Corporate- level Strategies

Business unit Strategies

Functional Strategies
by Benjamin Z. Macapagal
Management Policy
MBA
Corporate-Level Strategies
1. Growth strategies
a. Internal growth
b. Mergers
c. Horizontal integration
d. Conglomerate diversification
e. Vertical integration
f. Joint ventures
Alternatives
2. Stability strategy
3. Retrenchment Strategies
a. Turnaround
b. Divestment
c. Liquidation
4. Combination strategies
Internal growth and Mergers
 Internal growth is achieved through increasing a firm’s sales,
production capacity, and work force.
 Mergers-- two or more firms combine into one through an
exchange of stock( to share resources and gain market share).
Normally, mergers involve firms of roughly similar sizes.
*an attempt to compete more effectively against giant firms.
Horizontal integration and
Conglomerate diversification
 Horizontal integration--Many firms expand by acquiring or
creating other companies in their same line of business
(related). Can result in increased operational flexibility and
market share.
Ex. When Texas Air Corporation acquired Continental
Airlines, Eastern Airlines, and People Express, it attempted
to gain flexibility through increased access to more airport
hubs, air routes, and resources.
Conglomerate Diversification
 Firms may also expand through unrelated or conglomerate
diversification in which a firm acquires or starts businesses in
industries that are unrelated to its original business.
Ex: ITT Corporation owns such diverse entities as the
Hartford Insurance Group and Sheraton Corporation and
also operates in such varied industries as automobile parts,
defense, and pulp and timber.
Vertical integration and Joint ventures
 Vertical integration—a company obtains control of its
suppliers (backward integration)
Ex: Du Pont’s purchase several years ago of Conoco.
Conoco, an oil company, supplies petroleum products that
Du Pont uses in manufacturing its chemicals. By buying its
suppliers, a firm assures itself of a steady source of supply at a
predictable price.
Joint Ventures
 Joint ventures are partnerships.
 Two or more firms that carry out a specific project or
cooperate in a selected area of business.
 Can be temporary or long term.
 May be undertaken for a variety of reasons—political,
economic, or technological.
Examples
 In certain countries, a foreign firm may only be permitted to
operate if it enters into a joint venture with a local partner.
 In some cases, a particular project may be so large that it
strains a single company’s resources. So that company may
enter into a joint venture with another firm to gain the
resources to accomplish the job.
2. Stability Strategy
 In which some firms attempt to maintain their size and
current lines of business.
 Do not attempt to grow either through increased sales or
through the development of new products or markets.
 May be forced to do so if it operates in a low-growth or no-
growth industry.
Example
 Consider Peet’s Coffee and Tea, a group of eight coffeehouses
that employs 170 employees in the San Francisco Bay area.
 Although the owner ,Gerald Baldwin, has received numerous
lucrative offers to franchise his business nationwide, he has
always refused.
 His concern is that with growth, quality may suffer. He fears
that some franchisees might serve coffee that was not freshly
roasted to cut their costs and increase profits.
3. Retrenchment Strategies
 When a firm’s performance is disappointing or, at the
extreme, when its survival is at stake, then this strategy may
be appropriate.
Three forms:
a. Turnaround-- cost-cutting, downsizing
b. Divestment--sells 1 of its business units
c. Liquidation--sale of its assets
4. Combination Strategies
 Companies that operate multiple business units often adopt a
combination of strategies simultaneously.
 One business unit, for example, may grow internally while
another grows by acquiring an independent firm and another
is retrenching.
 Firms with a number of business units are said to manage a
portfolio of businesses.
Business Unit Strategies
 A business unit is an organizational subsystem that has
market, a set of competitors, and a mission distinct from
those of the other subsystem in the firm.
 Because each business unit serves a different market and
competes with different companies than the firm’s other
business units, it must operate with its own mission,
objectives, and strategy.
Generic Strategies (SBU’s)
 These strategic alternatives are termed generic because they
can be adopted by any type of business unit (manufacturing
company, a hi-tech firm, or a service organization)
1. Niche-low cost strategy—emphasizes keeping overall
costs low while serving a narrow segment of the market. (
no-frills products for price sensitive customers)
Generic Strategies
2. Niche-Differentiation Strategy is appropriate for business
units that produce highly differentiated, need fulfilling
products/services for the specialized needs of a narrow range
of customers ( high prices are acceptable to certain
customers who need product performance, prestige, safety,
or security.)
Niche-Low Cost/Differentiation
Strategy
 Produce highly differentiated, need fulfilling
products/services for specialized needs of a select group of
customers or a market niche while keeping their costs low.
Ex: Porsche has low costs relative to Rolls-Royce while
offering a high degree of output differentiation.
Functional Strategy
 For effective implementation, it needs to be translated into
more detailed policies that can be understood at the
functional level of the organization.
 The expression of the strategy in terms of functional policies
also serves to highlight any practical issues that might not
have been visible at a higher level.
Implementation
 The strategy should be translated into specific policies for
functional areas such as:
a. Marketing
b. Research & Development
c. Procurement
d. Production
e. Human Resources
f. Information System
Implementation
 In addition to developing functional policies, the
implementation phase involves identifying the required
resources and putting into place the necessary organizational
changes.
Thank You!

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 A Hierarchy of Policies
 Company Strategy
Acquire a chain of retail stores to meet our sales growth and
profitability objectives.
Supporting Policies
1. “All stores will be open from 8 a.m. to 8 p.m. Monday
through Saturday.” ( This policy could increase retail sales if
stores currently are open only 40 hours a week.)
2. “All stores must submit a Monthly Control Data Report.”
(This policy could reduce expense –to-sales ratios.)
 Supporting Policies (con’t)
3. “All stores must support company advertising by
contributing 5 percent of their total monthly revenues for
this purpose.” (This policy could allow the company to
establish a national reputation.)
4. “All stores must adhere to the uniform pricing guidelines
set forth in the Company Handbook.” (This policy could help
assure customers that the company offers a consistent
product in terms of price and quality in all its stores.)
 Divisional Objective
Increase the division’s revenues from $10 million in 2013 to
$15 million in 2014.
Supporting Policies
1. “Beginning in January 2013, each one of this division’s
salespersons must file a weekly activity report that includes
the number of calls made, the number of miles traveled, the
number of units sold, the dollar volume sold, and the
number of new accounts opened.” (This policy could ensure
that salespersons do not place too great an emphasis in
certain areas.)
 Supporting Policies (con’t)
2. “Beginning in January 2013, this division will return to its
employees 5 percent of its gross revenues in the form of a
Christmas bonus.” (This policy could increase employee
productivity.)
3. “Beginning in January 2013, inventory levels carried in
warehouses will be decreased by 30 percent in accordance
with a Just-in-Time (JIT) manufacturing approach.” (This
policy could reduce production expenses and thus free funds
for increased marketing efforts.)
Production Department Objective
Increase production from 20,000 units in 2013 to 30,000
units in 2014.
Supporting Policies
1. “Beginning in January 2013, employees will have the
option of working up to 20 hours of overtime per week.”
(This policy could minimize the need to hire additional
employees.)
2. “Beginning in January 2013, perfect attendance awards in
the amount of $100 will be given to all employees who do
not miss a workday in a given year.” (This policy could
decrease absenteeism and increase productivity.)
 Supporting Policies (con’t)
3. “Beginning in January 2013, new equipment must be
leased rather then purchased.” (This policy could reduce tax
liabilities and thus allow more funds to be invested in
modernizing production processes.)

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