UNIT-3

MAJOR STRATEGIC OPERATION

What is the Meaning of Strategic

Options?
A strategy is a plan for the successful achievement of the organization’s goals
over a period of time. It is always designed toward achieving a specific target or
a goal. Also, it is always for the long-term. Strategic options are goal-oriented
alternatives that an organization has towards the uncertain external
environment. It is not only the choice but also the obligation of the
management to choose the best possible alternative. It should be done in
context with the organization, its needs, resources, vision, and other similar
considerations.

The determination of these options involves a thorough study of the

organization’s strengths, weaknesses, opportunities, and threats from the
internal and external environments. This becomes more complex if the
organization has a portfolio of various businesses or products. Similarly, it
becomes complex to decide and implement if it operates in different
geographies. Because the tastes and preferences of the customers may vary
considerably. Then the proper evaluation of each of the options has to be done
by the management. Each will have its own advantages as well as
disadvantages. This involves a lot of brainstorming and making tough decisions
and choices. After evaluation comes to the selection stage, where one or
multiple options can be chosen as per the need and circumstances. Also, the

Which Techniques are useful for making Strategic

Options?
Some of the key techniques for the generation of strategic options are:

Using the Ansoff Matrix

The Ansoff matrix provides strategic options with regard to the growth of an
organization. And what modifications/amends are needed in the existing
portfolio of products to grow. It considers new and existing markets, new and
existing products, and their inherent risks. After analyzing these aspects, the
matrix provides four different strategic options. And these are Market
penetration, Market development, Diversification, and finally, fourth Product
development.
The matrix helps guide and make decisions to sell the existing products and
services to new customers and clients, altogether new products and services to
the existing clients, or new products and services to new clients. Thus, it can be
a very useful tool to provide sales and growth options and outline their risks.
This tool is widely in use due to its ease of use and simplicity. In other words,
this matrix is a quick and simple way of understanding and appreciating the
risks of growth.

Using the Innovation Matrix

The Innovation matrix provides a formal structure to promote and manage
innovation in an organization. It helps to create strategies that can help to
simplify and design techniques for effective thinking. This can act as a tool for
innovation.

It promotes the use of three key steps: Think, Strategize and then finally Act in
order to promote innovation and innovative techniques within the organization.

Porter’s Generic Strategies

Porter’s Generic Strategies is a framework to plan the direction of the
organization. It suggests ways to gain a competitive advantage in the market.
This tool gives an organization a roadmap to get an edge over the competitor
by taking sales away from them and establishing leadership in the market.

Porter’s generic strategies suggest using three key strategic options: Cost
Leadership, Differentiation, and Focus. These three options aim to give an
organization a competitive advantage and evolve as a leader.

Cost leadership advocates capturing a bigger pie of the market share. This can
be done by lowering costs or increasing profits by maintaining average and
competitive prices. Also, this option advocates minimizing costs so that it is
lower than that of any competitor.

The strategy of differentiation focuses on offering products and services with a

tinge of differentiation or uniqueness. The offerings of the organization should
be such that they provide additional value and features than any competitor
offers.
The strategy of focus pushes an organization to gain a competitive advantage.
This is done by focusing on niche markets and clientele. The organization can
either use cost leadership or differentiation to achieve this goal.

Using a BCG Analysis

The BCG Analysis is an important tool for companies to determine where their
products stand in front of the competitor’s products. It answers important
questions like which products to invest in and grow, which products to develop
more, and finally, which products to discontinue or stop investing in.

The matrix has the “rate of growth of the market” on the y-axis and the
“relative share in the market” on the x-axis. Organizations can divide their
products into four categories and place them in the matrix: Cash cows, stars,
dogs, and question marks. Cash cows generate positive and good cash flow;
stars are products with maximum market share and cash generation potential;
question marks have a high growth rate and potential to grow but currently
have a low share in the market. Finally, the dogs have very limited future
growth potential. Hence, an organization will be better off to stop further
investments in this category of products.

SWOT Analysis
SWOT analysis also provides relevant strategic options for an organization. It
helps to fight competition and is useful in doing project planning. The meaning
of SWOT is S for strengths, W for weaknesses, O for opportunities, and finally, T
for threats.

An organization can use the analysis for decision-making and decide whether
the option will help it meet its goals and objectives.

Pareto Analysis
Pareto Analysis helps to analyze multiple choices or alternatives that are
available to an organization. It helps to figure out the benefits a company can
expect with each alternative and then the best course of action to implement
that choice. The main goal is to derive as much benefit as possible from that
choice of action.

The analysis depends upon brainstorming and bringing out new ideas from the
management. Also, it results in the active involvement of each and everyone
involved in the process of chalking out the strategic options in the organization.
Canvas Strategy
Canvas Strategy or Blue ocean strategy canvas helps to compare the strategic
profile of an existing market with that of the new entrant or the company. The
strategy helps to develop a “blue ocean market.” It means that it focuses on
continuously discovering newer markets that have a limited presence of the
competition and have good growth potential.

Also, the canvas is strictly against venturing into “red oceans” or the markets
that already have a lot of competition present and are already saturated.

Balanced Scorecard
The balanced scorecard is used by the management to convey the vision of the
organization. According to this option, the vision of the organization is at the
center.

What Strategic Options does a company

have?
An organization can opt for any of the following strategic options as per its
needs and requirements and the stage it is in its lifeline-

Diversification Strategy
A company may opt for a diversification strategy in case of saturation of its
already existing markets and product portfolio. It can plan to diversify into new
markets, new products, and even opt for foreign markets for expansion.

This strategy is helpful in achieving economies of scale and scope. It enables

companies to make the best possible use of inexpensive resources of foreign
countries and bring down their costs. Companies can benefit from the already
established brand name and use their already existing know-how, techniques,
processes, and patents. Thereby they can gain a competitive advantage over
others and become market leaders with improved market share and profitability
with relative ease.

Restructuring Strategy
The strategy of restructuring means that a company may choose to restructure
some of its unprofitable product lines or processes. It may discontinue them
and make entirely new acquisitions to substitute them.

This strategy is useful for those companies that have products in their portfolio
that have become unprofitable or are starting to become unviable to continue
with. Or the products that are towards the end of their lifecycle/existence. It is
a sort of reorganization of a company that may help it to free some of its
underutilized or unviable resources. Redeploying them towards growth will
improve the overall status of the company.

Harvesting Strategy
This strategy involves the reduction of business assets to the bare minimum
and freeing up the resources and capital of the business. Such a strategy leads
to the stoppage of new investment in the business, whereas cash flow increases
in the short run. The end road of such a strategy is generally the liquidation of
the business.
Turnaround Strategy
A turnaround strategy is nothing but bringing an unprofitable or dying business
back to life. Instead of harvesting, a company may choose the strategy of
investing in new resources and turn the business back into being profitable.

Adopting such a strategy can be done when the industry prospects look bright
and profitable in the long run, even though the business suffers losses in the
short run. It may choose to cut costs, invest in new products and regions, or
change its business strategy altogether.

GROWTH STRATEGY

A growth strategy is a set of actions and plans that make a company expand its market share
than before. It’s completely opposite to the notion that growth doesn’t focus on short-term
earnings; its focus is on long-term goals.

A successful growth strategy is an integration of product management, design, leadership,

marketing, and engineering. It’s important to remember that your growth strategy would only
work if you implement it into your entire organization.

The growth strategy is not a magic button. If you want to increase the growth, productivity,
activation rate, or customer base, then you have to develop a strategy relevant to your
product, customer market, any problem that you’re dealing with.

EXPANSION STRATEGY

An expansion strategy is synonymous with a growth strategy. A firm seeks to

achieve faster growth, compete, achieve higher profits, grow a brand, capitalize on
economies of scale, have greater impact, or occupy a larger market share. This may
entail acquiring more market share through traditional competitive strategies,
entering new markets, targeting new market segments, offering new produce or
services, expanding or improving current operations.

Below are common expansion strategies:

 Expansion through Concentration - This involves focusing resource allocation and

operational efficiency on one or a select group of business units or core business
functions. Concentration might include: penetrating an existing market with an existing
value proposition; developing a new market by attracting new customers to an existing
value proposition; developing a new value proposition to introduce in the existing market.
The benefits of expansion through concentration is that it allows the firm to focus on
areas where it already has operations and a level of competency. It is comfortable to
 avoid major changes in operations while employing existing knowledge. This type of
strategy can be risky from the stand point of putting too many eggs in one basket.
Changes in the market (price fluctuations, customer sentiment, new value propositions,
etc.) may cause the strategy to be unsuccessful.
 Expansion through Diversification - This strategy involves diversifying the value
offering of the company in one of two methods: 1) Concentric Diversification entails
developing a new value proposition that are related to existing value propositions; or 2)
Conglomerate Diversification entail entering into new markets (either with an existing
value proposition or by combining with another industry competitor). This strategy
generally reduces specific industry risks, such as an economic downturn. The profits of
one value offering might offset losses in another business unit during difficult times.
 Expansion through Integration - Integration involves the consolidation of operational
units anywhere along the value chain to create greater efficiency and produce
economies of scale. Unlike other strategies, it does not involve making changes to
existing markets or targeting new customer groups. There are two primary types of
integration: 1) Vertical integration involves consolidation up or down the value chain.
Forward vertical integration involves consolidating closer to the point at which value is
delivered to the consumer. Backward vertical integration involves consolidating closer to
the genesis of value (such as the point of manufacturing). Horizontal integration involves
consolidating operations at the same point in the value chain. This consolidation may be
between business units or by acquiring or combining with a competitors. See our
separate discussion of Horizontal and Vertical integration for greater detail.
 Expansion through Cooperation - This strategy entails working closely with a
competitor (while potentially still competing against them in the market). Working with
the competitor provides both companies an advantage that trumps any advantage (or
disadvantage caused to the competitor) from not working together. Working together will
generally provide operational efficiency to one or both competitors or expand the market
potential for one or both competitors. Working together may take the form of
consolidation of business units (mergers or acquisitions), strategic alliance (affinity group
or association), or joint venture (loose partnership-like alliance generally used to
undertake a project or enter into foreign markets).
 Expansion through Internationalization - This method involves creating new markets
for a value offering by looking outside of the immediate nation. Generally, this option is
preferable when there is little room for expansion in domestic markets.
Internationalization can be carried out through the following strategic approaches: 1)
International Strategy - focusing on offering a value proposition in a foreign country
without modification of differentiation; 2) Multi-domestic Strategy - involves modifying or
differentiating a product to make it attractive or suitable to foreign markets; 3) Global
Strategy - focuses on delivering the standardized value proposition in countries where
there is a low cost structure for delivery; 4) Transnational Strategy - employs both a
global and multi-domestic strategy by modifying or differentiating a product in foreign
markets where there is a low cost structure that results in profits from delivering the
value proposition.

What is Diversification Strategy?

A diversification strategy is a method of expansion or growth followed by
businesses. It involves launching a new product or product line, usually in a
 new market. It helps businesses to identify new opportunities, boost profits,
increase sales revenue and expand market share. The strategy also gives them
leverage over their competitors.
The corporate diversification strategy or product diversification is a prominent
approach followed by large-scale businesses. However, diversifying products is
usually risky and requires extensive market research and analysis. There are
three main types of product diversification – concentric, horizontal, and
conglomerate, based on the scope and approach undertaken.

Key Takeaways
 A business diversification strategy is when companies introduce new products
to a new market with the goal of expansion.
 The diversification approach is more suitable for large multinational
corporations. Some examples of the corporate diversification strategy include
Amazon and Disney.
 However, a risk factor is associated with the many benefits that product
diversification can offer, like increased sales and high profits. Therefore,
companies spend lots of money to understand a market before entering them.
 The strategy can be implemented by identifying the product, coming up with
the product, drafting a strategy, managing finances, and introducing the
product.
 The three main types of diversification strategies include concentric,
horizontal, and conglomerate strategies.

Diversification Strategy Explained

The diversification strategy is often opted for by companies that have
established a reputation domestically. This gives them scope for growth and
enables them to expand to new markets or introduce new products. Usually,
there are four approaches to product expansion that businesses can follow.

The first strategy is market penetration, in which a company tries to increase

an existing product’s share in an existing market. This strategy has little risk as
the company has already studied the market and has experience operating in
it.

The second approach is market development, where a company introduces an

existing product in a new market. This approach can be a little risky, as the
company has to study the market’s acceptance of the product and appeal to
local tastes and preferences. For example, when McDonald’s first came to
India, its offerings faced heavy backlash. Therefore, McDonald’s had to modify
their offerings, add more vegetarian options, and remove beef recipes from
the menu.

The third strategy is product development, in which companies introduce new

products in an existing market. This, too, can be a little risky regarding
people’s acceptance of the product. However, if the company has launched
the product by recognizing a gap in the market, it will be accepted. For
instance, when people started turning to vegan diets in the United States,
many fast-food chains like Starbucks and Domino’s introduced vegan options.

The last strategy is diversification. Here, companies introduce new products to

new markets. This is the riskiest of all approaches, as the company has to
study the product’s acceptance, demand, and market situation. Hence, it is
expensive too.

The Risk Factor in Diversification

Strategy
Having understood the basics of diversification, it is now important to know
the risk associated with product diversification strategy.

Diversification can be risky for two reasons – new products and new markets.

Introducing any product into a new market involves a lot of research to

understand the people. If the new product does not appeal to the local tastes,
the business can face heavy loss, considering that diversification is expensive.
Thus the product should be innovative and fill the supply-demand gap in the
market. The businesses should first understand the market’s requirement for
the product and the culture of the market. This can help them cater to the
market better and can also help reduce loss to a great extent.

Types
The three main diversification strategies are based on the approach
undertaken – concentric, horizontal, and conglomerate diversification.

1 )Concentric diversification

This method introduces closely related products to the existing market. That is, similar
products are added to the current product line. Such a type of diversification brings the
focus of a business to a center point, thus concentric. For example, an automobile
company adds a solar-powered car to its eco-friendly auto line.

2 )Horizontal diversification

Diversifying a product horizontally means introducing new but unrelated

offerings to the company’s product mix. Horizontal diversification can also
be adapted to launch complementary goods. For instance, a clothing
company launching its footwear line.

3)Conglomerate diversification

A business focuses on a completely different product line in this strategy.

Hence, this can be extremely risky. The company broadens its scope and
targets a different market. The Disney diversification strategy is a suitable
example here.

Example
Now let’s discuss the real-life example of Amazon’s diversification strategy.
Amazon is a multinational company that provides various online services
such as e-commerce, cloud computing, email delivery, online video, music
streaming, e-payment, and affiliate marketing. Apart from this, Amazon also
introduced a virtual assistant, Alexa, in 2014. Further, it operates brick-and-
mortar stores in the United States.

Thus, Amazon has been successfully following a business diversification

strategy that has been helping it grow its profits. Therefore, e-commerce is no
more the only major source of income for Amazon. In fact, its cloud service
business is now valued at $3 trillion.

Advantages of diversification
Nevertheless, diversification is a good approach for big corporations. It has many
advantages and helps businesses explore new opportunities and serve diverse markets.
Hence, companies will get higher reach, better brand reputation, and
increased profitability. It also gives the companies a competitive edge.

Consider the case of Disney diversification strategy. Disney started as an animation

business but soon expanded to selling merchandise and streaming online content.
Disney even opened theme parks worldwide and entered the entertainment industry,
thus growing in size and profits.

What is a Retrenchment Strategy?

A redemption strategy seeks to restructure, sell or otherwise dinvest a business unit.
The purpose is to reduce costs, streamline operations, or stabilize cash flow. The
three primary types/variantions of retrenchment strategy are:

 Turnaround Strategy - This is a restructuring strategy. It calls for realigning operations

to be more cost efficient or profitable. It often comes in response to an ineffective
strategy causing harm to the company.
 Divestment Strategy - This means reducing operations or completing divesting (getting
rid of) a business unity. Generally, the operational unit will be losing money or not fit with
the companys core operational objectives. Some the drivers of this strategy are negative
cash flows, sustained losses, poor business integration, better alternative use of assets,
the value proposition is becoming obsolete, rising costs, or small (non-growing) market
share. The firm may now allocate resources to a more profitable or appropriately aligned
business unit. Generally, a divestment comes after a turnaround strategy has proved
ineffective.
 Liquidation Strategy - A liquidation strategy is similar to a divestment. It focuses on
selling specific assets or shutting down business units. Unlike divestment, which seeks
to streamline operations and focus resource allocation, liquidation sees a business unit
as a loss or failure. Scenarios leading to a liquidation strategy include: extensive losses,
 lack of profitability, failure of a current strategy, obsolete assets, or technology,
ineffective processes, obsolete value proposition, poor management, or lack of
integration of the business unit.

COMBINATION STRATEGY

A combination strategy employ any simultaneous combination of other

master strategies. It includes use by a firm of a different strategy in
individual business units or by use of multiple strategies in a single
business unit at the same or different times. This is most popular in large,
complex organizations (various industries and business units).

TURNAROUND STRATEGY

Definition of Turnaround Strategy is a retrenchment strategy followed by an organization when it

feels that the decision made earlier is wrong and needs to be undone before it damages the

profitability of the company. Simply, a turnaround strategy is backing out or retreating from the

decision wrongly made earlier and transforming from a loss-making company to a profit-making

company. Now the question arises when the firm should adopt the turnaround strategy? Following

are certain indicators that make it mandatory for a firm to adopt this strategy for its survival.

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.

Turnaround strategy is applicable to the loss-making business unit. It is the act of making a company

profitable again. ‘As it is rightly said “Health is Wealth” when the Business firm is healthy, then only it

can be wealthy’. An investigation of the root causes of failure, and long- term programs are essential

to revitalizing the organization. Turnaround strategy is a revival measure for overcoming the problem

of industrial sickness.

It is a strategy to convert a loss-making industrial unit to a profitable one. Turnaround is a

restructuring process that converts the loss-making company into a profitable one. It brings the

industrial unit into its original position and stabilizes its performance. Implementation plays an
important role in turnaround management. The success of the turnaround strategy depends on the

commitment of top-level management.

A turnaround is essential to the survival of a failing business. Turnaround is a sustained positive

change in the performance of a business to obtain desired results. A successful turnaround is a

complex procedure that requires a strong management team and sound business core.

The turnaround also requires the leadership of competent management, capital, and trust and

support of the company employees and shareholders.

EXTERNAL GROWTH STRATEGY

External Growth refers to the inorganic growth strategy wherein a company

uses external resources and capabilities, but not the available internal
resources, to expand its business activities. This strategy results in an increase
in sales and profitability through purchasing other companies or building a
business relationship with them.

Strategies of External Growth

The strategies can be broadly classified into two primary vehicles: mergers &
acquisitions and strategic alliances. The differentiating factor between the
two strategies is how the ownership changes. In mergers & acquisitions, the
ownership between the companies gets exchanged, while in a strategic
alliance, businesses can retain their independence while pursuing their
collective objectives.

 Mergers and Acquisitions: Typically, the companies exchange their

ownership in a merger and acquisition transaction. A merger refers to a
transaction wherein two companies combine to form a new entity with
the consent of the boards of both the involved companies. On the other
hand, an acquisition refers to a transaction wherein the acquiring
company bids to purchase a controlling stake in the target company,
 either with the approval of the board and shareholders of the target
company or without it.
 Strategic Alliances: A strategic alliance is slightly different from
mergers & acquisitions as it doesn’t involve a complete exchange of
ownership between the companies involved. Rather, the participating
companies pool their resources and assets to achieve collective goals
while retaining their independence under this transaction. A strategic
alliance can either be an equity alliance or a non-equity alliance.

FACTORS INFLUENCING CHOICE OF STRATEGY

Factor # 1. Environmental Constraints:

The dynamic elements of environment affect the way in which choice of
strategy is made. The survival and prosperity of a firm depend largely on the
interaction of the elements of environment—such as shareholders, customers,
suppliers, competitors, the government and the community. These elements
constitute the external constraints. The flexibility in the choice of strategy is
often governed by the extent and degree of the firm’s dependence on the
environment.
Pearce and Robinson state, “A major constraint on strategic choice is the
power of environmental elements. If a firm is highly dependent on one or
more environmental factors, its strategic alternatives and ultimate choice
must accommodate this dependence. The greater a firm’s external
dependence, the lower its range and flexibility in strategic choice.”
Factor # 2. Dynamism of Market Sector:
Glueck has said, “The strategic choice is affected by the relatively volatility of
market sector the firm chooses to operate in.” Market forces vehemently
influence the choice of strategy.
For example, a firm which obtains bulk supply of its raw materials or
components in a competitive market will have greater flexibility in its strategic
choice than another firm which has to depend for its supplies on an
oligopolistic market.
Factor # 3. Intra-Organisational Factors:
Organisational factors also affect the strategic choice. These include
organisational mission, strategic intent, goals, organisation’s business
definition, resources, policies, etc. Besides these factors, organisational
strengths, weaknesses, and capability to implement strategic alternatives also
affect the strategic choice.

Factor # 4. Corporate Culture:

In choosing a strategic alternative, strategy makers must consider pressures
from the corporate culture. They must assess a strategy’s compatibility with
that culture. Every organisation has its own corporate culture. It is made of a
set of shared values, beliefs, attitudes, customs, norms, etc. The successful
functioning of an organisation depends on ‘strategy-culture fit’.
The strategy choice has to be compatible with firm’s culture. The strategic
choice should not be out of tune with the cultural framework of the firm. The
culture has substantial influence on the strategic choice. In case of mismatch
between strategic choice and the cultural framework of a company, either one
is to be redefined.

Factor # 5. Industry and Cultural Backgrounds:

Industry and cultural backgrounds affect strategic choice.
For example, executives with strong ties within an industry tend to choose
strategies commonly used in that industry. Other executives who have come to
the firm from another industry and have strong ties outside the industry tend
to choose different strategies from what is being currently used in their
industry.
Country of origin often affects preferences.
For example, Japanese managers prefer a cost-leadership strategy more than
do United States managers. Research reveals that executives from Korea, the
U.S., Japan, and German tend to make different strategic choices in similar
situations because they use different decision criteria and weights.
Factor # 6. Pressures from Stakeholders:
The attractiveness of a strategic alternative is affected by its perceived
compatibility with the key stakeholders in a corporation’s task environment.
Creditors want to be paid on time. Unions exert pressure for comparable wage
and employment security. Governments and interest groups demand social
responsibility. Shareholders want dividends. All these pressures must be given
some consideration in the selection of the best alternative.
Stakeholders can be categorized in terms of their (i) interest in the
corporation’s activities and (ii) relative power to influence the corporation’s
activities. Each stakeholder group can be shown graphically based on its level
of interest (from low to high) in a corporation’s activities and on its relative
power (from low to high) to influence a corporation’s activities.
Factor # 7. Impact of Past Strategies:
It has been noticed that the choice of current strategy may be influenced by
what type of strategies have been used or followed in the past. Pearce and
Robinson have said, “A review of past strategy is the point at which the
process of strategic choice begins. As such past strategy exerts considerable
influence on the final strategic choice.”
Factor # 8. Personal Characteristics:
Personal factors like own perception, views, interests, preferences, needs,
aspirations, personal disposition, ambitions, etc., are important and play a
vital role in affecting strategic choice. Even the most attractive alternative
might not be selected if it is contrary to the attitude, mindset, needs, desires
and personality of the selector/strategist himself.
Thus, personal characteristics and experience affect a person’s assessment and
choice of strategic alternatives.
For example, one study found that narcissistic (self-absorbed and arrogant)
type of managers favour bold actions that attract attention
Factor # 9. Value System:
The role of value system in choosing a strategic alternative is well recognized.
While evaluating the strategic alternatives, different executives may take
different positions because of differences in their personal values. Guth and
Tagiuri found that personal values were important determinants of the choice
of corporate strategy. Similarly, value system to top management affects the
types of strategy that an executive chooses.
Factor # 10. Managerial Power Relations:
Choice of strategy is also influenced by the power play among different
interest groups. William Guth in his study found that strategic choice is
significantly affected by interpersonal relations and power relationship among
members of the top management team. Power politics is a crucial factor
determining the choice of strategy.