Corporate Level Strategies

Corporate level strategies help to exercise the choice of direction that an organization adopts.

What is Corporate Level Strategy?

A corporate strategy refers to the actions that organizations undertake so that the company, or one or more of its business units, gain a competitive advantage which in turn let them carry out the value creation functions at a lower cost or in a way that enables them to differentiate its products and charge a premium price.

These strategies provide answer to the questions such as “what businesses should we be in to maximize the long-run profitability and profit growth of the organization, and how should we enter and increase our presence in these businesses to gain a competitive advantage?

Corporate level strategies are about decisions related to:

• Allocating resources among different businesses of a firm
• Transferring resources from one business to others
• Managing and nurturing the portfolio of business

This strategy is an overall plan of action encompassing all the activities and functions performed by the business firms. The plan covers all the objectives of the company allocation of resources and co-ordination among different levels.

Corporate Strategy is different than business strategy, as it focuses on how to manage resources, risk, and return across a firm. A business strategy, on the other hand, is just concerned with the strategic decision making for an individual business, and looks at how to develop competitive advantages.

Grand Strategic Alternatives

In order to develop a corporate strategy, firms must look at how the various businesses in its portfolio fit together, how they impact each other, and how the parent company is structured, in order to optimize human capital, processes, and governance.

According to W. Glueck and L. Jauch, there are four Grand Strategic Alternatives:

• I. Stability Strategy
• II. Growth Strategy
• III. Retrenchment Strategy (Turnaround, Divestment, Liquidation)
• IV. Combination Strategy

Other than the above Corporate Strategies, there are other strategies such as :

• V. Integration Strategy
• VI. Internationalization Strategy

Businesses may adopt different corporate level strategies such as:

Stability Strategy

Stability strategy refers to the company’s policy of continuing the same business and with the same objectives.

Companies that are doing well in the existing business and see no scope for significant growth usually adopt this approach of maintaining the status quo or involving incremental improvements. This strategy is also less risky for an organization.

Factors/ Reasons for Adopting Stability Strategy: Management Philosophy, Performance, Environment, Less Risk, Resources, Profits, Market Share, Specialization, Strategic Advantage

Types of Stability Strategy:

• Pause/Process with Caution Strategy
• Profit Strategy
• No Change Strategy
• Sustainable Growth

E.g.‘Old Cinthol’ soap from Godrej, continues to be the trusted choice of most customers and one of the top most brands in soaps, especially in rural areas.

When a product is well accepted and has a brand value in the market, the company would want to expand its market base in that particular product segment to win over its competitors.

Adopting a stability strategy does not mean that a firm lacks concern for business growth, it means that their growth targets are modest and they wish to maintain a status quo.

Expansion or Growth strategy

Strategy aimed at winning larger market share, even at the expense of short – term earnings is Growth Strategy.

Examples: Reliance Industry Ltd. started from textile products to petroleum industry, telecommunication, AD Labs, Reliance media work and various other fields. Amazon started by selling only books but today sells almost everything online.

The aim here is to substantially increase the pace of the current business activity. The company may decide to add new products or reach out to new markets in order to generate more revenues from the sale of its products/services.

A company that adopts the growth/expansion corporate strategy may use ways such as – Concentration, Vertical or Horizontal Integration, Diversification, Internationalization – to achieve growth.

Factors/ Reasons for Adopting Growth Strategy: Survival, Innovation, Competitive Advantage, Motivated Workforce, Customer Satisfaction, Corporate Image, Optimum Utilization of Resources. Economies of Scale. Expansion. Spreading of Risks.

Types of Growth Strategy:

• Product Expansion
• Diversification
• Acquisition
• Market Penetration
• Market Expansion

Retrenchment Strategy

The corporate strategy of retrenchment is followed when an organization aims at contraction of its activities through a substantial reduction or elimination of the scope of one or more of its businesses in terms of their respective customer groups, customer functions or alternative technologies – either singly or jointly – in order to improve its overall performance.

Example: A private hospital decides to focus only on special treatment and realize higher revenues by reducing its commitment to general case which is less profitable.

This is more like the opposite of a growth strategy. Retrenchment strategy may require firms to divest a major product line or an SBU, abandon some markets or reduce its functions.

Types of Retrenchment Strategy:

• Turnaround Strategy: Turnaround means backing out, withdrawing or retreating from a decision wrongly taken earlier in order to reverse the process of decline. It is a strategy to convert a loss – making unit into a profitable one. According to the Dictionary of Marketing (by P. H. Collin) “Turnaround strategy means making the company profitable again”.

  Need for Turnaround Strategy: Decline in Profits, Liquidity Problem, Fall in Sales, Under – Utilization of Plant Capacity, High Inventory.

• Divestment Strategy: Involves the sale or liquidation of a portion of business, or a major division, profit center or SBU. Divestment is usually a restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful or it was ignored. This strategy involves dropping some of the products, markets or functions, either through sale or liquidation.

  Reasons for Adopting Divestment Strategy: Withdrawal of Obsolete / Outdated Products. Inability to Face Competition. Problem of Mismatch. Higher Expenditure – Lesser Revenue. High Cost of Technology Up-gradation. Better Investment Alternatives Available. Clear Debt. Fair Returns to Shareholders.

• Liquidation Strategy: Involves closing down the entire firm and selling its assets. It is considered the most extreme and the last resort because it leads to serious consequences such as loss of employment for employees, termination of opportunities where a firm could pursue any future activities, and the stigma of failure. The company management, government, banks and financial institutions, trade unions, suppliers and creditors, and other agencies do not generally prefer liquidation.

  Reasons for Adopting Liquidation Strategy: Incompetence of Entrepreneur. Lack of Proper Inventory Control. Weak Competitive Position. Low Sales. Natural Disaster.

This strategy may require a firm to carry out layoffs, reduce R&D or marketing or other expenditure. Firms may use this strategy if the firm is doing poorly or if there are better opportunities available elsewhere where the firm can better utilize its strengths.

Integration (Combination) Strategy

In this strategy, the organization may adopt a mix of stability, expansion and retrenchment. It may adopt these simultaneously or over different periods for the purpose of improving its performance.

Combination of business that are separate but complementary to each other. It may be between firms from the same industry or different industries that come together to accomplish certain well-defined objectives.

Reasons for Integration Strategy: Association of Business, Risk Factor, Enhance Goodwill, Synergistic Advantage, Optimum Utilization of Resources, Higher Returns, Face Competition Effectively, Economies of Scale, Customers Satisfaction.

Types of Integration Strategies

a. Horizontal Integration

It is a company’s acquisition of a similar or a competitive business it may acquire, but it may also merge with or takeover, another company to strengthen itself—to grow in size or capacity, to achieve economies of scale, to reduce competition and risks, to increase markets, or to enter new markets.

b. Vertical Integration

It is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution.

• Vertical integration integrates a company with the units supplying raw materials to it (backward integration), or with the distribution channels that carry its products to the endconsumers (forward integration).
• For example, a supermarket may acquire control of farms to ensure supply of fresh vegetables (backward integration) or may buy vehicles to smoothen the distribution of its products (forward integration).
• There is a third type of vertical integration, called balanced integration, which is a judicious mix of backward and forward integration strategies.

Internationalization Strategy

A type of expansion strategies that require organizations to market their products or services beyond the domestic or national market.

For doing so, an organization would have to assess the international environment, evaluate its own capabilities and devise strategies to enter foreign markets.

There are several entry options that an organization can choose from – ranging from exporting to setting up wholly –owned subsidiaries.

Mode of Entry in International Markets: Exports, Franchising, Licensing, Joint Venture, Strategic Alliance.

Example Case Study: MTV – Attaining Global Reach

On 1st August 1981, MTV Music Television became the first 24-hour rock music video network in the United States, with a start-up base of 1.5 million subscribers.

By the early 1990s, MTV, which is owned by Viacom International Inc, had more than 55 million subscribers on over 7700 cable affiliates.

Being aware of the huge opportunity for growth in the international market-place and the advantages of establishing a strong, early position in foreign markets, led MTV to expand its programming efforts overseas.

Using the universal language of music, MTV moved forth in expanding its influence on pop culture by becoming the first global network when it entered into a licensing agreement in 1984 with Japan’s Asahi Broadcast Company to broadcast on a limited basis in Japan.

Since then, MTV has expanded into Europe, Australia, Brazil and Asia, and MTV International. These global affiliates reach more than 200 million households in over 70 countries. MTV’s philosophy is ‘think locally, act globally’. Each affiliate adheres to the style of MTV, but supports local tastes and talent – the majority of programming is unique to each network. (Source: adapted from Carl Rodrigues (1996, p. 24))

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