Corporate Strategy
Ing. Šárka Zapletalová, Ph.D.
Department of Business Economics and Management
STRATEGIC MANAGEMENT

Outline of the lecture
1.Strategy objectives
2.
2.Strategy
3.
3.Corporate strategy
4.
4.Growth strategies
5.
5.Stability strategies
6.
6.Rentrenchment strategies
7.
7.
7.

Introduction
•A strategy is all about integrating organizational activities and utilizing and allocating the
scarce resources within the organizational environment so as to meet the present objectives.
•
•Corporate strategy is primarily about the choice of direction for the firm as a whole.
•
•A strategy of a corporation forms a comprehensive master plan that states how the corporation will
achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive
disadvantage.
•
•The typical business firm usually considers three types of strategy: corporate, business, and
functional.
•

Strategy Objectives
•Objectives are the end results of planned activity.
•They should be stated as action verbs and tell what is to be accomplished by when and quantified
if possible.
•The achievement of corporate objectives should result in the fulfillment of a corporation’s
mission.
•In effect, this is what society gives back to the corporation when the corporation does a good job
of fulfilling its mission.
•The term goal is often used interchangeably with the term objective.
•We prefer to differentiate the two terms. In contrast to an objective, we consider a goal as an
openened statement of what one wants to accomplish, with no quantification of what is to be
achieved and no time criteria for completion. For example, a simple statement of “increased
profitability” is thus a goal, not an objective, because it does not state how much profit the firm
wants to make the next year. A good objective should be action-oriented and begin with the word to.
•

Strategy Objectives
Some of the areas in which a corporation might establish its goals and objectives are:
•Profitability (net profits)
•Efficiency (low costs, etc.)
•Growth (increase in total assets, sales, etc.)
•Shareholder wealth (dividends plus stock price appreciation)
•Utilization of resources (ROE or ROI)
•Reputation (being considered a “top” firm)
•Contributions to employees
•Contributions to society (taxes paid, participation in charities, providing a needed product or
service)
•Market leadership (market share)
•Technological leadership (innovations, creativity)
•Survival (avoiding bankruptcy)
•Personal needs of top management
•

Strategy Objectives
•S.M.A.R.T. is an acronym that is used to guide the development of measurable goals.
•The first known use of the term occurs in the November 1981 issue of Management Review by George
T. Doran. Since then, Professor Robert S. Rubin (Saint Louis University) wrote about SMART in an
article for The Society for Industrial and Organizational Psychology. He stated that SMART has come
to mean different things to different people.
To make sure goals are clear and reachable, each one should be:
•Specific (simple, sensible, significant).
•Measurable (meaningful, motivating).
•Achievable (agreed, attainable).
•Relevant (reasonable, realistic and resourced, results-based).
•Time bound (time-based, time limited, time/cost limited, timely, time-sensitive).
•

Strategy
•The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and “ago”
(meaning leading/moving).
•Strategy is an action that managers take to attain one or more of the organization’s goals.
•Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed strategic
planning process”.
•A strategy is all about integrating organizational activities and utilizing and allocating the
scarce resources within the organizational environment so as to meet the present objectives.
•Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and
direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.
•Strategy, in short, bridges the gap between “where we are” and “where we want to be”.
•

Strategy
Features of Strategy
•Strategy is significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the business
environment.
•Strategy deals with long term developments rather than routine operations, i.e. it deals with
probability of innovations or new products, new methods of productions, or new markets to be
developed in future.
•Strategy is created to take into account the probable behavior of customers and competitors.
Strategies dealing with employees will predict the employee behavior.
•

Strategy
•A strategy of a corporation forms a comprehensive master plan that states how the corporation will
achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive
disadvantage.
•
•Armed with a mission, objectives, and completed external and internal analyses, a firm is ready to
make its strategic choices. That is, a firm is ready to choose its "theory of how to gain
competitive advantage."
•
•The typical business firm usually considers three types of strategy: corporate, business, and
functional.
•

Strategy
Hierarchy of strategy
•

Corporate Strategy
•Corporate strategy is primarily about the choice of direction for a firm as a whole and the
management of its business or product portfolio.
•
•This is true whether the firm is a small company or a large multinational corporation (MNC).
•
•In a large multiple-business company, in particular, corporate strategy is concerned with managing
various product lines and business units for maximum value.
•
•In this instance, corporate headquarters must play the role of the organizational “parent,” in
that it must deal with various product and business unit “children“.
•

Corporate Strategy
•Corporate strategy, therefore, includes decisions regarding the flow of financial and other
resources to and from a company’s product lines and business units.
•
•Through a series of coordinating devices, a company transfers skills and capabilities developed in
one unit to other units that need such resources.
•
•In this way, it attempts to obtain synergy among numerous product lines and business units so that
the corporate whole is greater than the sum of its individual business unit parts.
•
•Corporate strategy deals with key issue facing the corporation as a whole: the firm’s overall
orientation toward growth, stability, or retrenchment (directional strategy).
•
•

Corporate Strategy
A corporation’s directional strategy is composed of three general orientations (sometimes called
grand strategies):
•Growth strategies expand the company’s activities.
•Stability strategies make no change to the company’s current activities.
•Retrenchment strategies reduce the company’s level of activities.
•

Corporate Strategy
Growth Strategies
•Designed to achieve growth in sales, assets, profits, or some combination.
•Continuing growth means increasing sales and a chance to take advantage of the experience curve to
reduce the per-unit cost of products sold, thereby increasing profits.
•This cost reduction becomes extremely important if a corporation’s industry is growing quickly or
consolidating and if competitors are engaging in price wars in attempts to increase their shares of
the market.
•A corporation can grow internally by expanding its operations both globally and domestically, or
it can grow externally through mergers, acquisitions, and strategic alliances.
•A merger is a transaction involving two or more corporations in which stock is exchanged but in
which only one corporation survives.
•

Corporate Strategy
Growth Strategies
•The two basic growth strategies are concentration on the current product line(s) in one industry
and diversification into other product lines in other industries.
•
•Concentration
•If a company’s current product lines have real growth potential, concentration of resources on
those product lines makes sense as a strategy for growth.
•The two basic concentration strategies are vertical growth and horizontal growth.
•

Corporate Strategy
Vertical Growth
•
•Vertical growth can be achieved by taking over a function previously provided by a supplier or by
a distributor.
•
•The company, in effect, grows by making its own supplies and/or by distributing its own products.
•
•This may be done in order to reduce costs, gain control over a scarce resource, guarantee quality
of a key input, or obtain access to potential customers.
•

Corporate Strategy
Vertical Growth
•Vertical growth results in vertical integration - the degree to which a firm operates vertically
in multiple locations on an industry’s value chain from extracting raw materials to manufacturing
to retailing.
•
•More specifically, assuming a function previously provided by a supplier is called backward
integration (going backward on an industry’s value chain).
•
•Assuming a function previously provided by a distributor is labeled forward integration (going
forward on an industry’s value chain).
•
•Transaction cost economics proposes that vertical integration is more efficient than contracting
for goods and services in the marketplace when the transaction costs of buying goods on the open
market become too great.
•

•
Prostor pro doplňující informace, poznámky
Vertical Integration
Industry value chain
none
partial
full
Raw materials
Production
Intermediates
Marketing and sale
Aftersales services
Level of integration

•
Prostor pro doplňující informace, poznámky
Vertical Integration
Industry value chain
forward integration
backward integration
balanced integration
Raw materials
Production
Intermediates
Marketing and sale
Aftersales services

Corporate Strategy
Vertical Growth
Vertical growth results in vertical integration - the degree to which a firm operates vertically in
Vertical Growth
•Under full integration, a firm internally makes 100% of its key supplies and completely controls
its distributors.
•With taper integration (also called concurrent sourcing), a firm internally produces less than
half of its own requirements and buys the rest from outside suppliers (backward taper integration).
•With quasi-integration, a company does not make any of its key supplies but purchases most of its
requirements from outside suppliers that are under its partial control (backward
quasi-integration).
•

Corporate Strategy
Horizontal Growth
•A firm can achieve horizontal growth by expanding its operations into other geographic locations
and/or by increasing the range of products and services offered to current markets.
•Horizontal growth results in horizontal integration - he degree to which a firm operates in
multiple geographic locations at the same point on an industry’s value chain.
•
•International Entry Options for Horizontal Growth
•Exporting: A good way to minimize risk and experiment with a specific product is exporting,
shipping goods produced in the company’s home country to other countries for marketing.
•Licensing: Under a licensing agreement, the licensing firm grants rights to another firm in the
host country to produce and/or sell a product.
•Franchising: Under a franchising agreement, the franchiser grants rights to another company to
open a retail store using the franchiser’s name and operating system.
•

•
Prostor pro doplňující informace, poznámky
Horizontal Integration
Raw materials
Intermediates
A
B
Horizontal Integration

Corporate Strategy
•International Entry Options for Horizontal Growth
•
•Joint Ventures: Forming a joint venture between a foreign corporation and a domestic company is
the most popular strategy used to enter a new country.
•Acquisitions: A relatively quick way to move into an international area is through acquisitions -
purchasing another company already operating in that area.
•Green-Field Development: If a company doesn’t want to purchase another company’s problems along
with its assets, it may choose green-field development and build its own manufacturing plant and
distribution system.
•Production Sharing: Means the process of combining the higher labor skills and technology
available in developed Countries with the lower-cost labor available in developing countries.
•Turnkey Operations: Turnkey operations are typically contracts for the construction of operating
facilities in exchange for a fee.
•Management Contracts: A large corporation operating throughout the world is likely to have a large
amount of management talent at its disposal.
•

Corporate Strategy
Diversification Strategies
•Companies begin thinking about diversification when their growth has plateaued and opportunities
for growth in the original business have been depleted.
•The two basic diversification strategies are concentric and conglomerate.
•Growth through concentric diversification into a related industry may be a very appropriate
corporate strategy when a firm has a strong competitive position but industry attractiveness is
low. The search is for synergy, the concept that two businesses will generate more profits together
than they could separately.
•Conglomerate (Unrelated) Diversification. When management realizes that the current industry is
unattractive and that the firm lacks outstanding abilities or skills that it could easily transfer
to related products or services in other industries.
•

Prostor pro doplňující informace, poznámky
Diversification Strategies
Types of diversification
Revenue from primary business
Examples
Single business
> 95%
Coca-Cola, Google, Facebook
Dominant business
70% - 95%
Nestlé, Harley-Davidson
Related diversification
< 70%
- related-constrained
Nike, Johnson & Johnson
- related-linked
Amazon, Disney, GE
Unrelated diversification (conglomerate)
< 70%
Yamaha, Berkshire Hathaway

Corporate Strategy
Stability Strategies
•Stability Strategy is a corporate strategy where a company concentrates on maintaining its current
market position.
•A company that adopts such an approach focuses on its existing product and market.
•A few examples of this strategy are offering the same products to the same clients, not
introducing new products, maintaining market share, and more.
•Usually, a company that is satisfied with its current market share or position uses such a
strategy. Also, a company following this strategy does not need any additional resources and work
using the existing expertise of the workforce.
•But, this strategy is useful only if there is a simple and stable environment.

Corporate Strategy
Types of Stability Strategies
•No-change Strategy
As the name suggests, a company following this strategy does not take up any new activities.
Instead, the company continues with its current business. Companies that are well established may
go for this strategy.
•Modest Growth Strategy
Under this, a company strives to achieve the same target as it did in the past. For example, if a
company hit a 5% growth last year, then for the current year also, it targets the same percentage
(making adjustments for inflation). It is the most relaxed approach as the risk is low, and the
company does not need any additional efforts or resources.
•Sustainable Growth Strategy
A company follows this strategy if it believes the external environment is not favorable.  For
instance, if the economy is in recession, or if there is a lack of financial resources.
•
•

Corporate Strategy
Types of Stability Strategies
•Profit Strategy
If the objective of a company is to generate cash, then a company may adopt this strategy. A
company pursuing this strategy may be willing to give up some of its market share to make cash.
•Pause Strategy
A company adopts such a strategy if, in the past, it has enjoyed rapid growth. By using this
strategy, the company wants to take some rest before pushing for growth again. Or, we can say, a
company moves cautiously for sometime before pursuing growth. It is a temporary strategy. A company
can use the rest period to make its production more efficient to exploit future opportunities.
•
•

Corporate Strategy
Retrenchment Strategies
•Retrenchment strategy is a corporate level strategy that aims to reduce the size or diversity of
organizational operations.
•At times, it also becomes a means to ensure an organization’s financial stability. This is done by
reducing the expenditure. A retrenchment strategy is a design to fortify an organization’s basic
distinctive competence.
•Besides, a retrenchment strategy also results in reduction of the number of employees, and sale of
assets associated with discontinued product or service line. At other times, it involves
restructuring of debt through bankruptcy proceedings; and in most extreme cases, liquidation of the
firm.
•A retrenchment strategy aims at the contraction of organization’s activities to improve
performance. It is implemented to find out the problem areas and the steps to resolve them. This
strategy is adopted when an organization suffers continuous losses.
•
•

Corporate Strategy
Types of Retrenchment Strategies
•Turnaround
•Divestiture Strategy
•Liquidation Strategy
•Captive Company Strategy
•Harvest Strategy
•Transformation Strategy
•Leadership Strategy
•Niche Strategy
•Bankruptcy Strategy
•End-Game Strategies
•
•