Finalterm Assignment

What are Corporate Strategies and how are they formulated?

Strategic Management
12/25/21
 Submitted To

Prof. Dr. Iqbal Mahmood

Professor & Advisor
Fareast International University

Submitted By

Tanher Hoosain Al-amin

ID: 21202006
Course: Strategic Management
What is Corporate Strategy?
Corporate strategies are arguably the most essential and broad-ranging strategy level within
organizational strategy. The corporate strategy level concerns itself with the entirety of the
organization on a more or less abstract level, where decisions are made with regard to the overall
growth and direction of a company.
Why is corporate strategy important?
Corporate strategy defines the destination towards which a business should move. That decision
shapes all the strategies and activities in every other part of that business. A firm’s management
must consider how to gain a competitive advantage in business areas the firm operates in.
Furthermore, it also determines the businesses they should be in in the first place.

Corporate strategy is usually only necessary when a company operates in two or more business
areas. If the company is organized as different business units that operate in different business
areas (e.g. General Electric, Siemens), then these different business units require different
strategies. The managers and leaders of such organisations should ensure that these strategies are
consistently aligned with the overall corporate strategy. Hence, most multinational enterprises
(MNE’s) or conglomerates usually have corporate strategy departments. Such specialized
departments are not so often in small-medium enterprises (SME’s) and start-ups.

What are the benefits of a Corporate Strategy?

The benefits of a well defined corporate strategy for an organization increase as the organization
scales.
It’s possible for small or even medium sized businesses to get by without investing time in
developing corporate strategy. However, as the needs of an organization grow, it becomes
increasingly necessary to attack the strategic planning process in a manner that reflects the
complexity of that organization.
In the end though, corporate strategy benefits any organization, regardless of scale.
1. Corporate strategy offers organization’s business strategic direction
Without differentiation between the abstract needs and goals of an organization which is evident
at a corporate strategic level, and the core competencies and resources which business and
functional units can utilize to realize these goals, it is difficult to develop and grow a business.
2. Corporate strategy allows organization to adapt
It increases the understanding of an organization. In a dynamic world, organizations need to keep
pace with changes as they happen - by continually defining corporate strategy and strategic goals
in relation to opportunities or threats as they present themselves, corporate strategy allows
organization to perform optimally.
3. Corporate strategy improve decision making
It motivates employees of the organization. Without clearly defined strategies at a corporate
level, business and functional level units will perform sub-optimally. The abstract level of
decision making that is only possible at the corporate level will translate to better results at other
decision-making levels, and help employees to feel that their organization has a clear direction
and purpose.
How corporate strategy formulated?
Corporate strategy, the perspective is broad and wide, so the focus is on the overall scope,
direction and goals of the entire organization. Since we are looking at the big picture, our
concern is the total structure of the business.
This aspect of strategy formulation are following:
1) Growth Strategies:
Growth means expansion of the operations of the company and addition of new areas of
operation. This would mean more sales, more revenues, more employees and more of the market
share.
This expansion can be achieved by introducing the existing product into new markets or by
differentiating the product or service and increasing the consumer base in the existing market or
new products can be developed to diversify a company’s product line.
Growth strategies can be very risky and involve forecasting and analysis of many factors that
affect expansion such as availability of resources and markets. Growth is not only necessary but
also desirable since growth is an indication of effective management and it attracts quality
employees as a result. However, growth must be properly planned and controlled, otherwise
organizations can fail. This is evident from failure of Laker Airways and W.T. Grant Company.
Both these companies tried to expand without building the necessary infra-structure and
resources to handle such an expansion.
Among the possible growth strategies are concentration, vertical or horizontal integration and
diversification.
a) Concentration:
This strategy focuses on effecting the growth of a single product or a few closely related
products or services. Also known as “market penetration strategy”, it directs its efforts in gaining
a larger share of the current market by expanding into new markets with the same product or
with developing closely related new products.
b) Vertical integration:
Vertical integration means that a company is producing its own inputs (backward integration), or
delivering its own outputs (forward integration). A company can acquire another company that
supplies its resources or it can set up its own plant to produce inputs.
c) Horizontal integration:
When managers expand their organizations by acquiring one or more competitors, they are
applying horizontal integration. It eliminates the threat of competitors and also broadens the
reach of the current product line by acquiring competitor’s customers.
d) Diversification:
This strategy entails affecting growth through the development of new areas that are different
from current businesses. One reason to diversify is to reduce the risk that can be associated with
a single industry operation due to changes in environmental conditions.
2) Stability Strategy:
Stability strategy implies “to leave the well enough alone.” If the environment is stable and the
organization is doing well, then it may believe that it is better to make no changes. An
organization would apply stability strategy if it is satisfied with the same product line, serving
the same consumer groups and maintaining the same market share and the management does not
want to take any risks that might be associated with expansion. The management may not be
motivated and adventurous to try new strategies to change the status quo.
3) Retrenchment Strategies:
Retrenchment primarily means reduction in product, services or personnel. This strategy is
generally useful in the face of tough competition, scarcity of resources and declining economy.
Under certain situations, retrenchment strategy becomes highly necessary for the very survival of
the company, even though it may reflect poorly on the management of such a company.
Retrenchment strategies include harvest, turnaround, divestiture, bankruptcy and liquidation.
a) Harvest:
This strategy entails minimizing investments while at the same time attempting to maximize
short-run cash flow and profits with the intention of eventually liquidating the company. A
harvest strategy is often used when future growth in the market is doubtful.
b) Turnaround:
This strategy is designed to shift from a negative direction to a positive one. This can be
achieved by restructuring the organizational operations in order to restore the appropriate levels
of profitability.
c) Liquidation:
Liquidation simply means end or termination of the business. The company moves to exit the
business either by liquidating its assets or by selling the whole business, thus ending its existence
in the current form.
Conclusion: Corporate strategy provides to company with the essential conceptual tools required
to succeed in competitive markets. Taking the time to plan a well structured corporate strategy
will quickly yield benefits that are quantifiable and provide insights into the operation of your
organization as a whole.