Lesson 8

Corporate level strategy

Nuresh Eranda, PhD

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Lesson outline
 Corporate level strategy

 Strategic growth directions with marketing

implications
 Market penetration

 Product development

 Market development

 Diversification (related and unrelated)

 Main strategic alternatives

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Corporate Level Strategy
 Corporate level-strategy is concerned with
the overall purpose and scope of an
organization and how value will be added to
the different parts (business units) of the
organization
Johnson et al (2008)
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Corporate Level Strategy
 What businesses the firm should be in?
 How the corporate office should manage the group of
businesses?
 Corporate-level strategy tends to have an impact on
the whole organization

 Corporate strategy is developed based on the

assessment of the existing capabilities of the company
and external opportunities and threats

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Corporate Strategy is a combination of …..

 Senior management direction and insights

 Corporate product strategy

 Corporate marketing strategy

 Corporate operations strategy

 Corporate finance strategy

 Corporate human resource strategy

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Strategic Growth Directions
(Ansoff’s Matrix)

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Market Penetration
 Organization seeks to gain greater dominance in a market in
which it already has an offering
 Involves:
 Increase present buyers’ usage

 Attract buyers of competing offerings

 Stimulate product trial among potential customers

 Marketing activities:
 Lowering prices

 Expanding distribution

 Heavier promotions
Product development
 Organization creates new offerings for existing markets
 Approaches:
 Product innovation: develop totally new offerings

 Product augmentation: enhance the value to customers of

existing offerings
 Product line extension: Broaden the existing line of offerings
by adding different sizes, forms, flavors, etc.
 Successful new offerings should have a significant “point of
difference”
 Potential for cannibalism should be considered
Market development
 Organization introduces its existing offerings to
markets other than those it is currently serving

 E.g. introducing existing products to different

geographical areas or different buying segments

 Possible activities:

 Modification of the basic offering,

 Different distribution outlets,

 Change in sales effort and advertising

Market development contd.
 Market present products with possible product modifications &
range to customers in related market areas
 Market development strategy is about modifications to strategic
positioning
 Modifications to increase attractiveness to new segments or
niches
 New uses for a product or service

 Appropriateness for different countries with particular taste or

requirements
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Diversification
 Development or acquisition of offerings new to the organization
and the introduction of those offerings to publics not previously
served by the organization
 Organization is applying distinctive competency in reaching new
markets with new offerings

 Reasons for diversification

 Efficiency already gained by the organization through it’s existing
capabilities can be applied to new markets (Synergy effect)
 Increasing market power due to the diverse range of businesses
 Responding to market decline
 Spreading risk
 The expectations of powerful stakeholders

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Related Diversification
 Corporate development beyond current products and
markets, but within the capabilities of value network
of the organization

 Core competence can be transferred across several

business-units

 Firm creates value by building upon or extending its:

 Resources
 Capabilities
 Core competencies

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Related Diversification: Example
 Ceylon Biscuits Limited

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Related Diversification:
Economies of Scope
 Cost savings that occur when a firm transfers
capabilities and competencies developed in one
of its businesses to another of its businesses

 Value is created from economies of scope

through:
 Operational relatedness in sharing activities
 Corporate relatedness in transferring skills or
corporate core competencies among units
Sharing Activities
 Operational Relatedness
 Created by sharing either a primary activity such as
inventory delivery systems, or a support activity
such as purchasing

 Activity sharing requires sharing strategic control

over business units

 Activity sharing may create risk because business-

unit ties create links between outcomes
Transferring Corporate Competencies
 Corporate Relatedness

Using complex sets of resources and

capabilities to link different businesses
through managerial and technological
knowledge, experience, and expertise
Related Diversification:
Market Power
 Diversified businesses can increase power vis-à-vis
competitors

 Multipoint Competition
 Two or more diversified firms simultaneously compete
in the same product areas or geographic markets

 Vertical Integration
 Backward integration—a firm produces its own inputs
 Forward integration—a firm operates its own
distribution system for delivering its outputs
Unrelated Diversification
 The development of products or services beyond
the current capabilities and value network

 Benefits can be gained from vertical relationships

（the creation of synergies from the interaction of
corporate office with the individual business
units）

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Unrelated Diversification: CIC Holdings
Agriculture and Livestock

Homecare

Health and personal care

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Unrelated Diversification: CIC Holdings
Materials for industries

Food and nutrition

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Unrelated Diversification
 Financial Economies
 Are cost savings realized through improved
allocations of financial resources
 Based on investments inside or outside the firm

 Create value through two types of financial

economies:
 Efficient internal capital allocations

 Purchasing other corporations and restructuring

their assets
Main Strategic Alternatives
 Do nothing

 Limited growth

 Substantive growth

 Retrenchment growth

 Sell or liquidate whole business

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 Market
development

Market Product
penetration development

Limited
growth

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Substantive growth

Horizontal Related
integration diversification

Vertical Unrelated
integration diversification
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Turnaround Divestment

Retrenchment

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Do Nothing
 Continuation of the existing corporate and
competitive strategies
 When “Do nothing”
 Lacking awareness of managers
 Being lazy or complacent
 Believing things are going well
 When change requires dangerous strategy
 Match with the short term, but long term requires
changes due to environmental changes

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Substantive growth:
Horizontal integration
 A firm acquires or merges with a major competitor, or
at least another firm operating at the same stage in
the added value chain
 Two organizations appeal to two different market
segments rather than compete directly
 Advantages:
 Increasing market share
 Pooled skills and capabilities generate synergy
 E.g. Rover cars was under BMW, Austin Rover, British
Leyland due to series of amalgamations
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Substantive growth:
Vertical integration
 The acquisition of a company which supplies a firm
with inputs (backward vertical integration) or serves
as a customer for the firm’s products or services
(forward vertical integration)

 Backward integration

 Forward integration

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Retrenchment
 When organizations require remedial actions?
 Company experiences declining profits due to economic
recession, production inefficiency & competitor innovation
 Focus on areas where the company has distinctive
competence or superior competitive position
 Main objective of the firm: survival
 Improving efficiency
 Cost reduction
 Asset reduction
 Revenue generation
 Turnaround strategy & divestment

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Retrenchment:
Turnaround strategy
 Adoption of new strategic position for a product
or service and lead on from retrenchment

 Possible strategies
 Make resources freed-up or reallocate to another task
 Reallocation of managerial talent
 Product modifications
 Advertising or lower prices to generate sales
 Focus on niches
Retrenchment:
Divestment strategy
 Selling a business to another company

 When does divestment happen?

 Company needs to raise money quickly
 A business is having a poor strategic fit with the rest of
the portfolio

 Improving the market value of the shares is expected

in divestment
Summary
 Corporate level strategy

 Strategic growth directions with marketing

implications
 Market penetration

 Product development

 Market development

 Diversification (related and unrelated)

 Main strategic alternatives

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