and acquisition
Chapter 5 – Corporate Level Strategy 6
Growth Strategy – Organic Growth

• Organic growth can be achieved by


• Increasing production capacity
• Enhancing sales revenue
• Increasing the manpower

• Enables company to leverage its expertise and


preserve its corporate culture

• Expansion of business happens at a controlled pace


by growing existing business

Chapter 5 – Corporate Level Strategy 7


Growth Strategy – Inorganic Growth

• Enables the company to grow more rapidly and the


size of organisation can multiply

• Key challenges involved in inorganic growth is


managing the integration in diversified culture

• The inorganic growth can happen through mergers


and acquisitions, takeovers, buying significant stake

Chapter 5 – Corporate Level Strategy 8


Inorganic Growth – Horizontal expansion

• Company acquires another company in the same line


of business

• Process enables the company operating in single


industry to grow rapidly

• Primary focus strategy is to


• multiply the market share of the combined entity
• Expand into new geographies
• Create economies of scale
• Increasing purchase power
Chapter 5 – Corporate Level Strategy 9
Inorganic Growth – Horizontal
diversification
• Objective is to create synergy by transferring the
capabilities and credentials of the target company
with the core business

• Acquire complementing capabilities, new skills, new


customers, increasing the overall value proposition

• Resultant synergy of combined entities provides


higher effectiveness and efficiency, and empower the
company to participate in more market opportunities

Chapter 5 – Corporate Level Strategy 10


Inorganic Growth – Vertical integration

• Refers to an organisational expansion by acquiring a


company in the distribution channel

• Full vertical integration is achieved when on


organisation is able to perform all the activities in the
entire value chain of business

• Backward integration – when company acquires its


suppliers

• Forward integration – When the company acquires its


distribution channel / customer
Chapter 5 – Corporate Level Strategy 11
Inorganic Growth – Mergers and
Acquisition
• Merge is a corporate level strategy in which a firm
combines with another form through an exchange of
stock

• Large enterprises often acquire smaller competitors


often to expand products and services

• Combined entity posses all strengths of individual


companies.

Chapter 5 – Corporate Level Strategy 12


Strategic Alliances and Partnerships

• Works for corporate who do not wish to build every


capability in-house

• Short term base alliance – purely entered for a


particular project duration

• Long term alliance – there is continuous engagement


between the partners over an extended period of time

• Mainly pursued for economic or technological


reasons
Chapter 5 – Corporate Level Strategy 13
Stability Strategy

• Strategy in which a company maintains its current


fields of business operations

• Enables company to focus its managerial efforts to


enhance the existing business units

• During tough times cost of adding new business may


exceed the potential benefits, hence the stability
strategy works

• Organisation might want to maintain the same


operations, by doing more with less
Chapter 5 – Corporate Level Strategy 14
Reasons for Stability Strategy

• Slowdown of economy and declining demand for


company’s products

• In tough times, costs associated with growth may


exceed the potential business benefits

• Organisation has constraints on its resources to


adopt growth strategy for valid reasons

• Regulators not allowing any further increase in


market share to restrict competition

Chapter 5 – Corporate Level Strategy 15


Corporate Restructuring Strategy

• Includes actions such as –


• realigning the lines of businesses and business
units,
• altering the management structure
• Retrenchment of people by taking a bottom-up
approach
• Redefining the delegation of authority
• Divesting the business units which are not
profitable

• Corporate also do voluntary restructuring to mitigate


the risk of hostile takeover
Chapter 5 – Corporate Level Strategy 16
Turn-around Strategy

• Turnaround strategy transforms the company into a


leaner, meaner and effective organisation

• Are often accompanied by changes in the macro


environment, industry order, competition behaviour

• Turnaround may also is results of corporate


governance issues

• Organisation must have proper communication with


all employees during the turnaround process

Chapter 5 – Corporate Level Strategy 17


Divestment Strategy

• When industry is on decline the organisation may


decide to sell off certain unprofitable businesses

• Divestment strategy is also used to pay-off corporate


debt by a strategic sale

• Divestment strategy can aim either to completely


spin-off the business and liquidate or to revive
business

• Liquidation strategy is a last resort for the corporate


to sell-off the entire business
Chapter 5 – Corporate Level Strategy 18
BCG Growth Share Matrix

Organisations use BCG Matrix which classifies


business units under the following key categories and
recommends business strategies-

• Cash Cow- Company has high market share in a


slow growing industry. Limited investment is required

• Dogs- Units with low market share in a mature, slow


growing industry. These Units are mostly operating at
break even

Chapter 5 – Corporate Level Strategy 19


BCG Growth Share Matrix

Organisations use BCG Matrix which classifies


business units under the following key categories and
recommends business strategies-

• Question Marks-Business Unit operating in a high


market growth, but having low market share.
Primarily, start ups fall under this category

• Stars – Units with high market share in a fast


growing industry. Stars require high level of funding
to fight competition, create market visibility and
maintain growth rate
Chapter 5 – Corporate Level Strategy 20
Balanced Strategy

• Organisations can build market share with stars and


question marks

• Corporate strategy can be to hold the market share


with the cash cows

• Corporate strategy is to harvest more and milk as


much short term cash from the business as possible

• Strategy to divest the business unit partially or


completely to provide cash back to the corporation

Chapter 5 – Corporate Level Strategy 21


Pursuing global strategy

• Reasons for which the company changes its strategy


from domestic orientation to global orientation
• Pursuing global markets
• Helps to extend the product life cycle
• Setting up facilities abroad
• Also helps organisations to reduce risks
• Helps company to leverage the technology
expertise of partner in another country

Chapter 5 – Corporate Level Strategy 22


Summary
• Each type of strategy has its own benefits and
limitations

• Corporate should make the choice of the business


strategy as per the laid down vision
• Growth
• Stability
• Retrenchment

• BCG matrix helps strategic managers to manage


various business units

Chapter 5 – Corporate Level Strategy 23

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