Course Code and Title: CBME1 – Strategic Management

Lesson Number: 5

Topic: Directions of Corporate Level Strategies

Professor: Joselito G. Yu, LPT, MaEd

There are many avenues a company can go down when developing a business. A
corporate-level strategy is when a business makes a decision that affects the whole
company. A corporate-level strategy affects a company’s finances, management,
human resources, and where the products are sold. The purpose of a corporate-level
strategy is to maximize its profitability and maintain its financial success in the future. A
corporate-level strategy is utilized to help increase competitive advantage over its
competitors and to offer a unique product or service to consumers.

Focusing on a single industry is like it sounds – it’s when a company focuses its
resources on one business. When a new business emerges, this is the strategy most
companies use. As a business begins to grow and develop, it is essential to concentrate
on making the finances, human resources, management, products, and technology all
strong in its industry. When a company first starts, they should stick to what they know
and solely concentrate on making the business strong by focusing their strategy on the
one industry they are operating in. With this strategy, a company has an opportunity to
invest all of its time and energy into a single industry and help develop it to be a
success, rather than focusing some of its time on multiple projects.

For instance, you just opened three sandwich shops because you had prior working in a
deli. You have a large number of competitors in the area. You decide you want to
expand your business into having pastries. The only problem is you don’t have
experience baking. As a result, it would be essential to focus on creating the best
sandwiches and stick to concentrating on what you know. By adding a new element that
is not familiar, it could cause problems and take away money from the business. If you
do something well, you should stick to it!
Learning Objectives:

At the end of the lesson, the students will be able to:

1. Discuss the 2 Main Questions of Corporate-Level Strategy.

2. Draw attention to the 4 Types of Corporate-Level Strategy.

3. Evaluate the reasons for each of the specific type of strategy.

Pre-assessment:

 Multiple Choice: Pick out the letter of the correct answer and write the
letter on the space provided before each number.

_____ 1. This strategy is followed when an organization is large and complex and
consists of several businesses that lie in different industries, serving different
purposes.

a. Combination strategy
b. Retrenchment strategy

c. Stability strategy
d. Expansion strategy

_____ 2. This strategy involves withdrawing from certain markets or the

discontinuation of selling certain products or services to make a beneficial turnaround.

a. Combination strategy
b. Retrenchment strategy
c. Stability strategy
d. Expansion strategy

_____ 3. It is a strategy in which the organization retains its present strategy at the
corporate level and continues focusing on its present products and markets.

a. Combination strategy
b. Retrenchment strategy
c. Stability strategy
d. Expansion strategy

_____ 4. A chocolate manufacturer expands its customer group to include middle-

aged and old persons to its existing customer comprising children and adolescents.
 a. Combination strategy
b. Retrenchment strategy
c. Stability strategy
d. Expansion strategy

_____ 5. When new products are made for new markets.

a. Diversification
b. Expansion through cooperation
c. Internalization
d. Strategic alliances

Lesson Presentation:

The business definition for a small firm would

be a simple while for a large complex and
diversified firm consisting of several
businesses it would be quite complex. Each
business could be defined in terms of
customer group, customer functions, or
alternative technologies. The business
definition of large firms is complex because
each of its businesses defined in terms of
product markets and functions along the four dimensions of generic strategies.

Corporate level strategy is concerned with

two main questions:

(1) What business areas should a company

participate in so as to maximize its long-term
profitability?

(2) What strategies should it use to enter into

and exit from business areas?

In other words, corporate-level strategies are

basically about decisions related to allocating
resources among the different businesses of
a firm, transferring resources from one set of
businesses to others, and managing a
portfolio of businesses in such a way that
the overall corporate objectives are
achieved. An analysis based on business
definition provides a set of strategic
alternatives that an organization can
consider.
Type #1. Stability Strategy:

When a company finds that it should continue in the existing business and is doing reasonably
well in that business but no scope for significant growth, the stability is the strategy to be
adopted.

Jauch and Glueck observe, ‘a stability strategy is a strategy that a firm pursues when- 1. It
continues to serve the customers in the same product or service, market, and function sectors as
defined in its business definition, or very similar sectors. 2. Its main strategic decisions focus on
incremental improvement of functional performance.’

The stability strategy is not a “do nothing” strategy. It may involve incremental improvements.

Long-term stability strategy also requires reinvestment, R& D, and innovation. However, the
business definition remains the same.

Reasons for Adopting Stability Strategy:

1. The company is doing fairly well or perceives itself as successful and expects the same in the
future.

2. The stability strategy is less risky. Frequent changes involving new products or new ways of
doing things may lead to the failure of the firm. The larger the firm and the more successful it has
been, the greater is the resistance to the risk.

3. The stability strategy can evolve because the managers prefer action to thought and do not
tend to consider any other alternatives. Many of the firms that follow a stability strategy do this
unconsciously. Such companies react to the changes in the forces in the environment.

4. To follow a stability strategy, it is easier and more comfortable for all concerned as activities
take place in routines.

5. The management pursuing a stability strategy does not have the mindset of a strategist to
appraise the environmental opportunities and threats and take advantage of the opportunities.

6. The company that has core competence in the existing business does not want to take the
risk of diverting attention from the current business by opting for diversification.

7. It is a frequently employed strategy.

An organization adopts the stability strategy when it aims at an incremental improvement of its
functional performance but marginal changes to one or more of its businesses in terms of their
An organization adopts the stability strategy when it aims at an incremental
improvement of its functional performance but marginal changes to one or more of its
businesses in terms of their respective customer groups, customer functions, or
alternative technologies are required. Its focus is confined to improving functional
efficiencies in an increment way, through better deployment and utilization of
resources.

The stability strategy does not mean an absence of concern about business growth and
improvement in profit. Firms adopting the stability route do seek and plan for business
growth and profit improvement with modest targets.
Stability strategy is effective when the firm is doing well and the environment is relatively

7. It is frequently employed. An organization adopts the stability strategy when it aims at

an incremental improvement of its functional performance but marginal changes to
one or more of its businesses in terms of their respective customer groups, customer
functions or alternative technologies are required. Its focus is confined to improving
functional efficiencies in an increment way, through better deployment and utilization
of resources. The stability strategy does not mean an absence of concern about
business growth and improvement in profit. Firms adopting the stability route do seek
and plan for business growth and profit improvement with modest targets. Stability
strategy is effective when the firm is doing well and the environment is relatively
stable. Stability strategy does not involve a redefinition of the business of the
corporation. Since products, markets and functions remain the same, the business
definition also does not change.

Type # 2. Expansion Strategy:

Jauch and Glueck define expansion strategy ‘as a strategy that a firm pursues when- 1.
It serves the public in additional product or service sectors or adds markets or functions
to its definition. 2. It focuses its strategic decisions on major increases in the pace of
activity within its present business definition.’

This strategy involves redefining the business either adding to the scope of activity or
substantially increasing the efforts of the present business.

When expansion strategy is pursued, it could lead to addition of new products or new
markets or functions. Even without a change in business definition many firms
undertake major increases in the pace of activities.
Expansion strategy is often considered as “entrepreneurial” strategy where firms
develop and introduce new products and markets or penetrate markets to build share.
Expansion is usually thought as the way to improve performance.

Strategists need to distinguish between desirable and undesirable expansion.

Reasons for Adopting Expansion

Strategy:

1. If business environments are volatile,

expansion may be a necessary strategy
for survival.

2. Many executives may feel more

satisfied with the prospects of growth
expansion.

3. Chief Executive Officer may feel pride in presiding over organizations perceived to be
growth-oriented.

4. Some executives believe that expansion is in the benefit of the society.

5. Expansion provides more financial and other rewards.

6. Expansion enables to reap advantages from the experience curve and scale of
operations.

Type # 3. Retrenchment Strategy:

Retrenchment strategy may require a firm to redefine its business and may involve
divestment of a major product line or an SBU, abandon some markets or reduce its
functions. Retrenchment in pace may necessitate a firm to use layoffs, reduce R&D or
marketing or other outlays, increase the collection of receivables etc.

The efforts aimed at redefining the business and reducing the pace of activities can
improve performance of a firm. Retrenchment in combination with expansion is not
uncommon. “Retrenchment alone is probably the least frequently used generic strategy”

Retrenchment strategy involves a partial or total withdrawal either from products,

markets, or functions in one or more of a firm’s businesses.

Retrenchment strategy is generally followed during the period of decline of a business

when it is thought possible to bring profitability back to the firm. If the prospects of
restoring profitability are not good, abandoning market share, reducing expenses and
assets can use controlled divestment.

Reasons for following retrenchment strategy:

1. The firm is doing poorly.

2. If there is pressure from various groups of stakeholders to improve performance.

3. If better opportunities for doing business are available elsewhere a firm can better
utilize its strengths.

The retrenchment strategy is particularly followed for dealing with crises. For minor
crises pace retrenchment will be suitable, for moderate crises, divestiture of some
division or units may be inevitable whereas, for serious crises, a liquidation strategy will
be imperative.

Type #4. Combination Strategy:

When an organization adopts a mix of stability, expansion, and retrenchment either

simultaneously or sequentially to improve its performance, it is said to follow the
combination generic strategy. With combination strategies, the strategists consciously
apply several generic strategies to different parts of the firm or different future periods.

“The logical possibilities for a simultaneous approach are stability in some areas,
expansion in others; stability in some area, retrenchment in others; retrenchment in
some areas, expansion in other; and all three strategies in different areas of the
company. The logical possibilities for time-phased combinations are greater, especially
when the products, markets, and functions are considered and when the choice occurs
through changing the pace or the business definition.” For example, a paint company
adopts combination strategies when it augments its offering of decorative paints to
provide a greater variety to its customers (stability) and increases its product range to
add industrial and automotive paints (expansion), and closes down the paint-contracting
division (retrenchment).

Reasons for following Combination strategies:

1. When the organization is large and faces a fast-changing complex environment.

2. The company’s products are in different stages of the life-cycle.

3. A combination strategy is suitable for a multiple-industry firm at the time of recession.

4. The combination strategy is best for firms, divisions of which perform unevenly or do
not have the same future potential.

The corporate strategy addresses the issues of a multi-business enterprise as a

whole. Also addresses issues relating to the intent, scope, and nature of the enterprise
and in particular, has to provide answers to the following questions.

Generalization:

a. Corporate-level strategies are basically about the choice of direction that a

firm adopts to achieve its objectives.
b. Corporate strategy is essentially a blueprint for the growth of the firm.
c. The corporate strategy sets the overall direction for the organization to
follow.
d. It also spells out the extent, pace, and timing of the firm’s growth.
e. Corporate strategy is mainly concerned with the choice of business,
products, and markets.
f. The competitive and functional strategies of the firm are formulated to
synchronize with the corporate strategy to enable it to reach its desired
objectives.

Evaluation:

I. Multiple Choice: Pick out the letter of the correct answer and write the letter on
the space provided before each number. 

__1. It can also be used if you’re upgrading the level of activity within your business like
taking on new clients and hiring more employees.

a. Combination strategy
b. Retrenchment strategy
c. Expansion strategy
d. Stability strategy
__2. The corporate-level strategy is concerned with ___ and how to manage these
businesses.

a. whether the firm should invest in global or domestic businesses.

b. what product markets and businesses the firm should be in
c. whether the portfolio of businesses should generate immediate above-
average returns or should be troubled businesses that will create above-
average returns only after restructuring.
d. whether to integrate backward or forward.
__3. The ultimate test of the value of a corporate-level strategy is whether the

a. corporation earns a great deal of money.

b. the top management team is satisfied with the corporation’s performance.

c. businesses in the portfolio are worth more under the management of the
company in question than they would be under any other ownership.

d. businesses in the portfolio increase the firm’s financial returns.

__4. Usually, a company is classified as a single business firm when the revenue
generated by the dominant business is greater then ___ percent.

a. 99
b. 95
c. 90
d. 70
__5. It means combining activities related to the present activity of a company. It widens
the scope for a company as far as market penetration is concerned.

a. diversification
b. concentration on a single business
c. vertical integration
d. integration strategies

II. Essay: Write your answers clearly and legibly. (5 points)

1. What is a corporate-level strategy? What are the differences between business-

level and functional strategies? Why is corporate-level strategy important to the
diversified firm? Develop your arguments.

Reinforcement:
Direction: Read the article below and write a short reaction based on the topic
discussed.
INDITEX, a European SME success story1

The story of INDITEX Group from Spain demonstrates how innovative design and
trademarks helped a small family-owned business grow into a solid international firm.
INDITEX has introduced a kind of revolution in the fashion sector that impelled other
companies to rethink their strategy.

INDITEX Group´s chairman and founder Amancio Ortega Gaona made his modest start
working at the age of 14 as a gofer in a shirt store in La Coruna, Galicia. From the first
venture into his own business in 1963, Mr. Ortega reached an initial milestone in 1975
with the opening of the first ZARA store in La Coruna. A decade later, he founded
INDITEX as holding company for its various subsidiaries, paving the way for the Group
´s expansion outside Spain, first to Portugal in 1988, followed by the opening of outlets
in New York in 1989 and Paris in 1990. INDITEX Group launched the "Pull & Bear"
chain of casual wear in 1991 and the same year purchased 65% of the "Massimo Dutti"
Group, a high-end fashion concern, which was fully acquired in 1995.

Meanwhile, it continued the drive into the international market by opening various stores
in Mexico, Greece, Belgium, and Sweden, respectively from 1992-1994. The Group
started the "Bershka" chain targeting the younger female segment in 1998, when it also
set up stores in Argentina, Japan, UK, Venezuela, Lebanon, UAE, Kuwait, and Turkey.

In 1999, INDITEX acquired "Stradivarius", making it the fifth chain of the Group, and
opened its stores in new countries namely the Netherlands, Germany, Poland, Saudi
Arabia, Bahrain, Canada, Brazil, Chile, and Uruguay. In 2000, INDITEX built its
headquarters in Arteixo, A Coruna, Spain, while opening stores in four new countries.
The company was listed in the Spanish stock market in May 2001 with its shares sold
out the day it went public, the year when it added six more countries to its global
footprint.

INDITEX has seven different firms with seven different trademarks under its umbrella. It
has 1,376 stores in 42 countries across the world. INDITEX success lies in the goodwill
value of the Group´s trademarks: Zara for the middle-class segment, Massimo for the
high-end, and Pull & Bear for casual clothing line. The Group does not invest a lot in
advertisement campaigns, but it focuses on investment in the "image" of the shops. It
focuses on delivering value for money, and the capacity to adapt to consumer´s tastes.
The Group´s future looks promising, with its blueprint establishing presence worldwide,
while launching a new product line: women´s underwear.

1. What does the case study mean to you?

2. ABC Furniture Co has developed the most suitable strategy by reference of its
vision?

3. What can you learn from it?

 4.

References:

https://www.slideshare.net/nishikantwar/corporate-level-strategies-109410875

https://www.youtube.com/watch?v=Fjo1TPe5isw