Grand Strategies: Zakir Patel

Chapter 5 GRAND STRATEGIES
ZAKIR PATEL
MEANING
Grand strategy is a detail, long-term plan
In this there are four main strategies: 1) Stability strategy 2) Growth/Expansion Strategy 3) Retrenchment strategy 4) Combination strategy
of important actions by which a firm plans to achieve its major objectives.
1. STABILITY STRATEGY
Maintain present course of action and continue as earlier
Examples
SAIL operational efficiency
Cigarette, Liquor strict regulation
When and Why Stability?

1. Managers of small business desire a satisfactory level of profits 2. Maintenance of status quo involves less risk 3. Change may upset the smooth operations and result in poor performance 4. Inertia for change. 5. Forced to adopt stability strategy IN low-growth or nogrowth industry. 6. Cost of growth is more than the benefits of the same. 7. Firms that dominate its industry through their superior size and competitive advantage may pursue stability to reduce their chances of being prosecuted for engaging in monopolistic practices. 8. Smaller firms concern for reduced quality and customer service.
Variants of Stability
1. Incremental growth strategy: a. the organization is doing well currently b. the organization does not want to take more risk c. the organization faces resistance to change d. it is easier to adopt as it does not disturb the routine of an organization 2. Profit strategy: a. product is in stable or declining market b. product is not prestigious product c. market share is small and increase is costly 3. Sustainable Growth strategy: lack of resources like raw materials, government policy etc 4. Stability as a Pause strategy: whose past history is full of growth
GROWTH STRATEGY
WHEN TO PURSUE GROWTH STRATEGY:
Level Of Objectives Increase To increase profits, sales and/or market share. To reduce cost of production per unit. When firms increases the scope of their customer groups, customer functions and alternative technologies either singly or in combination with each other.
WHY growth?
SURVIVAL in changing environment Economies of scale. Managerial motivation Managers with high degree of achievement and recognition always prefer to grow. Intangibles advantages of growth increased prestige of the organization, satisfaction to employees and social benefits.
Types of Growth / Expansion Strategies:

(i) CONCENTRIC EXPANSION STRATEGY: expand the present line of business Market Penetration: Example: Reliance has captured substantial market share in textile yarn and intermediaries Example: ITC has captured substantial market share in cigarettes. Market Development: Example: rural marketing by HUL (personal products), Colgate (oral care products), LG (TV) Product Development: through product innovation so as to penetrate in new segment. Example: slim line TV, Plasma TV, etc.
Benefits of concentric growth

i. invest more in known business rather than unknown ones. Eg. Bajaj Auto It involves minimal organizational changes. ii. specialize by gaining an in depth knowledge of these businesses. iii. Managers face fewer problems when dealing with known situations. iv. Past experience is valuable.
Limitations of concentric growth

Concentration strategies are heavily dependent on the industry. Factors like product obsolescence, and emergence of newer technologies are threats to concentrated firms. Concentration strategies may result in doing too much of a known thing. This may create an organizational resistance
ii. INTEGRATION STRATEGY
Vertical Integration
Forward Integration Backward Integration
Horizontal Integration
iii. DIVERSIFICATION STRATEGY
Concentric Conglomerate
3. RETRENCHMENT STRATEGY
1- Turnaround: Eliminating unprofitable outputs, pruning/cutting assets, reducing size of work force, rethinking firms products lines and customer groups. 2- Divestment: sell one of business units 3- Liquidation: last resort strategy
Strategies in Action
Vertical Integration Strategies

Forward integration Backward integration
Horizontal Integration integration
16
Prof. Dr. Majed El-Farra 2009
Forward Integration
Defined
Example
Gaining ownership or increased control over distributors or retailers

17
General Motors is acquiring 10% of its dealers.
Backward Integration
Defined
Example
Seeking ownership or increased control of a firms suppliers

18 Prof. Dr. Majed El-Farra 2009
Motel 8 acquired a furniture manufacturer.
Horizontal Integration
Defined
Example
Seeking ownership or increased control over competitors

19 Prof. Dr. Majed El-Farra 2009
Palestinian Islamic Bank acquired CairoAmman Bank Islamic transaction branch.
Intensive Strategies

Market penetration Market development Product development
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Market Penetration
Defined
Example
Seeking increased market share for present products or services in present markets through greater marketing efforts
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Ameritrade, the online broker, tripled its annual advertising expenditures to $200 million to convince people they can make their own investment decisions.
Market Development
Defined
Example
Introducing present products or services into new geographic area
Khuzendar Tiles maker introduce his product to Gulf markets.
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Product Development
Example Defined

Seeking increased sales by improving present products or services or developing new ones
23
Apple developed the G4 chip that runs at 500 megahertz. Khuzendar Tiles maker introduce Ceramic as a new product.
Diversification Strategies

Concentric diversification Conglomerate diversification Horizontal diversification
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Concentric Diversification
Example
Defined
Adding new, but related, products or services
National Westminister Bank PLC in Britain bought the leading British insurance company, Legal & General Group PLC.
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Conglomerate Diversification
Example
Defined
Adding new, unrelated products or services
ITC hotels, stationary, cigarettes, soaps and other fmcg products
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Defensive Strategies

Joint venture Retrenchment Divestiture Liquidation
27
Joint Venture
Defined
Example
Two or more sponsoring firms forming a separate organization for cooperative purposes
28
Lucent Technologies and Philips Electronic NV formed Philips Consumer Communications to make and sell telephones.
Guidelines for Joint Venture

Combination of privately held and publicly held can be synergistically combined Domestic forms joint venture with foreign firm, can obtain local management to reduce certain risks Distinctive competencies of two or more firms are complementary Overwhelming resources and risks where project is potentially very profitable Two or more smaller firms have trouble competing with larger firm A need exists to introduce a new technology quickly
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Retrenchment (turnaround)
Defined
Example
Regrouping through cost and asset reduction to reverse declining sales and profit. Sometimes it is called turnaround or reorganizational strategy.
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A company sold off a land and 4 apartments to raise cash needed. It introduce expense effective control system.
Guidelines for Retrenchment

Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies Firm is one of the weaker competitors Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. When an organizations strategic managers have failed Very quick growth to large organization where a major internal reorganization is needed.
31
Divestiture
Defined
Example
Selling a division or part of an organization
Harcourt General, the large US publisher, is selling its Neiman Marcus division.
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Guidelines for Divestiture

When firm has pursued retrenchment but failed to attain needed improvements When a division needs more resources than the firm can provide When a division is responsible for the firms overall poor performance When a division is a misfit with the organization When a large amount of cash is needed and cannot be obtained from other sources.
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Liquidation
Defined
Example
Selling all of a companys assets, in parts, for their tangible worth

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A factory selling all its assets and cease business.
4. COMBINATION STRATEGIES
Example: The Tube Investments of India (TI), a Murugappa group company, has created strategic alliances in its three major businesses: tubes, cycles, and strips. In cycles, it has entered into regional outsourcing arrangements with the UP-based Avon (which we could term as co-opetition, as Avon is TIs competitor in the cycle industry) and Hamilton Cycles in the western region. In steel strips, TI has entered into a manufacturing contract with Steel Tubes of India, Steel Authority of India, and the Jindals.
Why to pursue?
Different products in different PLC Business cycles Number of businesses

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Chapter 5 GRAND STRATEGIES

of important actions by which a firm plans to achieve its major objectives.

Maintain present course of action and continue as earlier

Cigarette, Liquor strict regulation

When and Why Stability?

WHEN TO PURSUE GROWTH STRATEGY:

Types of Growth / Expansion Strategies:

Benefits of concentric growth

Limitations of concentric growth

ii. INTEGRATION STRATEGY

iii. DIVERSIFICATION STRATEGY

Forward integration Backward integration

Horizontal Integration integration

Prof. Dr. Majed El-Farra 2009

Gaining ownership or increased control over distributors or retailers

General Motors is acquiring 10% of its dealers.

Prof. Dr. Majed El-Farra 2009

Seeking ownership or increased control of a firms suppliers

Motel 8 acquired a furniture manufacturer.

Seeking ownership or increased control over competitors

Palestinian Islamic Bank acquired CairoAmman Bank Islamic transaction branch.

Market penetration Market development Product development

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Introducing present products or services into new geographic area

Khuzendar Tiles maker introduce his product to Gulf markets.

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Concentric diversification Conglomerate diversification Horizontal diversification

Prof. Dr. Majed El-Farra 2009

Adding new, but related, products or services

Prof. Dr. Majed El-Farra 2009

Adding new, unrelated products or services

ITC hotels, stationary, cigarettes, soaps and other fmcg products

Prof. Dr. Majed El-Farra 2009

Joint venture Retrenchment Divestiture Liquidation

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Selling a division or part of an organization

Prof. Dr. Majed El-Farra 2009

Prof. Dr. Majed El-Farra 2009

Selling all of a companys assets, in parts, for their tangible worth

A factory selling all its assets and cease business.

Prof. Dr. Majed El-Farra 2009

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