Corporate- level Strategies Business unit Strategies Functional Strategies

by Benjamin Z. MacapagalManagement PolicyMBACorporate- level StrategiesBusiness unit StrategiesFunctional Strategies

Corporate-Level StrategiesGrowth strategiesa. Internal growthb. Mergersc. Horizontal integrationd. Conglomerate diversificatione. Vertical integrationf. Joint venturesAlternativesStability strategyRetrenchment Strategiesa. Turnaroundb. Divestmentc. Liquidation4.Combination strategiesInternal growth and MergersInternal growth is achieved through increasing a firms 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 diversificationHorizontal 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 DiversificationFirms 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 venturesVertical integrationa company obtains control of its suppliers (backward integration)Ex: Du Ponts 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 VenturesJoint 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 reasonspolitical, economic, or technological.ExamplesIn 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 companys resources. So that company may enter into a joint venture with another firm to gain the resources to accomplish the job.2. Stability StrategyIn 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.ExampleConsider Peets 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 StrategiesWhen a firms 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, downsizingb. Divestment--sells 1 of its business unitsc. Liquidation--sale of its assets4.Combination StrategiesCompanies 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 StrategiesA 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 firms other business units, it must operate with its own mission, objectives, and strategy.Generic Strategies (SBUs)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 strategyemphasizes keeping overall costs low while serving a narrow segment of the market. ( no-frills products for price sensitive customers)Generic Strategies2. 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 StrategyProduce 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 StrategyFor 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.ImplementationThe strategy should be translated into specific policies for functional areas such as:MarketingResearch & DevelopmentProcurementProductionHuman ResourcesInformation SystemImplementationIn addition to developing functional policies, the implementation phase involves identifying the required resources and putting into place the necessary organizational changes.Thank You!Have a nice dayGive me a big handApplause !A Hierarchy of PoliciesCompany Strategy Acquire a chain of retail stores to meet our sales growth and profitability objectives.Supporting Policies1. 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 (cont)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 ObjectiveIncrease the divisions revenues from $10 million in 2013 to $15 million in 2014.Supporting Policies1. Beginning in January 2013, each one of this divisions 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 (cont)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 ObjectiveIncrease production from 20,000 units in 2013 to 30,000 units in 2014.Supporting Policies1. 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 (cont)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.)END