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Growth Strategies.pptx
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  1. 1. i) Concentration Strategy • In turn, each of these actions suggests a more specific set of alternatives. Some of these options are listed below:  Market Penetration- it involves seeking growth with current products in current markets, normally through more aggressive marketing efforts.  Market Development Strategy- it consists of marketing present products; often with only cosmetic modifications, to customers in related market areas by adding different channels of distribution or by changing the content of its advertising or its promotional media. In short, market development strategy means selling present products in new markets.  A product development- involves seeking growth by developing new products for current markets.
  2. 2. ii) Integration Strategies • Integration basically means combining activities related to the present activity of a firm. Integration can be vertical & horizontal. 1. Vertical Integration • Any new activity undertaken with the purpose of either supplying inputs (such as, raw materials) or serving a customer for outputs (such as, marketing of firm’s product) is vertical integration. • Vertical integration could be of two types: backward and forward integration. a) Backward Integration- means retreating to the source of raw materials. In backward vertical integration, a company seeks growth by acquiring ownership or increased control of supply sources. In internal backward integration, the firm creates its own source of supply, perhaps by establishing a subsidiary company. The external approach entails the purchase or acquisition of an existing supplier.
  3. 3. ii) Integration Strategies… b) Forward Vertical Integration- when pursuing forward vertical integration, a firm seeks growth by acquiring ownership or increased control of channel functions closer to the ultimate market, such as sales and distribution systems. Firm can accomplish forward integration internally by establishing its own production facility. It can achieve external forward integration by acquiring firms that already perform the desired function. 2. Horizontal Integration  When an organization takes up the same type of products at the same level of production or marketing process, it is said to follow a strategy of horizontal integration.
  4. 4. 2. Horizontal Integration… • Horizontal integration occurs when an organization adds one or more businesses that produce similar products or services and that are operating at the same stage in the product- marketing chain. • Almost all horizontal integration is accomplished by buying another organization in the same business. iii) Diversification Strategies  Diversification growth strategies may be appropriate for firms that cannot achieve their growth objectives in their current industry with their current products and markets.  Diversification occurs when an organization moves into areas that are clearly differentiated from its current business.
  5. 5. iii) Diversification Strategies… • Most diversification strategies can be classified as either concentric diversification or conglomerate diversification.  Concentric diversification occurs when the diversification is in some way related to, but clearly differentiated from, the organization’s current business.  Conglomerate diversification occurs when the firm diversifies into an area(s) totally unrelated to the organization’s current business. b) Stability Strategies • The stability strategies can be appropriate for a successful corporation operating in a reasonably predictable and relatively stable environment. Some of the more popular stability strategies are the pause/proceed with caution, no change and profit strategies.
  6. 6. b) Stability Strategies… i) Pause/Proceed with caution strategy • It is, in effect, a timeout- an opportunity to rest before continuing a growth or retrenchment strategy. • It is typically conceived as a temporary strategy to be used until the environment becomes more hospitable or to enable a company to consolidate its resources after prolonged rapid growth. ii) No change strategy  A no change strategy is a decision to do nothing new-a choice to continue current operations and policies for the foreseeable future. This strategy is appropriate when:  There are not significant changes in the corporation’s situation.
  7. 7. ii) No change strategy…  The company has created relatively stable modest competitive position which demands making only small adjustments for inflation in its sales and profits.  There are no obvious opportunities or threats  There are few aggressive new competitors that are likely to enter such an industry. iii) Profit strategy  A profit strategy is a decision to do nothing new in a worsening situation but instead to act as though the company’s problems are only temporary.  The profit strategy is an attempt to artificially support profits when a company’s sales are declining by reducing investment and short –term discretionary expenditures.
  8. 8. c) Defensive (Retrenchment) Strategies  In a product life cycle, product faces introduction, growth, maturity and decline stages.  Though there may be cyclical or other short run influences, tendency of the sales curve gives the idea about the declining industry.  In case market growth rate is below 10 percentages, normally industry is on decline. Causes of Declining Profitability Internal factors  Poor management  Weakness in finance function  Weakness in the marketing function  Weakness in the products operations functions  Mistaken acquisition ,etc
  9. 9. c) Defensive (Retrenchment) Strategies … External Factors  Declining demand for the product.  Changes in the industry structure  General Economic, social or political factors,  Poor Infrastructure Common strategies include: i) Turnaround strategy  The turnaround strategy emphasizes the improvement of operational efficiency and is probably most appropriate when a company’s problems are pervasive but not yet critical.  Turnaround strategy has two basic phases, contraction and consolidation:
  10. 10. i) Turnaround strategy… • Contraction - the initial effort to quickly “Stop the bleeding” with a general across the board cut back on size and costs. • Consolidation – implements a program to stabilize the now- leaner corporation. ii) Captive company strategy • A captive company is the giving up of independence in exchange for security. • It is a strategy in which the company is trying to ensure its existence by looking for one of its larger customer or an “angel” by offering to be a captive company through a long- term contract.
  11. 11. iii) Sellout/ Divestment strategy Sell-out/Divestment strategy is appropriate when: • A corporation with a weak position in its industry is unable either to pull itself up or to find a customer to which it can become a captive company • Management of the company can still obtain a good price for its shareholders and the employees can keep their jobs by selling the entire company to another firm. • The hope is that another company will have the necessary resources and determination to turn the company to profitability. • If the corporation has multiple business lines and it chooses to sell off a division with low growth potential, this is called divestment.
  12. 12. iv) Bankruptcy/Liquidation Strategy … • Because no one is interested in buying a weak company in an unattractive industry, the firm must peruse a bankruptcy or liquidation strategy.  Bankruptcy – involves giving up management of the firm to the courts in return for some settlement of the corporation’s obligations. Top management hopes that once the court decides the claims on the company, the company will be stronger and better able to compete in a more attractive industry. Bankruptcy seeks to perpetuate the corporation rather than termination of the firm.  Liquidation -is the retrenchment strategy which leads to the termination of the company because the industry is unattractive and the company is too weak to be sold as a going concern.
  13. 13. d) Cooperative Strategies-Growth Through External Resources • There are four major types of cooperative strategies: Merger, Acquisition, Joint venture, and Strategic Alliance. i) Merger  A merger occurs when two or more firms combine to form a single or a new company.  Mergers are often the results of firms mutually agreeing to combine and create a new name and a new organizational structure and make other changes.  In a merger the shareholders of the organization come together, normally willingly, to share the resources of the enlarged (merged) organization, with shareholders from both sides of the merger becoming shareholders in the new organization.
  14. 14. ii) Acquisition • An acquisition is a ‘marriage’ of unequal partners with one organization buying and including the other party. • In such a transaction the shareholders of the target organization cease to be owners of the enlarged organization unless payment to the shareholders is paid partly in shares in the acquiring company. • The shares in the smaller company are bought by the larger. Acquisition refers to the purchase of another company and absorbs it to existing operations often as operating subsidiary or division. iii) Joint venture • Joint ventures occur when two or more firms join forces to accomplish something that a single organization is not suited for. The ownership of both firms remains unchanged.
  15. 15. iii) Joint venture… iv) Strategic alliances • The term strategic alliance is used to describe a range of collaborative arrangements between two or more organizations. 5.2 . Generic Strategies (Business-level Strategies) • Business-level strategy refers to the plan of action that strategic managers adopt to use a company’s resources and distinctive competencies to gain a competitive advantage over its rivals in a market or industry. • The three generic strategies to attain competitive advantage are cost leadership, differentiation and focus, although these can be combined in different ways.
  16. 16. 5.3. Functional-level Strategies… • Functional-level strategies are those directed at improving the effectiveness of basic operations within a company, such as production, marketing, materials management, research and development, and human resources. • These strategies focus on a given function to attain companywide efficiency, quality, innovation, and customer responsiveness goals. 5.4. Making the Strategic Choice • An evaluation of strategic choice should lead to a clear assessment of which alternative is the most suitable under the existing conditions. The final step, therefore, is to make the strategic choice, one or more strategies have to be chosen for implementation.
  17. 17. 5.4. Making the Strategic Choice… Corporate-Level Strategic Analysis • Corporate strategic analysis treats a corporate entity as constituting a portfolio of business. The strategic alternatives here are basically the grand strategies of stability, expansion, retrenchment, and closure strategies that we discussed above. Corporate Portfolio Analysis • Corporate portfolio analysis could be defined as a set of techniques that help strategists in taking strategic decisions with regard to individual products or business in a firm’s portfolio. • There are number of techniques that could be considered as corporate portfolio analysis techniques. The most popular techniques are the Boston Consulting Group (BCG) matrix or product portfolio matrix and GE Nine-cell Matrix.
  18. 18. BCG Growth – Share Matrix • The BCG (Boston Consulting Group) Growth- share matrix is the simplest way to portray a corporation’s portfolio of investments. • Each of the corporation’s product lines or business units is plotted on the matrix according to both the growth rate of the industry in which it operates and its relative market share.
  19. 19. BCG Growth – Share Matrix … • Stars: stars are high-growth-high-market share business which may or may not be self-sufficient in terms of cash flow. This cell corresponds closely to the growth phase of the product life cycle (PLC). A company generally pursues an expansion strategy to establish a strong competitive position with regard to a ‘star’ business. • Cash Cows: as the tern indicates, cash cows are businesses which generate large amounts of cash but their rate of growth is slow. In terms of PLC, these are generally mature businesses which are reaping the benefits of the experience curve. The cash generation exceeds the reinvestment that could profitably be made into ‘cash cows’. These businesses can adopt mainly stability strategies. • The cash generated by ‘cash cows’ is reinvested in ‘stars’ and ‘question marks’.
  20. 20. BCG Growth – Share Matrix … • Question marks: businesses with high industry growth but low market share for a company are ‘question marks’ or ‘problem children’. They require large amounts of cash to maintain or gain market share. ‘Question marks’ are usually new products or services which have a good commercial potential. No single set of strategies can be recommended here. If the company feels that it can obtain a dominate market share, it may select expansion strategies, otherwise retrenchment may be more realistic alternative. ‘Question Marks’, therefore, may become ‘stars’ if enough treatment is made, or they may become ‘Dogs’ if ignored. • Dogs: those businesses which are related to slow-growth industries and where a company has a low relative market share are termed as ‘dogs’.
  21. 21. BCG Growth – Share Matrix … • They neither generate nor require large amounts of cash. In terms of PLC, the ‘dogs’ are usually products in late maturity or a declining stage. The experience curve for the company shows that late maturity or a declining stage. So retrenchment or closure strategies are normally suggested, but government policies may prevent retrenchment and the ‘dogs’ may be artificially sustained. The organization would want to have: a) Cash cows of sufficient size and/or number that can support other products in the portfolio. b) Stars of sufficient size and/or number which will provide sufficient cash generation when the current cash cows can no longer do so. c) Problem children that have reasonable prospects of becoming future stars. d) No dogs, and if there are any, there would need to be good reasons for retaining them.
  22. 22. GE Nine-Cell Matrix • Another corporate portfolio analysis technique is based on the pioneering efforts of the General Electric (GE) Company of the United States supported by the consulting firm of McKisey & Company. • It only provides broad strategic prescription rather than the specifics of business strategy.

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