Description
Types of strategies dr.m. thenmozhi professor department of management studies indian institute of technology madras.
TYPES OF STRATEGIES
Dr.M. Thenmozhi
Professor
Department of Management Studies
Indian Institute of Technology Madras
Chennai 600 036
E-mail: [email protected]
DIRECTIONAL STRATEGIES
Growth
Concentration
Vertical Growth
Horizontal Growth
Diversification
Concentric
Conglomerate
Stability
Cautiously proceed
Maintain
Profit
Retrenchment
Turnaround
Divest/Sale
Liquidation
STRATEGIC ALTERNATIVES
Generic or grand or basic strategies
•Stability - better after sales service, modernize plant,
bulk discount, Improve performance to sustain
•Expansion - Change in customer group, function,
technology
•Retrenchment - Withdrawal - Customer group, function,
technology (unprofitable)
•Combination
•E.g. Wide variety of services to customers (stability)
- New products in product range (expansion)
STRATEGIC ALTERNATIVES
Michael Porter - Three type of generic strategies
- Overall cost leadership strategy
- Differentiation strategy
- Focus on niche market
DIMENSIONS OF GRAND/GENERIC
STRATEGIES
I. Internal/External
- Independent of any other entity
- Association with other entity
II. Related/Unrelated
- To existing customer groups,
existing customer function,
technologies
DIMENSIONS OF GRAND/GENERIC
STRATEGIES
III. Horizontal/Vertical
- Serving additional customer groups
-consolidating backward/forward
IV. Active/Passive
Active - offensive strategy
Passive - Defensive strategy
4 grand strategies ×4 dimensions ×2 types of
each dimensions ×3 dimensions of each business
definition = 96 Mixed strategies
MODERNIZATION STRATEGIES
Developing new technology strategy i.e. technological
upgradation as a strategy
- Increased production, lower cost, improve
efficiency and productivity
- Extensively used by Indian organization -
stability - prior to expansion & diversification
If pace of modernization is low - internal stability
strategy, high - internal expansion strategy
Merge with another company - for modern -
external expansion strategy
DIVERSIFICATION AND
INTEGRATION STRATEGIES
1. Vertical Integration
- make new products to serve its own needs
- backward/forward integration
2. Horizontal Integration
- Same product - more customer group
- merger similar companies
Spartek Ceramics takeover of Neyveli Ceramics
DIVERSIFICATION AND INTEGRATION
STRATEGIES
3. Concentric diversification
•Marketing & technology related - rain coat manufacturer -
rubber based items - gloves, shoes
•Technology related- leasing company - hire purchase
•Marketing related - Unrelated technology (cosmetic &
sewing machines - women)
4. Conglomerate diversification
- Unrelated to customer groups, function, technology
ITC - Cigarette & Hotel
TTK group - Chemicals, hosiery, contraceptives
MERGER, TAKEOVER AND JOINT
VENTURE STRATEGIES
Diversification & Integration
Merger ( Amalgamation)
A acquires B - B merged with A
A & B C - Consolidated
Horizontal Concentric
Vertical Conglomerate
JOINT VENTURE
•2 firms in one industry
•2 firms across different industries
•Indian & foreign firm in India
•Indian & foreign firm in foreign country
•Indian & foreign firm in third country
Last two types are on increase now
TURNAROUND STRATEGIES
Reversing a negative trend
Retrenchment - internal/external - improve internal
efficiency - Divestment/liquidation
Danger signs:
•Persistent negative cash flows
•Negative profits
•Declining market share
•Deterioration in physical facilities
•High turnover, low morale, Mismanagement
•Uncompetitive products, sick company
MANAGING TURNAROUND
•Existing team - support external consultant - if C.E
- credibility - rare
•Existing team - withdraws temporarily - turnaround
specialist - employed
•Replace existing team / C.E
Approaches:
- Surgical
- Human approach
ACTION PLAN FOR TURNAROUND
• Analysis of product, market, production process,
competition, market segment positioning
• Clear thinking - market place &production logic
• Implementation of plans - target - setting,
feedback, remedial action
DIVESTMENT
Divestment
- (divestiture or cutback) - sale of or
liquidation of a portion of business
- SBU or profit center
1. Spinning it off - financially and managerially
independent company with stake
2. Sell a unit outright
Kelvinator India - spin-off - Avanti scooters - high
production cost
LIQUIDATION
•Rarely - large companies liquidate
•Buyers rare for purchase of assets
•Court, voluntary, subject to supervision of court
Combination strategies - popular
Criteria for strategic choice
• Does strategy exploit the opportunities
present in the environment?
• Is it consistent with the resources of the
firm, its competitive advantage & core
competence?
• Is the chosen level of risk feasible?
• Is it appropriate to the values & aspirations
of the firm?
• Gap Analysis
• Consider the Selection factor.
-- Criteria for evaluation alternatives.
• Evaluate strategic alternatives.
• Make choice
t
1
t
2
Present
Desired
Perf. gap
Factors affecting strategic
choice
• Nature of environment – stable?
• Firm’s internal realities
• Ambition of CEO / owners
• Company culture
• Firm’s capacity to execute the st.
• Resource allocation
Strategy Implementation
• Evolve a systematic procedure to implement the
strategy chosen
– Procedural implementation plan
– Proper resource allocation plan
– Structural implementation plan
– Functional implementation plan
– Behavioural implementation plan
• Evaluate and control through strategic and
operational control measures
• Success of a strategy is very much dependent
on how the strategy is executed
doc_137738617.pdf
Types of strategies dr.m. thenmozhi professor department of management studies indian institute of technology madras.
TYPES OF STRATEGIES
Dr.M. Thenmozhi
Professor
Department of Management Studies
Indian Institute of Technology Madras
Chennai 600 036
E-mail: [email protected]
DIRECTIONAL STRATEGIES
Growth
Concentration
Vertical Growth
Horizontal Growth
Diversification
Concentric
Conglomerate
Stability
Cautiously proceed
Maintain
Profit
Retrenchment
Turnaround
Divest/Sale
Liquidation
STRATEGIC ALTERNATIVES
Generic or grand or basic strategies
•Stability - better after sales service, modernize plant,
bulk discount, Improve performance to sustain
•Expansion - Change in customer group, function,
technology
•Retrenchment - Withdrawal - Customer group, function,
technology (unprofitable)
•Combination
•E.g. Wide variety of services to customers (stability)
- New products in product range (expansion)
STRATEGIC ALTERNATIVES
Michael Porter - Three type of generic strategies
- Overall cost leadership strategy
- Differentiation strategy
- Focus on niche market
DIMENSIONS OF GRAND/GENERIC
STRATEGIES
I. Internal/External
- Independent of any other entity
- Association with other entity
II. Related/Unrelated
- To existing customer groups,
existing customer function,
technologies
DIMENSIONS OF GRAND/GENERIC
STRATEGIES
III. Horizontal/Vertical
- Serving additional customer groups
-consolidating backward/forward
IV. Active/Passive
Active - offensive strategy
Passive - Defensive strategy
4 grand strategies ×4 dimensions ×2 types of
each dimensions ×3 dimensions of each business
definition = 96 Mixed strategies
MODERNIZATION STRATEGIES
Developing new technology strategy i.e. technological
upgradation as a strategy
- Increased production, lower cost, improve
efficiency and productivity
- Extensively used by Indian organization -
stability - prior to expansion & diversification
If pace of modernization is low - internal stability
strategy, high - internal expansion strategy
Merge with another company - for modern -
external expansion strategy
DIVERSIFICATION AND
INTEGRATION STRATEGIES
1. Vertical Integration
- make new products to serve its own needs
- backward/forward integration
2. Horizontal Integration
- Same product - more customer group
- merger similar companies
Spartek Ceramics takeover of Neyveli Ceramics
DIVERSIFICATION AND INTEGRATION
STRATEGIES
3. Concentric diversification
•Marketing & technology related - rain coat manufacturer -
rubber based items - gloves, shoes
•Technology related- leasing company - hire purchase
•Marketing related - Unrelated technology (cosmetic &
sewing machines - women)
4. Conglomerate diversification
- Unrelated to customer groups, function, technology
ITC - Cigarette & Hotel
TTK group - Chemicals, hosiery, contraceptives
MERGER, TAKEOVER AND JOINT
VENTURE STRATEGIES
Diversification & Integration
Merger ( Amalgamation)
A acquires B - B merged with A
A & B C - Consolidated
Horizontal Concentric
Vertical Conglomerate
JOINT VENTURE
•2 firms in one industry
•2 firms across different industries
•Indian & foreign firm in India
•Indian & foreign firm in foreign country
•Indian & foreign firm in third country
Last two types are on increase now
TURNAROUND STRATEGIES
Reversing a negative trend
Retrenchment - internal/external - improve internal
efficiency - Divestment/liquidation
Danger signs:
•Persistent negative cash flows
•Negative profits
•Declining market share
•Deterioration in physical facilities
•High turnover, low morale, Mismanagement
•Uncompetitive products, sick company
MANAGING TURNAROUND
•Existing team - support external consultant - if C.E
- credibility - rare
•Existing team - withdraws temporarily - turnaround
specialist - employed
•Replace existing team / C.E
Approaches:
- Surgical
- Human approach
ACTION PLAN FOR TURNAROUND
• Analysis of product, market, production process,
competition, market segment positioning
• Clear thinking - market place &production logic
• Implementation of plans - target - setting,
feedback, remedial action
DIVESTMENT
Divestment
- (divestiture or cutback) - sale of or
liquidation of a portion of business
- SBU or profit center
1. Spinning it off - financially and managerially
independent company with stake
2. Sell a unit outright
Kelvinator India - spin-off - Avanti scooters - high
production cost
LIQUIDATION
•Rarely - large companies liquidate
•Buyers rare for purchase of assets
•Court, voluntary, subject to supervision of court
Combination strategies - popular
Criteria for strategic choice
• Does strategy exploit the opportunities
present in the environment?
• Is it consistent with the resources of the
firm, its competitive advantage & core
competence?
• Is the chosen level of risk feasible?
• Is it appropriate to the values & aspirations
of the firm?
• Gap Analysis
• Consider the Selection factor.
-- Criteria for evaluation alternatives.
• Evaluate strategic alternatives.
• Make choice
t
1
t
2
Present
Desired
Perf. gap
Factors affecting strategic
choice
• Nature of environment – stable?
• Firm’s internal realities
• Ambition of CEO / owners
• Company culture
• Firm’s capacity to execute the st.
• Resource allocation
Strategy Implementation
• Evolve a systematic procedure to implement the
strategy chosen
– Procedural implementation plan
– Proper resource allocation plan
– Structural implementation plan
– Functional implementation plan
– Behavioural implementation plan
• Evaluate and control through strategic and
operational control measures
• Success of a strategy is very much dependent
on how the strategy is executed
doc_137738617.pdf