MANAGEMENT POLICY AND

STRATEGY
SESSION - VI
Generic and Grand
Strategies
Prof. Sushil
Department of Management
Studies
Indian Institute of Technology,
Delhi
INDIA
Email: sushil@dms.iitd.ernet.in
Prof.Sushil\IITD\Session-VI

Generic Strategies

Low-cost
leadership

Differentiati
on

Prof.Sushil\IITD\S

Focus

PORTERS GENERIC STRATEGIES

Competitive
Advantage

Lower Cost
Broad
Target

1. Cost
Leadership

Differentiation

2.
Differentiation

Competitive Score
Narro
w
Target

3 A. Cost Focus 3 B.
Differentiation
Focus

Prof.Sushil\IITD\S

REQUIREMENTS FOR GENERIC

COMPETITIVE STRATEGIES
Generic
Strategy

Commodity Required Common Organizational

Skills and Resources Requirements

Overall cost

Sustained capital investment

leadership
reports

Frequent, detailed control

access to capital

Process engineering skills

responsibilities
Intense supervision of labour
Products designed for ease
Low-cost distribution system

Tight cost control

Structured organization

and

Incentives based on
meeting strict quantitative
targets in manufacture

Differentiation
Strong marketing abilities
Strong coordination
Product engineering
among functions in R&D,
Creative flare
product development, and
marketing

Prof.Sushil\IITD\S

REQUIREMENTS FOR GENERIC COMPETITIVE

STRATEGIES
CONTD
Strong capability in basic
research

Focus

above policies

Subjective measurement and

incentives instead of
quantitative measures
Corporate reputation for Amenities to attract highly
quality or technological
skilled labour, scientists, or
leadership
creative people
Long tradition in the industry
or unique combination of skills
drawn from other businesses
Strong cooperation from
channels
Combination of the above
Combination of the
policies directed at the
particular strategic target

directed at the regular strategic

target

Prof.Sushil\IITD\S

RISKS OF THE GENERIC STRATEGIES

Risks of Cost Leadership

Risks of Differentiation

Risk of Focus

Cost of leadership is not

Differentiation is not
The focus strategy is
sustained
initiated
sustained:
Competitors imitate
The target segment

Competitors imitate:
Bases for differentiation
becomes structurally
unattractive

Technology changes
becomes less imported to Structure erodes

Other bases for cost

buyers Demand disappears
leadership erode
Proximity in differentiation Cost proximity is lost
Broadly targeted
is lost
competitors overwhelm
the segment:
The segments differences
from other segments narrow
The advantages of a broad
line increase
Cost focusers achieve
Differentiation focusers
New Focusers sub-segments
even lower cost in segments
achieve even greater
the industry
differentiation in segments

Prof.Sushil\IITD\S

STAGE OF `INDUSTRY DEVELOPMENT

Growth

Leade
r
Strategic
position
of
organizat
ion Follower

Keeping
ahead of the
field
Imitation at
lower cost
Joint ventures

Maturity

Cost
leadership
Raise barriers
Deter
competitors
Differentia
tion Focus

Prof.Sushil\IITD\S

Declin
e
Redefine scope
Divest
peripherals
Encourage
departures
Differentiatio
n
New
opportunities

Types of Grand Strategies

Concentrated
ConcentratedGrowth
Growth

Conglomerate
ConglomerateDiversification
Diversification

Market
MarketDevelopment
Development

Turnaround
Turnaround

Product
ProductDevelopment
Development

Divestiture
Divestiture

Innovation
Innovation

Liquidation
Liquidation

Horizontal
HorizontalIntegration
Integration

Bankruptcy
Bankruptcy

Vertical
VerticalIntegration
Integration

Joint
JointVentures
Ventures

Concentric
ConcentricDiversification
Diversification

Strategic
StrategicAlliances
Alliances
Consortia
Consortia

Prof.Sushil\IITD\S

Characteristics of a Concentrated
Growth Strategy

Involves focusing resources on the profitable growth

of a single product, in a single market, with a single
dominant technology
Rationale - Firm develops and exploits its expertise in a
delimited competitive arena
Determinants of competitive market success
Ability to assess market needs
Knowledge of buyer behavior
Customer price sensitivity
Effectiveness of promotion

Prof.Sushil\IITD\S

Conditions Favoring a Concentrated

Growth Strategy
Firms
Firmsindustry
industryis
isresistant
resistantto
tomajor
majortechnological
technological
advancements
advancements
Firms
Firmstargeted
targetedmarkets
marketsare
arenot
notproduct
productsaturated
saturated
Firms
Firmsmarkets
marketsare
aresufficiently
sufficientlydistinctive
distinctiveto
to
dissuade
competitors
in
adjacent
markets
from
dissuade competitors in adjacent markets from
entering
firms
segment
entering
firms
segment
Firms
inputs
are
Firms inputs arestable
stablein
inprice
priceand
andquantity
quantityand
and
available
in
amounts
and
at
times
needed
available in amounts and at times needed
Firms
Firmsindustry
industryis
isstable
stable
Firms
Firmscompetitive
competitiveadvantages
advantagesare
arebased
basedon
onefficient
efficient
production
or
distribution
channels
production or distribution channels
Success
Successof
ofmarket
marketgeneralists
generalists

Prof.Sushil\IITD\S

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Strategies of Market and Product

Development

Market development
Consists of marketing present products, often with
only cosmetic modifications, to customers in related
market areas by
Adding channels of distribution or
Changing content of advertising or promotion
Product development
Involves substantial modification of existing products
or creation of new but related products
Based on penetrating existing markets by
Incorporating product modifications into existing
items or
Developing new products connected to existing
products

Prof.Sushil\IITD\S

11

Specific Options for Selected Grand

Strategies

Concentration: Increasing use of present products in

present markets
1. Increasing present customers rate of use:
a. Increasing size of purchase
b. Increasing rate of product obsolescence
c. Advertising other uses
d. Giving price incentives for increased use
2. Attracting competitors customers
a. Establishing sharper brand differentiation
b. Increasing promotional effort
c. Initiating price cuts
3. Attracting nonusers to buy the product
a. Inducing trial use through sampling, price
incentives, and so on
b. Pricing up or down
c. Advertising new uses

Prof.Sushil\IITD\S

12

Specific Options for Selected Grand

Strategies (continued)
Market Development: Selling present products in new
markets

1. Opening additional geographic markets

a. Regional expansion
b. National expansion
c. International expansion
2. Attracting other market segments
a. Developing product versions to appeal to
other segments
b. Entering other channels of distribution
c. Advertising in other media

Prof.Sushil\IITD\S

13

Specific Options for Selected Grand

Strategies (concluded)
Product Development: Developing new products for present
markets

1. Developing new product features

a. Adapt (to other ideas, developments)
b. Modify (change color, motion, sound, odor, form,
shape)
c. Magnify (stronger, loner, thicker, extra value)
d. Minify (smaller, shorter, higher
e. Substitute (other ingredients, process, power)
f. Rearrange (other patterns, layout, sequence,
components)
g. Reverse (inside out)
h. Combine (blend, alloy, assortment, ensemble;
combine units, purposes, appeals, ideas)
2. Developing quality variations

Prof.Sushil\IITD\S

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Innovation Strategy

Involves creating a new product life

cycle, thereby making similar existing
products obsolete

Prof.Sushil\IITD\S

15

Strategies of Horizontal and Vertical

Integration

Horizontal integration

Based on growth via acquisition of one or more

similar firms operating at the same stage of the
production-marketing chain
Involves eliminating competitors, providing
acquiring firm with access to new markets

Vertical integration

Involves acquiring firms

To supply acquiring firm with inputs - backward

integration or
Are customers for firms outputs - forward integration

Prof.Sushil\IITD\S

16

Vertical and Horizontal

Integrations
Textile producer

Textile producer

Shirt manufacturer

Shirt manufacturer

Clothing store

Clothing store

Acquisitions or mergers of suppliers or customer

businesses are vertical integrations
Acquisitions or mergers of competing
Prof.Sushil\IITD\S
businesses
are horizontal integrations

17

Motivations Related to
Diversification Strategies
Increase firms stock value
Increase growth rate of firm
Investment is better use of funds than using
them for internal growth
Improve stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Achieve tax savings
Increase efficiency and profitability

Prof.Sushil\IITD\S

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Diversification Strategies

Concentric diversification
Involves acquisition of businesses related to
acquiring firm in terms of technology, markets, or
products
Conglomerate diversification
Involves acquisition of a business because it
represents a promising investment opportunity
Primary motivation is profit pattern of venture
Difference between the approaches
Concentric diversification emphasizes
commonality whereas conglomerate
diversification emphasizes profits for each
individual unit
Prof.Sushil\IITD\S
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Turnaround Strategy

Involves a concerted effort over a

period of time to fortify a firms
distinctive competencies, returning it
to profitability

Prof.Sushil\IITD\S

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A Model of the Turnaround Process

Turnaround situation
Cause

Turnaround response

Severity Retrenchment phase

Recovery phas

(operating
Cost
reducti
on

Efficiency
maintena
nce
Recovery

Declini
ng
sales
or
margin
Low
s

Stability

Intern
al
factors

High

Extern
al
factors

Imminen
t
bankrupt
cy

Asset
reducti
on

Prof.Sushil\IITD\S

Entrepreneu
rial
reconfigurat
(strategic
ion

21

Divestiture and Liquidation

Strategies

Divestiture strategy

Involves selling a firm or a major component of a firm

Reasons for divestiture

Partial mismatches between acquired firm and

parent firm

Corporate financial needs

Government antitrust action

Liquidation strategy

Involves selling parts of a firm, usually for its tangible

asset value and not as a going concern

Prof.Sushil\IITD\S

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The Strategy of Bankruptcy

Two approaches

Liquidation - Involves complete distribution of a

firms assets to creditors, most of whom receive
a small fraction of amount owed
Reorganization - Involves creditors temporarily
freezing their claims while a firm reorganizes and
rebuilds its operations more profitably

Advantage
bankruptcy

of

reorganization

Proactive option offering maximum repayment

of a firms debt in the future if a recovery
strategy is successful
Prof.Sushil\IITD\S

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Corporate Combination Strategies

Joint venture
Involves establishing a third company (child),
operated for the benefit of the co-owners (parents)
Strategic alliance
Involves creating a partnership between two or
more companies that contribute skills and expertise
to a cooperative project
Exists for a defined period
Does not involve the exchange of equity
Consortia, Keiretsus, and Chaebols
Defined as large interlocking relationships
between businesses of an industry

Prof.Sushil\IITD\S

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The Top Five Strategic Reasons for

Outsourcing
1.
1. Improve
Improve Business
Business Focus
Focus
2.
2. Access
Access to
to World-Class
World-Class Capabilities
Capabilities
3.
3. Accelerated
Accelerated Reengineering
Reengineering
Benefits
Benefits
4.
4. Shared
Shared Risks
Risks
5.
5. Free
Free Resources
Resources for
for Other
Other
Purposes
Purposes Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Group Overview

Indias largest business house

More than 85 companies
39 listed
8% of Indias market capitalization
2.6 Million shareholders
2,70,000 employees
Turnover Rs 343 billion (1996-1997)
Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...
Financial
Highlights
Assets
Turnover
PBT
PAT
Exports

1996-97 Rs (Billion)
322
343
30
23
40

Prof.Sushil\IITD\S

% change Over
1995-96
18.8
18
-7.1
- 16
19

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...

Metals
Automobiles
Energy
Engineering
Chemicals
Pharmaceuticals

Consumer Products
Services
Agro Industries
IT and Communication
Exports
Finance

Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...
Tata Heritage
Jamsetji Tata

JRD Tata

Started textile mill in 1877

Inspired steel and power industry
Technical education and philanthropy
Pioneered civil aviation
Funded Hom Bhabhas nuclear programme
Guided the Tata group for over half a century

Ratan Tata

Present Chairman since 1991

Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...
Holding Companies
Tata Sons

Tata Industries

Founded by Jamsetji Tata

Promoted many of the present Tata companies
63% held by Tata philanthropic trusts
100% subsidiary of Tata Sons founded in 1945
Managing agency till 1970
Promoted new Tata companies in technology based
businesses

Cross holdings among other Tata companies

Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...
Restructuring
Prompted by post 1991 changing environment
Need to identify and focus on core businesses
Resistance from satraps

Shrink number of companies

From over 85 to about 30

Shrink number of core businesses

Russi Mody, Darbari Seth, Ajit Kerkar

From about 25 to around 10 or 12

Mergers and divestments

McKinsey hired as a consultants

Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...
Restructuring Strategy
Keep and grow

Forge strategic tie ups

Tea and beverages, retailing

Remain only as strategic investors

Power, watches, metals, chemicals, telecom, hospitality,

financial
services,
infotech,
emerging
services,
infrastructure, automobiles

Luxury cars, infotech, printing, cosmetics

Sell

Refrigeration, paints, textiles, trading, electronics, oil drilling,

petrochemicals, pharma, specialty chemicals

Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...
Recent Developments
Voltas
focus
on
air
engineering business

conditioning

and

Hive off pesticides business to Ralchem Pesticides

(wholly owned subsidiary of Rallis - largest integrated
agrochemical company in India)

Electrolux Voltas - JV between Voltas and AB

Electrolux

Refrigerators
Washing machines
Compressors for refrigerators

Prof.Sushil\IITD\S

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INDIAN BUSINESS HOUSES

TATA GROUP
Contd...
Recent Developments
Tata Tea focusing on global agro business

Manages 32 tea gardens in Sri Lanka

Adding tea gardens inTurkey
Acquired a 9.5% stake in Asian Coffee

Overseas Operations

Automobile assembly in Bangladesh

Instant tea operations in the US
Chain of hotels across the world
Precision tooling operations in Singapore

Prof.Sushil\IITD\S

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