STRATEGIC ANALYSIS

AND CHOICE
UNIT III
Strategy analysis and choice

 Strategy: all the plans and programs of an organization for the purpose of achieving their
aims and targets in long run.
 Strategic analysis: examination of present condition of a business (SWOT, PESTEL,
ETOP etc.) and developing an appropriate business strategy
 Strategic choice: it is a decision making process and it refers to the selection of the
appropriate business strategy.
 Strategy analysis and choice: It focuses on generating and evaluating alternative
strategies, as well as on selecting strategies to pursue. Strategy analysis and choice seeks
to determine alternative courses of action that could best enable the firm to achieve its
mission and objectives.
Definitions of strategic choice

 According to Pearce and Robinson, “Strategic choice is a decision which determines the
firm’s future strategy”.
 According to Glueck and Jauch, “strategic choice is the decision which selects from
among the alternative grand strategies which will best meet the enterprise objectives. The
choice involves considering selection factors, evaluating the alternatives against these
criteria, and the actual choice”.
 A strategy should be such that it can achieve the best fit between the external threats and
opportunities and an organization’s internal strengths and weaknesses.
Factors affecting strategic choice

 Strategic choice addresses the question “Where shall we go”.

Factors Affecting Strategic Choice
1. Environmental constraints: the survival and prosperity of a firm depend largely on the
interaction of the elements of environment such as shareholders, customers, suppliers,
competitors, government etc. The flexibility in the choice of strategy is often governed by
the extent and degree of the firms dependence on the environment.
2. Intra organizational factors: it includes organizational mission, strategic intent, goals,
policies etc. Besides these factors, organizational strengths, weaknesses and capability to
implement strategic alternatives also affect the strategic choice.
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3. Corporate culture: every organization has its own corporate culture. It is made of a set of
shared values, beliefs, attitudes, customs, norms etc. The successful functioning of an
organization depends on strategy culture fit. The strategic culture has to be compatible
with firms culture.
4. Impact of past strategies: choice of current strategy may be influenced by what type of
strategies have been used or followed in past.
5. Personal characteristics: personal factors like own perception, views, interest ,
preferences, needs, aspirations, 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 strategist himself.
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6. Managerial attitude towards risk: individuals differ considerably in their attitude towards
risk taking. Some are risk prone, others are risk averse. Where managers attitudes favor
risk, the range and diversity of strategic choice expand.
7. Pressure from stakeholders: creditors want to be paid on time. Unions exert pressure for
comparable wage and employment security. Governments demand social responsibility.
Shareholders want dividends. All these pressures must be given some consideration in the
selection of the best alternative.
8. Industry backgrounds: executives with strong ties within an industry tend to choose
strategies commonly used in that industry.
Process of strategic choice

1. Focusing on alternatives:
 In the first step, all the alternatives are listed. The strategists study the deviation between the
standard performance and the actual performance, called the gap analysis. This deviation or gap
between the two becomes the basis for various strategic alternatives that the organization can
consider.
 If the organization does not deploy an effective strategy in the initial stages, the gap between
what is to be achieved and actual performance may increase, worsening the organizational
position.
2. Analyzing the strategic alternatives:
 Analysis is done which is based on certain factors. Theses factors are termed as selection factors.
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 Selection factors are of two types

a) Objective factors: it results from detailed analysis, information, vital facts, and critical
techniques. They can be of the following types:
a) Environmental factors
 instability of environment, Input supply from the environment, Influential stakeholders

b) Organizational factors
 The mission of the organization, Strategic intent, Business definition and weaknesses

b) Subjective factors: are judgmental and descriptive. The judgements can be either individual
or collective. Some of these factors are:
 strategies which have been employed earlier, The personal views of the decision-makers,
Management’s perception of risk. Stakeholder’s influence.
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3. Evaluating the strategic alternatives: it involves bringing together the analysis done on the
basis of the objective and subjective factors. Evaluation is done on the basis of their
merits and demerits.
4. Making a strategic choice: the last step in the process is selecting the most feasible
strategy. The strategist can select multiple strategies as well. In addition, a framework
should be developed defining the strategy and the premise of its functioning.
Levels of Strategy
Formulation
There are three levels of strategy
formulation, also known as the
three types of strategy formulation
1. Corporate level strategy
2. Business level strategy
3. Functional level strategy
Corporate Level Strategies
Corporate Level Strategies (Grand Strategy)

 Corporate strategy is essentially a blueprint for the growth of the firm

 It sets the overall direction for the organization to follow
 Examples of corporate level strategies include global expansion, diversification, mergers
& acquisitions, outsourcing and cost-cutting measures. Corporate level strategy
formulation may involve a range of decision-makers, from senior executives to board
members depending on the organization's size.
 These strategies usually span beyond one business unit or product line and focus instead
on overall company goals such as growth, stability, and profitability
Types of Corporate Strategies

1. Stability strategy: make no change to the companies current activities

2. Expansion strategy: expand the company’s activities
3. Retrenchment strategy: reduce the companies level of activities
4. Combination strategy: a combination of above activities
1. Stability Strategy

 Stability strategy is a strategy in which the organization retain its present strategy at the
corporate level and continues focusing on its present products and markets.
 Make no change to the companies current activities
 The firm stays with its current business and product markets, maintains the existing level
of efforts and is satisfied with incremental growth.
 It does not seek to invest in new factories and capital assets, gain market share, or invade
new geographical territories
Types of Stability Strategy

1. No change Strategy: this strategy is a conscious decision to do nothing i.e to continue

with the present business decision. 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.
2. 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.
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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. It is temporary strategy
2. Expansion Strategy

 Also known as growth or intensification strategies.

 It is mainly concentrated on expanding the companies activities.
 When aims at high growth by broadening the scope of one of its businesses in terms of
their respective customer groups, customer functions and alternative technologies in order
to improve its overall performance.
 Adopted to accelerate the rate of growth of sales, profits and market share faster by
entering new markets, acquiring new resources, developing new technologies and creating
new managerial capabilities
 Firms choose expansion strategy when their resource availability and past financial
performance are both high.
Types of Expansion Strategy

1. Expansion through Concentration

2. Expansion through Integration
1. Vertical integration
2. Horizontal integration
3. Expansion through Diversification
4. Expansion through Cooperation
 Mergers , takeovers, joint Ventures, Strategic Alliance
5. Expansion through Internationalization
 International strategies, multi domestic strategy, global strategy, transnational strategy
i. Expansion through Concentration
Market penetration

 The firm seeks to sell more product to the same market

 When a firm believes that there exist ample opportunities by aggressively exploiting its
current products and current markets.
 It achieve growth through existing product by:
1. Motivating the existing customers to buy its product more frequently and in large
quantities (e.g. volume discounts, bonus cards, customer retention)
2. Increasing its effort to attract its competitors customers (attractive product design,
quality, attractive prices)
3. Targeting new customers in its current market (eg. Price concession, better customer
services, increasing publicity )
Market Development

 The firm seeks to sell the same products to new markets

 A firm seeks to increase its sales by taking its product into new markets. The possible
methods of market development are:
 The firm can move its present product into new geographical areas. This is done by
increasing its sales force, appointing new channel partners, sales agents or manufacturing
representatives and by franchising its operation.
 The firm can expand sales by attracting new market segments. Making minor
modifications in the existing products that appeal to new segments can do the trick.
 Opening additional geographic markets: Regional expansion, National expansion,
International expansion
Market development
Product Development

 The firm seeks to sell new products to the same market

 Involves development of new products or improved products for its current markets.
The possible methods for product development are:
 They can expand sales through developing new products
 The company can create different or improved versions of the current products
 The company can make necessary changes in its existing products to suit the different
likes and dislikes of the customers
ii. Expansion through Integration

 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 (means of evaluating each of the activities in a company's value chain to
understand where opportunities for improvement lie)
Types of expansion through integration

1. Vertical integration:
 When an organization starts making new product that serves its own needs, vertical
integration takes place
 Any new activity undertaken with the purpose of either supplying inputs (raw material)
or serving as a customer for outputs (distribution) is vertical integration
 Vertical integration is a strategy for increasing or decreasing operations backward into an
industry that products inputs for the company or forward into an industry that distributes
the company products.
Types of Vertical Integration

1. Backward vertical integration

2. Forward vertical integration
3. Full integration
4. Taper integration
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1. Backward integration: it is also referred as downstream integration

 Backward integration means retreating to the source of materials e.g. Nirma undertook backward
integration by setting up plant to manufacture soda ash and linear alkyl benzene.
2. Forward integration: moves the organization ahead, taking it nearer to the ultimate
customer
 Mafatlal and National Textile corporation have set up their own retail distribution systems to
have better control over their distribution activities.
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3. Taper Integration: strategies require firms to make a part of their own requirements from other firms in which they have an ownership
stake. Taper integration is similar to full integration, except companies still rely on some outside suppliers.

4. Full integration strategy

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Horizontal integration

 The acquisition of additional business in the same line of business or at the same level of
the value chain is referred to as horizontal integration.
 Horizontal growth can be achieved by internal expansion or by external expansion of
firms offering similar products and services.
 When an organization takes up the same type of product at the same level of production
or marketing process.
 Example Aditya Birla Groups acquisition of L& T cements from Reliance
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iii. Expansion through Diversification

 Diversification involves moving into new lines of business

 Diversification involves substantial change in business definition
 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.
 Diversification is one of four corporate growth strategies first codified by Igor Ansoff, a
mathematician and business manager active in the 1950s. Ansoff is known for developing
the Ansoff Matrix, which charted out the four major growth strategies: market
penetration, market development, product development, and diversification.
Types of Diversification

1. Related (Concentric) Diversification: when an organization takes up an activity in such

a manner that it is related to the existing business definition, it is related diversification.
 The term concentric diversification is used to describe a strategy of having many different
strategies in your portfolio that are closely aligned with one another.
 Think of a book publisher. Large publishing houses don’t only print the works of one
author; they have many. In addition to this, they’ll publish print books, e-books,
audiobooks and may also sell rights to the books for film and tv adaptation. This allows
them to harness multiple streams of income for one product. This is one form of
concentric diversification.
 A producer of snow skis and ski boots acquiring a maker of ski apparel and
accessories (outerwear, goggles, gloves and mittens, helmets and toboggans).
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2. Unrelated (Conglomerate) Diversification: when an organization adopts a strategy

which requires taking up those activities which are unrelated to the existing business
definition
 Company seeks to grow by adding entirely unrelated products and markets to its existing
business
 A firm generally introduces products using different technologies in new markets.
 It can be more riskier than related diversification as the company may not have the same
level of expertise or resources in the new industry.
Example of unrelated diversification
iv. EXPANSION THROUGH COOPERATION

 The Expansion through Cooperation is a strategy followed when an organization enters

into a mutual agreement with the competitor to carry out the business operations and
compete with one another at the same time, with the objective to expand the market
potential.
 The expansion through cooperation can be done by following any of the strategies as
explained below:
Types of expansion through Cooperation

1. Merger: A merger is a business deal where two existing, independent companies combine
to form a new, singular legal entity. Mergers are voluntary. Typically, both companies are
of a similar size and scope and both stand to gain from the transaction.
2. Takeover: In this, one firm acquires the other in such a way, that it becomes responsible
for all the acquired firm’s operations. The takeovers can either be friendly or hostile. In
the former, both the companies agree for a takeover and feels it is beneficial for both.
However, in the case of a hostile takeover, a firm try to take on the operations of the other
firm forcefully
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3. Joint Venture: Under the joint venture, both the firms agree to combine and carry out the
business operations jointly. The joint venture is generally done, to capitalize the strengths
of both the firms. The joint ventures are usually temporary; that lasts till the particular
task is accomplished. It is a temporary partnership to achieve common goal. Once the
goal is achieved joint ventures comes to the end.
4. Strategic Alliance: Under this strategy of expansion through cooperation, the firms unite
or combine to perform a set of business operations, but function independently and
pursue the individualized goals. Generally, the strategic alliance is formed to capitalize on
the expertise in technology or manpower of either of the firm.
 Thus, a firm can adopt either of the cooperation strategies depending on the nature of
business line it deals in and the pursued objectives.
 v. Expansion through Internationalization

 The 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.
 It is a cross border exchanges of goods and services and resources between two or more nations.
 The firm need to assess the international environment, evaluate its own capabilities and devise
strategies to enter new markets.
 McDonald's: Founded in 1940, McDonald's is now the world's largest chain of hamburger fast
food restaurants. With more than 38,000 locations in over 100 countries, McDonald's serves over
69 million customers daily. The company's international expansion began in 1967 when it
opened its first restaurant in Canada.
3. Retrenchment strategy

 The Retrenchment Strategy is adopted when an organization aims at reducing its one or
more business operations with the view to cut expenses and reach to a more stable
financial position.
 Eliminate its activities through a considerable reduction in its business operations, in the
perspective of customer groups, customer functions and technology alternatives, either
individually or collectively is called as Retrenchment Strategy.
 There are three types of Retrenchment Strategies
Types of Retrenchment Strategy
Turnaround strategy

 A turnaround plan is a retrenchment strategy that reduces the harmful tendencies that
affect the performance of the business. It is a management strategy that has the potential
to revive a failing company. It reverses negative directions like declining market share,
rising material costs, reduced sales, a widening debt-to-equity ratio, lower
profitability, working capital concerns, negative cash flows, and numerous challenges.
How businesses use this strategy differs depending on the circumstances.
 Dell Technologies declared in 2006 that it would employ a cost-cutting strategy by selling
products directly to customers. The direct sale was unsuccessful, and the corporation
suffered a significant financial loss. In 2007, Dell made a turnaround and abandoned its
direct-sale strategy. Dell is currently the second-largest retailer in the world for
computers.
Divestment strategy

 A divestment strategy sells a section of your company, an asset, or a division.

Companies use a disposal plan after a failed turnaround strategy.
 When a company divests, it scales back operations or sells a division to concentrate on its
core challenges and utilizes the proceeds to expand that division's business. Keep in mind
that liquidation is not the same as divestment. In a divestiture, a company sells a non-
strategic business. It receives cash for strategic investments in its core business, as
opposed to a liquidation, where a company sells its unit and shuts the door.
Liquidation strategy

 The organizations most disagreeable option is the liquidation approach, which entails
selling off its resources and ceasing all commercial operations altogether..
 The extreme level of the retrenchment strategy is the liquidation approach, in which you
permanently close your company and sell all of your resources. Company selling off its
inventory, property, and other assets in order to pay its creditors and close its doors.
Liquidation is the last resort for any firm with issues.
4. 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).
Types of combination strategy

 The types of combination strategies are simultaneous strategies, Sequential strategies, and
a mix of simultaneous and sequential strategies.
1. Simultaneous Combination :Divesting a Strategic Business Units (SBU)or product line
while at the same time adding a SBU or product line somewhere else OR for some
products or businesses the company may adopt a turnaround strategy whereas for others it
may adopt a growth strategy OR the company may be harvesting some products whereas
for others it may follow a growth strategy.
2. Sequential Combination : At first employing a growth strategy and then switching over
to a stability strategy. First employing a turnaround strategy and then using the growth
strategy once the ground level situation gets better.
Business Level strategy/Generic/Competitive Strategy

 Michael E. Porter (Father of modern business strategy), a Harvard business school professor has
propounded three business-level strategies in the year 1998. They are also called as generic strategies because they
can be used in variety of situations, across diverse industries at various stages of development.
Types of business level strategy

 Business level strategies are formulated for specific strategic business units(SBU)
 Cost leadership: the enterprises aims to become the low cost leader in an industry. It outperform
competitors by doing everything it can to produce goods or services at the lowest possible cost (low
cost producer).
 By cutting costs without sacrificing quality, the managers can beat the competition and thus acquire
gains in the market share with higher profits.
 Cost leadership strategy tends to focus on the broad mass market. And for this, the firm continuously
and rigorously strives for cost reduction in different areas, whether it is procurement, production,
packaging, storage, distribution of the product while achieving economies in overheads.
 To gain cost leadership, firms often follow forward, backward and horizontal integration.
 Examples: Primark, Ikea, Walmart, McDonalds etc.
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 Differentiation: differentiation strategy aims at producing and offering industry-wide

distinctive products and services to the customers,
 This strategy is also directed for the broad mass market, which encompasses the
development of a unique product. Unique means uniqueness with respect to design, brand
image, specifications, customer service, technology used, etc.
 When a customer perceive a product or a service being unique and superior, they are willing
to pay more for it.
 Businesses can differentiate its product on the basis of technology (intel micro chips),
customer service (American express), product design (nothing phones)and so on.
 the strategy should be followed after proper market research and study of the buyers to
ascertain their needs and preferences and adding differentiating features to the product .
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 Focus: a firm seeks to carve out a market niche, and compete by providing a product or
service customers can get in no other way. It is directed toward serving the needs of a
limited customer group or segment.
 This focus strategy involves that gives the company a competitive edge. special attention
to a product or a narrow line of products or to the segment of the market
 The objective is to better serve the targeted market. The target market can further be
segmented into other dimensions as demographics (age, gender, education, religion,
income etc.)
 Example: Rolls Royce has targeted economic elitists to sell their cars which are most
expensive and a matter of pride to be own.
Functional Level Strategy

 Functional level strategies are the actions and goals assigned to various departments that support your business level strategy and corporate level
strategy.
 It focuses on major functional areas e.g. Marketing, finance, operations, human resource, R&D
 Each functional strategy must be coordinated with each other and should be integrated with business level strategy.
TYPES OF FUNCTIONAL STRATEGY

1. Marketing strategy: goal is to establish customer loyalty, to reach into new markets, it is very
important during the launch of new products
2. Finance: acquisition of financial resources, analyze the cost structure, estimation of profit.
3. Operations: production process, quality of product, quality of raw materials, inventory levels.
4. Human resources: no. of employees required, need of training, skill level required,
compensation, performance appraisal, relationship with the labor unions etc.
5. R&D: innovations and inventions in the areas of product development or improvement in
services,
6. Information system: provides necessary and relevant information to all functional areas and
business level. The availability of advanced technology computers can store and analyze data and
convert such data into useful information. It is very helpful in decision making process
Evaluation and selecting of strategies

Evaluation of strategies:
 Success of organization depends on number of factors including strategy
 Formulation of strategy is very important as well as evaluation to see whether organization is
benefitted from such strategy or not.
 Following are the basis to see whether strategy leads to success or failure.
1. Consistency in Organization: strategy should fit into the internal organization without
disturbing other aspects. They should not be inconsistent with other things like policies,
programs, rules etc.
2. Suitable in Environment: strategy should be suitable to the environment existing outside the
organization. Strategy should be in conformity with the prevailing situation. Strategy should be
flexible in nature so that it can adjust under the changing environment.
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3. Suitable for Resources: a strategy requiring more resources than the business can afford
will not be successful. Resources may be in the form of money or physical resources.
strategy will be successful only if it involves available resources and nothing more.
4. Degree of risk: Strategy must be such which does not create threat for the survival of
business.
5. Workability: working of the strategy depends upon its proper implementation.
workability of the strategy can be judged by the results obtained. The strategy will be
successful only if it has helped in improving organization performance.
Implementation of Strategies

1. Proper communication of strategies: it should be properly communicated to the decision makers. Unless
otherwise the strategies are communicated and understood in the same way in which planners want, the same
will not give the desired results.
2. Developing and communicating planning premise: planning premises are the anticipated environmental
factors in which plans are expected to operate. In the absence of such premises decisions will be based on
personal assumptions and predictions which leads to uncoordinated plans.
3. Reviewing strategies regularly: there may be change in the conditions or assumptions on which strategies are
based. Unless the strategies are changed into new condition, there is no use of implementing strategy
4. Developing contingency strategies: there is always a possibility of change in competitive factors or other
elements, strategies for contingencies should be formulated. Such contingency plans if available helps in such
situations.
5. Emphasis on strategy implementation: making a good strategy and then ignoring its implementation will
amount to nothing.