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CHAPTER 7:
STRATEGY
FORMULATION:
GRAND AND
FUNCTIONAL
STRATEGIES
INTRODUCTION
• Additional and more specific strategies complementing the generic

strategies are needed
• Grand strategies: a comprehensive general approach that guides a
firm’s major actions
• Principal grand strategies:
– External growth strategies
– Internal growth strategies
– Decline strategies
– Corporate combination strategies
– Figure 7.1 The relationship between Porter’s generic strategies
and grand strategies (see next slide)
Introduction (continued)
Figure 7.1 The relationship between

Porter’s generic strategies and
grand strategies
GRAND STRATEGIES
A grand strategy can be described as a comprehensive general

approach that guides a firm’s major actions.
• Grand strategies can be broadly grouped into three types:

– Growth strategies
– Decline strategies
– Corporate combinations
Grand strategies (continued)
Figure 7.2 The three groups of grand strategies

INTERNAL GROWTH STRATEGIES
Concentrated growth
• Known as market penetration strategy
• Used to increase the market share of an organisation through
concentrated marketing efforts
• Stays focused on present market and present product/services
• Tries to increase the usage rate of present customers, attract non-
users to buy the product, and/or attract competitors’ customers and
convince them to switch brands
• Effective if specific conditions prevail
Internal growth strategies (continued)
Market development
• Involves expanding the portfolio of the markets the organisation
serves
• Existing products/services – new markets
• Effective when specific conditions prevail
Product development
• Product development focuses on improving and modifying the
organisation’s products and services in order to increase sales
• Existing markets – new/improved products
Innovation
• Endeavours to create new product life cycles that will make similar
existing products or services obsolete – also targets new markets
Diversification
• Diversification strategies are typically associated with corporate
strategies and growth.
• Adding new but related products and services to the product line =
related diversification or concentric diversification
• Refers to businesses diversifying into related markets or industries
• Unrelated or conglomerate diversification involves adding new,
unrelated products or services in an effort to reach and penetrate
new markets
Diversification (continued)
• Methods by which an organisation can pursue unrelated

diversification:
– Buying a high-performing organisation in an attractive industry
– Buying a cash-strapped organisation that can be turned around
quickly through additional capital investment
– Buying an organisation whose seasonal and cyclical sales patterns
would provide stability to the cash flow and profitability of the
organisation
– Buying a largely debt-free organisation to improve the borrowing
power of the acquiring organisation
Diversification (continued)
• Benefits of diversification:
– More attractive scope that can provide opportunities for faster
growth, higher profitability and greater stability
– Access to key resources like capital, technology and expertise
– Sharing of value chain activities to provide greater economies of
scale and thus lower total cost
• Such diversification strategies have several associated risks

EXTERNAL GROWTH STRATEGIES
Integration
• Gaining control of suppliers, distributors or competitors in a
particular industry to enhance the effectiveness and efficiency of the
organisation
• Three types: (Figure 7.3, see next slide)
– Vertical integration
» Backward vertical integration
» Forward vertical integration
» Benefits and risks
– Horizontal integration – mergers, acquisitions and takeovers
External growth strategies (continued)
Integration (continued)
Figure 7.3 Integration strategies

DECLINE STRATEGIES
• Defensive strategies pursued when an organisation is in a vulnerable

position as a result of poor management, inefficiency or
ineffectiveness.
• The national and international recession of 2009 changed the way

organisations conduct business. The Covid-19 pandemic has also
played a role in the decline of South African businesses.
Decline strategies (continued)
Retrenchment or turnaround
• Some organisations find themselves in a situation where their profits
are declining.
• A turnaround strategy focuses on strengthening the distinctive
competencies of the organisation in order to break the downward
spiral with regard to sales and profits.
• Turnaround strategies are appropriate for organisations that have
distinctive competencies but have been managed poorly or have
grown too quickly and therefore need major re-organisation in order
to survive.
Divestiture
• Selling a division or part of the organisation to raise capital for
further acquisitions or investments
• In diversified organisations divestiture will entail selling one or two
units that have become liabilities in the portfolio of the organisation
due to poor profitability, which often results from a lack of expertise
or increased competition in a particular industry.
Liquidation
• Selling all the assets of the organisation in an attempt to avoid
bankruptcy
• Pursued if above strategies fail
• Planned and orderly strategy to cut losses for stockholders
• Emotional decision
• What happens if failure is inevitable?
• Consider bankruptcy
Bankruptcy
– No hope of turning activities around
– Assets of the organisation are sold in parts for their tangible worth
– Declare bankruptcy to avoid major debt obligations and union
contracts
CORPORATE COMBINATION
STRATEGIES
• Joining efforts and working together to achieve goals

Corporate combination strategies (continued)
Joint ventures
• A temporary partnership formed by two or more organisations for the
purpose of capitalising on a particular opportunity.
– Partners contribute own skills and resources
– Share equal ownership
• An attractive strategy when the distinct competencies of two or
more organisations complement each other.
Strategic alliances
• Organisations share skills and expertise (but not ownership) in a
business venture for a defined period, usually linked to the life cycle
of a specific project.
• Ideal for organisations that want to venture into new and unfamiliar
markets.
Consortia
• Multi-partner alliances and highly complex linkages between groups
of organisations
Risks of combination strategies

• Partners becoming incompatible over time
• Partners becoming too dependent on each other
• Risk of providing partners with more insight into their knowledge and
skills base than intended
• Organisations cannot effectively limit how their partners’ use the
knowledge gained from cooperation
• Corporate combination strategies can become very cost-intensive
COMBINATION OF GRAND STRATEGIES
• Few organisations will embark on a strategy that is a pure form of

just one of the grand strategies described above. Usually they
integrate two or more of these strategies in order to achieve their
objectives.
• See Strategy in action 7.7 (page 207).
FUNCTIONAL STRATEGIES
• Must be formulated to ensure that all organisational units, divisions,

departments and project teams do what is required in order to
implement the strategy successfully.
• Functional level objectives involve tactical planning decisions that
are concerned with selecting the most efficient means and pursuing
the goals set out in the strategic plan of the organisation.
• The balanced scorecard enables managers to evaluate the
organisation from four perspectives, namely financial performance,
customer knowledge, internal organisation processes, and learning
and growth.
• See Strategy in action 7.8 (page 209).
CONCLUSION
• Grand strategies are pursued by organisations to achieve

competitive advantages based on cost leadership, differentiation and
focus.
• Three categories: growth strategies, decline strategies and corporate
combination strategies.
• Depend on organisation’s access to resources.
• Once an organisation has finalised its strategy, functional strategies
have to be formulated.
• Case study: The Foschini Group Limited
• Cohesion case study: Shoprite Checkers

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CHAPTER 7:

• Additional and more specific strategies complementing the generic

Figure 7.1 The relationship between

A grand strategy can be described as a comprehensive general

• Grand strategies can be broadly grouped into three types:

Figure 7.2 The three groups of grand strategies

• Methods by which an organisation can pursue unrelated

• Such diversification strategies have several associated risks

Figure 7.3 Integration strategies

• Defensive strategies pursued when an organisation is in a vulnerable

• The national and international recession of 2009 changed the way

• Joining efforts and working together to achieve goals

Risks of combination strategies

• Few organisations will embark on a strategy that is a pure form of

• Must be formulated to ensure that all organisational units, divisions,

• Grand strategies are pursued by organisations to achieve

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