STRAMA REVIEWER Resource Deployment

❖ How the organization distribute

STRATEGY FORMULATION & IMPLEMENTATION
Organizations should continually monitor
internal and external events and trends so
that timely changes can be made as
needed
its resources across the areas in
which it operates and
competes
STRATEGY FORMULATION AND IMPLEMENTATION

Strategic Management as the art and

Strategy Formulation
science of formulating, implementing and
evaluating cross functional decisions that is the process by which an organization
enable an organization to achieve its goals chooses the most. appropriate courses of
and objectives action to achieve its defined goals. This
process is. essential to an organization's
2 Strategy success, because it provides a framework
Formulation 4 Strategy
Control for the. actions that will lead to the
anticipated results.
Strategic
Planning
Strategy Implementation
Process
refers to the execution of the plans
1 Strategic 3 Strategy
Analysis Implementa and strategies, so as to accomplish the
long-term goals of the organization. It
-tion
converts the opted strategy into the moves
and actions of the organization to achieve
the objectives.
WHAT IS STRATEGY?

PLAN + ACTION = GOALS

2 TYPES OF STRATEGY
Strategy is a plan of action to achieve the
organizational goal efficiently and
effectively

CONSTITUENTS OF STRATEGY

Distinctive Competency

➢ What an organization does BUSINESS LEVEL STRATEGY

exceptionally well
Scope of Market ❖ Business-level strategy focuses
on how to attain and satisfy
➢ Range of markets in which an customers, offer goods and
organization will operate and services that meet their needs,
compete and increase operating profits.

1
CORPORATE STRATEGY
❖ sets the direction for the entire
organization, such as what
markets the organization will
compete as it manages its
operations simultaneously across
several industries and several
markets.
But before you understand Strategy
Formulation and Implementation, remember
that the management process begins with
Strategic Analysis.
STRATEGIC ANALYSIS
▪ The process of conducting research
on the business environment within
which an organization operates and
on the organization itself, in order to
formulate strategy
▪ Organizations must periodically
conduct a strategic analysis which
will, in turn, help them determine
what areas need improvement and
areas that are already doing well.
▪ It is essential to formulate strategic
planning for decision making and
smooth working of that organization.
With the help of strategic planning,
the objective or goals that are set by
the organization can be fulfilled.
STRATEGIC ANALYSIS TOOLS
Why use Strategic Analysis?
In order to take advantage of the “path of
least resistance” to achieve your goal.
When to use it?
When you are planning to make a change
in your organization, and you need to
determine the best path to take.
TOOLS for Strategic Analysis
A number of tools are used in the process of
strategic analysis, including PEST, SWOT
Analysis, and Michael Porter’s five forces
Model – these tools will help the
organization measure their success and
failure, assess if they have advantages over
other competitors in the industry.
SWOT Analysis
What is SWOT Analysis?
▪ Stands for Strengths, Weaknesses,
Opportunities, and Threats. It is an
evaluation tool used to identify
business competition and discover
recommendations and strategies,
with a focus on leveraging strength
and opportunities to overcome
weaknesses and threats.
▪ SWOT diagrams can be especially
useful when trying to decide
whether or not to embark on a
certain venture or strategy by
visualizing the pros and cons. By
clearly outlining all positives and
negatives of a project, SWOT analysis
makes it easier to decide whether or
not to move forward
Who should do the SWOT analysis?
For a SWOT analysis to be effective,
company founders and leaders need to be
deeply involved. This isn’t a task that can be
delegated to others.
2
But, company leadership shouldn’t do the
work on their own, either. For best results,
you’ll want to gather a group of people
who have different perspectives on the
company. Select people who can represent
different aspects of your company, from
sales and customer service to marketing
and product development. Everyone should
have a seat at the table.
Innovative companies even look outside
their own internal ranks when they perform a
SWOT analysis and get input from customers
to add their unique voice to the mix.
How to conduct a SWOT Analysis?
1. Determine the objective. Decide on a key
project or strategy to analyze and place it
at the top of the page.
2. Create a grid. Draw a large square and
then divide it into four smaller squares.
3. Label each box. Write the word
"Strengths" inside the top left box,
"Weaknesses" inside the top right box,
"Opportunities" within the bottom left box,
and "Threats" inside the bottom right box.
These are titles, so they should be
distinguished from the rest of the text using
either color or font size.
4. Add strengths and weaknesses. Add
factors that affect the project to the
applicable boxes. Components of a SWOT
analysis may be qualitative and anecdotal
as well as quantitative and empirical in
nature. Factors are typically listed in a bullet
form.
5. Draw conclusions. Analyze the finished
SWOT diagram. Be sure to note if the
positive outcomes outweigh the negative. If
they do, it may be a good decision to carry
out the objective. If they do not,
adjustments may need to be made, or else
the plan should simply be abandoned.
SWOT Analysis
Guide Questions
Strengths -are internal, positive attributes of
your company. These are things that are
within your control.
Weaknesses are negative factors that
detract from your strengths. These are things
that you might need to improve on to be
competitive.
Opportunities are external factors in your
business environment that are likely to
contribute to your success.
Threats are external factors that you have
no control over. You may want to consider
putting in place contingency plans for
dealing them if they occur.
Strengths
• What business processes are successful?
• What assets do you have in your team,
such as knowledge, education, network,
skills, and reputation?
• What physical assets do you have, such
as customers, equipment, technology,
cash, and patents?
• What competitive advantages do you
have over your competition?
Weaknesses
• Are there things that your business needs
to be competitive?
• What business processes need
improvement?
• Are there tangible assets that your
company needs, such as money or
equipment?
• Are there gaps on your team?
• Is your location ideal for your success?
3
Opportunities
• Is your market growing and are there
trends that will encourage people to buy
more of what you are selling?
• Are there upcoming events that your
company may be able to take
advantage of to grow the business?
• Are there upcoming changes to
regulations that might impact your
company positively?
• If your business is up and running, do
customers think highly of you?
Threats
• Do you have potential competitors who
may enter your market?
• Will suppliers always be able to supply
the raw materials you need at the prices
you need?
• Could future developments in
technology change how you do
business?
• Is consumer behavior changing in a way
that could negatively impact your
business?
• Are there market trends that could
become a threat?
SWOT Analysis
Internal factors
❖ Strengths (S) and weaknesses (W)
refer to internal factors, which are
the resources and experience
readily available to you. These are
some commonly considered internal
factors:
1. Financial resources (funding, sources of
income and investment opportunities)
2. Physical resources (location, facilities and
equipment)
3. Human resources (employees, volunteers
and target audiences)
4. Access to natural resources, trademarks,
patents and copyrights
5. Current processes (employee programs,
department hierarchies and software
systems)
External factors
❖ External forces influence and affect
every company, organization and
individual. Whether these factors are
connected directly or indirectly to
an opportunity (O) or threat (T), it is
important to note and document
each one.
1. External factors are typically things you or
your company do not control, such as the
following:
2. Market trends (new products, technology
advancements and shifts in audience
needs)
3. Economic trends (local, national and
international financial trends)
4. Funding (donations, legislature and other
sources)
5. Demographics
6. Relationships with suppliers and partners
Political, environmental and economic
regulations
Consistent business analysis and strategic
planning is the best way to keep track of
growth, strengths and weaknesses. Use a
series of analysis strategies, like SWOT, in your
decision-making process to examine and
execute strategies in a more balanced, in-
depth way. Using a business environment
assessment tool such as SWOT Analysis
enable organizations to formulate effective
and efficient strategies.
4
 ❖ Now that Strategic Analysis is
done, the next step is
developing or FORMULATING
and IMPLEMENTING of Strategies
that are concurrent/parallel to
the analysis.
STRATEGY FORMULATION
Strategic Formulation is a combination of
the three main processes which are as
follows:
1. Performing a situation analysis (strategic
analysis), self-evaluation and competitor
analysis: both internal and external; both
micro-environmental and macro-
environmental.
2. Parallel with this assessment, objectives
are set. These objectives should be parallel
to a timeline; some are in the short term and
others on the long term. This involves crafting
vision statements, mission statements,
overall corporate objectives, strategic
business objectives, and tactical objectives
3.These objectives should suggest a
strategic plan. The plan provides the details
of how to achieve these objectives.
STRATEGY FORMULATION
▪ Development of the organization’s
goal and specific strategic plan
▪ Analyzing internal and external
environment
▪ Integrating the results into goals and
strategy
STRATEGY IMPLEMENTATION
Allocation and management of sufficient
resources (financial, personnel, operational
support, time, technology support)
2. Establishing a chain command or some
alternative structure (such as cross
functional team)
3. Assigning responsibility of specific tasks or
processes to specific individuals or group
4.It involves managing the process. This
includes monitoring results, comparing to
benchmarks and best practices, evaluating
the effectiveness and efficiency of the
process, controlling for variances, and
making adjustments to the process as
necessary
5. When implementing specific programs,
this involves acquiring the requisite
resources, developing the process training,
process testing, documentation and
integration with legacy process.
PRODUCT LIFE CYCLE
▪ Formulating strategies can be done
through the study of Product Life
Cycle. Knowing which stage the
organization’s product is already in
the cycle, as each stage suggests
strategies, company may opt to
adopt what works in their setting.
▪ As the name suggests, “Product”
from the product life cycle, means
that a company will choose a
specific product or line of product
from its entire portfolio that needs to
be positioned in the market.
▪ The life cycle concept may apply to
a brand to a category of a product
▪ As a product progresses through the
stages, changes are made to how
the product is marketed.
▪ The stages that a product goes
through during its life: Introduction,
growth, maturity and decline
5
PRODUCT LIFE CYCLE STAGES
INTRODUCTION STAGE
Most product fail at this stage. WHY?
Because this is the stage in which the
product is initially promoted. Public
awareness is very important to the success
of the product. If people don’t know about
the product, then they will not buy and get
it.
There are two strategies an organization
can use in order to introduce the product to
consumers.
1.Penetration
2. Skimming
PENETRATION
➢ Is a pricing technique in which
the price set by the firm is low initially,
so as to attract more and more
customers.
➢ It is intended to get immediate
attention from consumers and
dominate the market. The strategy
discourages competitors from
entering the market because of the
artificially low profit margins. This
strategy, however, is not intended to
continue in the long term. The idea is
to snap up market share, gain a
degree of customer loyalty and start
raising prices to a level that produces
reasonable profits.
SKIMMING
➢ This strategy usually sets the product
price very high initially and then
gradually lowers it over time.
➢ This is a good strategy to use if there
are few competitors of your product.
➢ Profits are high with this strategy but
there is also a great deal of risk. If
people don’t want to pay the high
prices, you may lose out.
PENETRATION & SKIMMING
example (in the ppt)
GROWTH STAGE
The Growth stage is where your products
starts to grow. In this stage, a very large
amount of money is spend on advertising.
You want to concentrate of telling the
consumer how much better your product is
than your competitors' products.
What are the ways in which you could
prompt a product?
If you are successful with your advertising
strategy then you wsill see an increase in
sales. Once your sales begin to increase
your share of the market will stabilize
GROWTH STAGE STRATEGIES
Strategies to try are:
• improving product quality
• adding new product features
or support services to grow
your market share
• enter new markets segments
• keep pricing as high as is
reasonable to keep demand
and profits high
• increase distribution channels
to cope with growing
demand
6
 • shifting marketing messages
from product awareness to
product preference
• skimming product prices if
your profits are too low.
Growth stage is when you should see rapidly
rising sales, profits and your market share.
Your strategies should seek to maximize
these opportunities.
MATURITY STAGE
When your sales peak, your product will
enter the maturity stage. This often means
that your market will be saturated and you
may find that you need to change your
marketing tactics to prolong the life cycle of
your product. Common strategies that can
help during this stage fall under one of two
categories:
market modification - this includes entering
new market segments, redefining target
markets, winning over competitor’s
customers, converting non-users
product modification - for example,
adjusting or improving your product’s
features, quality, pricing and differentiating
it from other products in the marking
DECLINE STAGE
During the end stages of your product, you
will see declining sales and profits. This can
be caused by changes in consumer
preferences, technological advances and
alternatives on the market. At this stage, you
will have to decide what strategies to take.
If you want to save money, you can:
• reduce your promotional
expenditure on the products
• reduce the number of distribution
outlets that sell them
• implement price cuts to get the
customers to buy the product
• fin another use for the product
• maintain the product and wait for
competitors to withdraw from the
market first
• harvest the product or service
before discontinuing it
Another option is for your business to
discontinue the product from your offering.
You may choose to:
• sell the brand to another business
• significantly reduce the price to get
rid of all the inventory
Many businesses find that the best strategy is
to modify their product in the maturity stage
to avoid entering the decline stage.
Corporate Level Strategies
▪ Corporate strategies are basically
about the choice of direction that a
firm adopts in order to achieve its
objectives.
▪ It is essentially a blueprint for the
growth of the firm
▪ the corporate strategy sets the
overall direction for the organization
to follow. It also spells out the extent,
pace and timing of the firm’s
growth.
▪ It is mainly concerned with the
choice of businesses, products and
markets.
Corporate strategy addresses the issues of a
multi business enterprise as a whole.
TYPES OF CORPORATE STRATEGIES
A. STABILITY
B. EXPANSION
C. RETRENCHMENT
D. COMBINATION
7

A. STABILITY STRATEGY
It does not seek to invest in new factories
and capital assets, gain market share, or
invade new geographical territories
Organization choose this strategy when the
industry faces slow or no growth prospects.
They also choose this strategy when they go
through a period of rapid expansion and
need to consolidate their operations before
going for another bout of expansion
STABILITY STRATEGY- Types
A (i). No Change Strategy
A (ii). Profit Strategy
A (iii). Pause/Proceed with Caution Strategy
Conditions Favoring Stability Strategy
An organization might change stability
when:
1. The industry or the economy is disturbed;
The environment is volatile; Uncertain
Conditions
2. Environment turbulence is minimal and
the firm does not foresee any major threat
to itself and the industry concerned as a
whole
3. The organization just finished a period of
rapid growth and needs to consolidate its
gains before pursuing more growth
4. The firm’s growth ambitions are very
modest and its content with incremental
growth
5. The industry is in a mature stage with few
or no growth prospects and the firm is
currently in a comfortable position in the
industry
A.1 No Change Strategy
▪ This strategy is a conscious decision to do
nothing i.e. to continue with the present
business definition. Taking no decision
sometimes is a decision too. Several small
and medium sized organizations
operating in a familiar market- more
often a niche market that is limited in
scope- and offering products or services
through a time tested technology, rely
on the no change strategy
A.2 Profit Strategy
▪ No organization can indefinitely continue
with a no change strategy. Things do
change and the organization is faced
with a situation where it has to do
something. An organization may asses
the situation where the profitability by
artificial measures, by adopting a profit
strategy. In a situation where the
profitability is drifting lower, organizations
undertake measures to reduce
investments, cut costs, raise prices,
increase productivity or adopt some
such measures to tide over temporary
difficulties
A.3 Pause/Proceed with Caution Strategy
▪ It is to test the ground before moving
ahead with a full fledged corporate
strategy or organizations that have had
a blistering pace of expansion and wish
to rest awhile before moving ahead.
Essential when intervening of
consolidation is necessary. The purpose is
to let the strategic changes seep down
the organizational levels, let structural
changes take place and systems to
adopt to the new strategies. It is a
temporary strategy. Ex Bata and liberty
dominated by global brands like adidas,
nike, reebok.
8
B. EXPANSION STRATEGY A. EXPANSION STRATEGY TYPES
B 1. Expansion Through
▪ Also known as growth or intensification
strategies Concentration
B 2.Expansion Through Integration
▪ Expand the company’s activities
i) Vertical Integration
▪ When aims at high growth by ii) Horizontal Integration
broadening the scope of one of its
businesses in terms of their respective
customer groups, customer functions
B 3.Expansion Through Diversification
and alternative technologies in order to
improve its overall performance. B 4. Expansion Through Cooperation
▪ Adopted to accelerate the rate of i) Mergers
growth of sales, profits and market share ii) Takeovers
faster by entering new markets, iii) Joint Ventures
acquiring new resources, developing
iv) Strategic Alliance
new technologies and creating new
managerial capabilities B 5. Expansion Through
Internationalization
▪ Growth is a way of life. Almost all
organizations plan to expand. This is why i) International Strategies
expansion strategies are most popular ii) Multi-Domestic Str.
corporate strategies iii) Global Str.
▪ A growing economy, growing markets, iv) Transnational Str.
customers seeking new ways of need
satisfaction and emerging technologies B.1 Expansion through Concentration
offer ample opportunities for companies
to seek expansion

▪ Firms choose expansion strategy when

their resource availability and past
financial performance are both high.

EXPANSION STRATEGY EXAMPLES

✔ A chocolate manufacturer expands

its customer group to include middle
aged and old persons to its existing
customers comprising children and
adolescents
✔ A printing firm changes from the
traditional letter press printing to
desk top publishing in order to
increase its production and
efficiency In above examples
company moves in one or other
direction so as to substantially alter
its present business definition
Above is the Product-Market Grid. It
is a tool for identifying company
growth opportunities through
Concentration strategies such as
market penetration, market
development, product
development, or diversification.
B.2 Expansion through Integration

9

B.2 Expansion through Integration
▪ Means combining activities
related to the present activity
of a firm. Such a combination
may be done on the basis of
the value chain analysis.
primary activities and support activities.
Primary activities comprise a set of activities
that contribute to the creation of value in a
direct manner. Support activities consist of
functions and tasks that are intended to
support primary activities
Value chain analysis model

▪ To easily understand what

happens in the expansion
through Horizontal and
Vertical Integration, first is to
study the value chain
analysis/model of Michael
Porter in the next slide.
Study and
familiarize B.2 Expansion through Integration
the
activities
in this
model

Value chain analysis

Horizontal integration
is a strategic analytical and
decision-support tool that highlights
➢ is a company’s acquisition of
the bases where businesses can
a similar or a competitive
create value for their customers. The
business—it may acquire, but
framework can also be applied to
it may also merge with or
identify sources of competitive
takeover, another company
advantage for businesses. Value
to strengthen itself—to grow
chain is a set of consequent
in size or capacity, to
activities that businesses perform in
achieve economies of scale
order to achieve their primary
or product uniqueness, to
objective of profit maximization.
reduce competition and risks,
to increase markets, or to
Value chain analysis model
enter new markets.
The framework divides activities that
generate value into two categories –

10
 Quick examples of horizontal integrated company will bring in previously
expansion are Standard Oil’s outsourced operations in-house.
acquisition of about 40 other
refineries and the acquisition of
A company opts for vertical integration to
Arcelor by Mittal Steel and that of
ensure full control over the supply of the raw
Compaq by HP.
materials to manufacture its products. It
may also employ vertical integration to take
When is horizontal integration
over the reins of distribution of its products.
attractive for a business?
The direction of vertical integration can
A company can think of acquisitions either be upstream (backward) or
and mergers for horizontal downstream (forward). This can be
integration in the following situations: achieved either by internally developing an
extended production line or by acquiring
• When the industry is growing vertically.
• When rivals lack the expertise that the
company has already achieved
• When economies of scale can be
achieved
• When the company can manage the
operations of the bigger organisation
efficiently, after the integration
• (Example) Facebook and Instagram
Both Facebook and Instagram operated
in the same industry (social media) and
shared similar production stages in their
photo-sharing services.

Vertical integration

For a forward integration to be successful, a

company needs to gain ownership over
other companies that were once customers.
This strategy differs from backward
integration in which a company tries to
increase ownership over companies that
were once its suppliers.

Using the illustration, a manufacturing

company might consider being its own
supplier of raw materials (backward
integration) which means they are also the
Vertical integration is a competitive strategy
the owner of the company that supplies raw
by which a company takes complete
materials for manufacturing to ensure
control over one or more stages in the
quality control of the input. In a forward
production or distribution of a product. is
integration strategy, the manufacturing
when a firm extends its operations within its
company might consider being their own
value chain. It means that a vertically

11
distributor or retailer to cut down price when
the product reaches the customer, this can
applicable if the company adopts a cost
leadership strategy.
Expansion through Diversification
▪ Diversification involves moving into
new lines of business
▪ Diversification involves a substantial
change in business definition
▪ When new products are made for
new markets then diversification
takes place
The Expansion through Diversification is
followed when an organization aims at
changing the business definition, i.e. either
developing a new product or expanding
into a new market, either individually or
jointly. A firm adopts the expansion through
diversification strategy, to prepare itself to
overcome the economic downturns.
TYPES:
Related (Concentric) Diversification: When
an organization acquires or develops a new
product or service that are closely related to
the organization’s existing range of products
and services is called as a concentric
diversification. For example, the shoe
manufacturing company may acquire the
leather manufacturing company with a
view to entering into the new consumer
markets and escalate sales.
Unrelated (Conglomerate)
Diversification: When an organization
expands itself into different areas, whether
related or unrelated to its core business is
called as a conglomerate diversification.
For example, if a computer company
decides to produce notebooks, the
company is pursuing a conglomerate
diversification strategy.
Related (Concentric) Diversification: When
an organization acquires or develops a new
product or service that are closely related to
the organization’s existing range of products
and services is called as a concentric
diversification. For example, the shoe
manufacturing company may acquire the
leather manufacturing company with a
view to entering into the new consumer
markets and escalate sales.
Unrelated (Conglomerate)
Diversification: When an organization
expands itself into different areas, whether
related or unrelated to its core business is
called as a conglomerate diversification.
For example, if a computer company
decides to produce notebooks, the
company is pursuing a conglomerate
diversification strategy.
B.3 Expansion through Cooperation
▪ One company can benefit at the
cost of others. It is a win lose situation
where if one wins then one or several
others to have to lose
▪ Competition could co exist with
cooperation
▪ Possibility of mutual cooperation
with competitors, at the same time
competing with them so that the
market potential could expand
▪ The term “Co-Opetition” expresses
the idea of simultaneous
competition and cooperation
among rival firms for mutual benefit.
▪ Cooperative Strategy should be the
following types:
(i) Mergers and Acquisition (Take-over)
(ii) Joint Ventures
(iii) Strategic Alliance
12

B.4 Expansion through Internationalization
is the strategy followed by an organization
when it aims to expand beyond the national
market. The need for the Expansion through
Internationalization arises when an
organization has explored all the potential
to expand domestically and look for the
expansion opportunities beyond the
national boundaries.
But however, going global is not an easy
task, the organization has to comply with
the stringent benchmarks of price, quality
and timely delivery of goods and services,
that may vary from country to country.
The expansion through internationalization
could be done by adopting either of the
following strategies: (C.A Bartlett and S.
Ghosal model)
Cost pressure - It denotes the demand on a
firm to minimize its unit costs. Typically, cost
pressures are high in industries such as
petroleum, chemicals , steel etc.
Pressure for local responsiveness - It makes
a firm tailor its strategies to respond to
national level differences in terms of
variables like customer preferences and
tastes, government policies or business
practices. A whole range of products and
services like cars, clothes, food,
entertainment or insurance face pressures
for local responsiveness and firms have to
tailor them to the requirements of individual
country markets.
The expansion through internationalization
could be done by adopting either of the
following strategies:
Global Strategy - In this, firms adopt a low
cost approach based on reaping the
benefits of experience curve effects and
location economies and offering
standardized products and services across
different countries. Here the firm tries to
intensively focus on a low cost structure by
leveraging their expertise in providing
certain products and services at a few
favorable locations around the world in an
undifferentiated manner at competitive
prices.
International Strategy: In this, firms create
value by transferring products and service
to foreign markets where these products
and services are not available. They offers
standardized products and services in
different countries, with little or no
differentiation
Transnational Strategy - In this, firms adopt a
combined approach of low cost and high
local responsiveness simultaneously, for their
products and services. Barttlett and Ghosal
make a strong case of adopting the
transnational strategy as they opine that this
is possibly the only viable strategy in a
competitive world. According to them, the
flow of expertise in a transnational firm is
only from a developed country to the
developing countries. But now , a
transnational firm should transfer the
expertise from its foreign subsidiaries to its
headquarters and from one foreign
subsidiary to another foreign subsidiary
through a process they term as ”global
learning ”
13
Multi-domestic Strategy: In this, firms try to What drives Retrenchment?
achieve a high level of local responsiveness
• Costs are too high
by matching their products and service
• Low ROCE
offerings to the national conditions
• High gearing
operating in the countries they operate in.
• Loss of Market Share
Here the multi-domestic firms attempts to
• Failed takeover
extensively customize their products and
• Economic downturn
services according to the local conditions
• Change of ownership
operating in the different countries.
Companies in the food and beverage,
All of which indicates that an organization
consumer products, and clothing and
needs a strategic change
fashion industries often may resort to a
country-by- country approach to marketing
to specific needs and tastes, laws, and
regulations. Industries in which competition
takes place on a country-by- country basis
are known as multi-domestic industries. In
such industries, each country tends to have
a unique set of competitors.

C.Retrenchment Strategy

▪ It is almost the opposite of normal

The Turnaround Strategy
growth strategy, in contrast,
retrenchment strategy is about ▪ is a retrenchment strategy followed
cutting back, doing less, using by an organization when it feels that
resources more carefully. the decision made earlier is wrong
and needs to be undone before it
Retrenchment in business is about: damages the profitability of the
company.
• Reduce of output and capacity
• Job losses
▪ Simply, turnaround strategy is
• Product /market withdrawal
backing out or retreating from the
• Disposal of business unit
decision wrongly made earlier and
• Scaling back of investment
transforming from a loss making
company to a profit making
▪ It is adopted when an organization
company.
aims at reducing its one or more
business operations with the view to
Now the question arises, when the firm
cut expenses and reach to a more
should adopt the turnaround strategy?
stable financial position.
Following are certain indicators which make
it mandatory for a firm to adopt this strategy
for its survival. These are:

• Continuous losses
• Poor management
• Wrong corporate strategies

14
 • Persistent negative cash flows
• High employee attrition rate
• Poor quality of functional
management
• Declining market share
• Uncompetitive products and
services
Also, the need for a turnaround strategy
arises because of the changes in the
external environment Viz, change in the
government policies, saturated demand for
the product, a threat from the substitute
products, changes in the tastes and
preferences of the customers, etc.
Example: Dell is the best example of a
turnaround strategy. In 2006. Dell
announced the cost-cutting measures and
to do so; it started selling its products
directly, but unfortunately, it suffered huge
losses. Then in 2007, Dell withdrew its direct
selling strategy and started selling its
computers through the retail outlets and
today it is the second largest computer
retailer in the world.
C.2 Retrenchment Strategy
The Divestment Strategy
▪ is another form of retrenchment that
includes the downsizing of the scope
of the business. The firm is said to
have followed the divestment
strategy, when it sells or liquidates a
portion of a business or one or more
of its strategic business units or a
major division, with the objective to
revive its financial position.
▪ It involves the sale of a portion of the
business, a major division (SBU or
Strategic Business Unit)
▪ It is a part of rehabilitation or
restructuring plan and is adopted
when a turnaround has been
attempted but was not successful
The divestment is the opposite of
investment; wherein the firm sells the portion
of the business to realize cash and pay off its
debt. Also, the firms follow the divestment
strategy to shut down its less profitable
division and allocate its resources to a more
profitable one.
An organization adopts the divestment
strategy only when the turnaround strategy
proved to be unsatisfactory or was ignored
by the firm. Following are the indicators that
mandate the firm to adopt this strategy:
• Continuous negative cash flows from
a particular division
• Unable to meet the competition
• Huge divisional losses
• Difficulty in integrating the business
within the company
• Better alternatives of investment
• Lack of integration between the
divisions
• Lack of technological up gradations
due to non-affordability
• Market share is too small
• Legal pressures
C.3 Retrenchment Strategy
The Liquidation Strategy
▪ is the most unpleasant strategy
adopted by the organization that
includes selling off its assets and the
final closure or winding up of the
business operations.
▪ It is the most crucial and the last
resort to retrenchment since it
involves serious consequences such
as a sense of failure, loss of future
15
 opportunities, spoiled market image,
loss of employment for employees,
etc.
The firm adopting the liquidation strategy
may find it difficult to sell its assets because
of the non-availability of buyers and also
may not get adequate compensation for
most of its assets.
The following are the indicators that
necessitate a firm to follow this strategy:
• Failure of corporate strategy
• Continuous losses
• Obsolete technology
• Outdated products/processes
• Business becoming unprofitable
• Poor management
• Lack of integration between the
divisions
C.1 Combination Strategy
The Combination Strategy means making
the use of other grand strategies (stability,
expansion or retrenchment) simultaneously.
Simply, the combination of any grand
strategy used by an organization in different
businesses at the same time or in the same
business at different times with an aim to
improve its efficiency is called as a
combination strategy.
Such strategy is followed when an
organization is large and complex and
consists of several businesses that lie in
different industries, serving different
purposes.
EXAMPLE
A baby diaper manufacturing company
augments its offering of diapers for the
babies to have a wide range of its
products (Stability) and at the same time, it
also manufactures the diapers for old age
people, thereby covering the other market
segment (Expansion). In order to focus more
on the diapers division, the company plans
to shut down its baby wipes division and
allocate its resources to the most profitable
division (Retrenchment).
Business Level Strategies
An organization's core competencies should
be focused on satisfying customer needs or
preferences in order to achieve above
average returns. This is done through
Business-level strategies. Business level
strategies detail actions taken to provide
value to customers and gain a competitive
advantage by exploiting core
competencies in specific, individual product
or service markets. Business-level strategy is
concerned with a firm's position in an
industry, relative to competitors and to the
five forces of competition.
Michael Porter’s 5 forces of competition
1. Industry / Competitive Rivalry
2. Threat of substitute products or services
3. The bargaining power of Suppliers
4. Threat of new entrants (Potential
Entrants)
5. Bargaining power of customers (Buyer
Power)
16
Porter's Five Forces - is a framework for 5 Business Level Strategies
analyzing a company's competitive
environment. The number and power of a
company's competitive rivals, potential new
market entrants, suppliers, customers, and
substitute products influence a company's
profitability

Customers are the foundation or essence of

a organization's business-level
strategies. Who will be served, what needs
have to be met, and how those needs will
be satisfied are determined by the senior
management.
Business-Level Strategy

Who are the customers? Three basic competitive approaches

• Demographic, geographic, lifestyle Cost Leadership - To outperform

choices (tastes and values),
personality traits, consumption
patterns (usage rate and brand
loyalty), industry characteristics, and
organizational size.
What are the goods and/or services that
potential customers need?
competitors by doing everything it can
to produce goods or services at the
lowest possible cost.
Differentiation- The differentiated
product has the ability to satisfy a
customer’s need in a way that
competitors cannot.

▪ Knowing ones customers is very Focus - Directed toward serving the

import in obtaining and sustaining a
competitive advantage. Being able
to successfully predict and satisfy
future customer needs is important.
(Perhaps one of Compaq's mistakes
was not understanding who their real
customer was and what that
customer -- end user -- wanted.
needs of a limited customer group or
segment.
Cost-Leadership Strategy
The goal is to increase profits by
reducing costs while charging industry-
standard prices, or to increase market
share by reducing the sales price while
retaining profits.

How to satisfy customer needs?

▪ Organizations must determine how

to bundle resources and capabilities
to form core competencies and
then use these core competencies
to satisfy customer needs by
implementing value-crating
strategies.

17
 Cost Leadership Strategy Cost saving
actions required by this strategy
▪ building efficient facilities
▪ tightly controlling production costs
and overhead
▪ minimizing costs of sales, R&D and
service
▪ building efficient manufacturing
facilities
▪ monitoring costs of activities
provided by outsiders
▪ simplifying production processes
Cost Leadership and the advantages on
Five Forces
• Rivalry - competitors avoid price
wars with cost leaders
• Buyers – shift demand to you,
increase market power
• Suppliers – increased market power,
absorb cost increases (low cost
position)
• Entrants – entry barriers (scale,
learning)
• Substitutes – reinvest profit to
maintain advantage
Major Risks of Cost Leadership Strategy
• There can only be one cost leader
• Technological change can eliminate
cost advantage
• Spillovers lead to imitation
• Efficiency focus may create blind
spots re: customer preferences
Differentiation Strategy
To implement this strategy, your company's
products need to be significantly better than the
competition's, improving their competitiveness
and value to the public. It requires thorough
research and development, plus effective sales
and marketing.
An integrated set of actions designed by a
firm to produce or deliver goods or services
that customers perceive as adding value
• price may exceed what the firm’s
target customers are willing to pay
• Non-commodity products
• customers value differentiated
features more than they value low
cost
Differentiation and the Five Forces
• Rivalry - brand loyalty to
differentiated products reduces
price competition
• Buyers – differentiated products less
price elastic
• Suppliers – absorb price increases
(higher margins), pass along higher
prices (buyer loyalty)
• Entrants – must surpass proven
products or be equivalent at lower
price
• Substitutes – diff raises switching costs
Major Risk of Differentiation Strategies
• Differentiating on characteristics not
valued by buyers (e.g., HP)
• Over-differentiating
• Price premium is too high
• Failing to signal value
• Focusing on product instead of
entire value chain
Focused Business-level Strategy
Successful implementation entails the
company selecting niche markets in
which to sell their goods. It requires an
intense understanding of the
marketplace, its sellers, buyers and
competitors
18
 A focus strategy must exploit a narrow
target’s differences from the balance of
the industry by:

• isolating a particular buyer group

• isolating a unique segment of a
product line
• concentrating on a particular
geographic market
finding their “niche

Focused Business-level Strategy

Factors Driving Focus Strategies

➢ Large firms overlook small niches

➢ Firm may lack resources to compete
in the broader market
➢ May be able to serve a narrow
market segment more effectively
than can larger industry-wide
competitors
➢ Focus may allow the firm to direct
resources to certain value chain
activities to build competitive
advantage

Major Risks of Focused Strategies

▪ Firm may be “outfocused” by

competitors
▪ Large competitor may set its sights
on your niche market
▪ Preferences of niche market may
change to match those of broad
market

19