TYPES OF STRATEGIES

Dr.M. Thenmozhi ProfessorDepartment of Management StudiesIndian Institute of Technology MadrasChennai 600 036E-mail: mtm@iitm.ac.in

DIRECTIONAL STRATEGIESGrowthConcentration Vertical Growth Horizontal GrowthDiversification Concentric ConglomerateStability

Cautiously proceedMaintainProfit

Retrenchment

TurnaroundDivest/SaleLiquidation

STRATEGIC ALTERNATIVESGeneric or grand or basic strategiesStability - better after sales service, modernize plant, bulk discount, Improve performance to sustainExpansion - Change in customer group, function, technologyRetrenchment - Withdrawal - Customer group, function, technology (unprofitable)CombinationE.g. Wide variety of services to customers (stability)- New products in product range (expansion)

STRATEGIC ALTERNATIVESMichael Porter - Three type of generic strategies- Overall cost leadership strategy- Differentiation strategy- Focus on niche market

DIMENSIONS OF GRAND/GENERIC STRATEGIESI. Internal/External - Independent of any other entity- Association with other entityII. Related/Unrelated- To existing customer groups, existing customer function, technologies

DIMENSIONS OF GRAND/GENERIC STRATEGIESIII. Horizontal/Vertical - Serving additional customer groups-consolidating backward/forwardIV. Active/Passive Active - offensive strategyPassive - Defensive strategy4 grand strategies 4 dimensions 2 types of each dimensions 3 dimensions of each business definition = 96 Mixed strategies

MODERNIZATION STRATEGIESDeveloping new technology strategy i.e. technological upgradation as a strategy- Increased production, lower cost, improve efficiency and productivity- Extensively used by Indian organization - stability - prior to expansion & diversificationIf pace of modernization is low - internal stability strategy, high - internal expansion strategyMerge with another company - for modern - external expansion strategy

DIVERSIFICATION AND INTEGRATION STRATEGIES1. Vertical Integration - make new products to serve its own needs- backward/forward integration2. Horizontal Integration- Same product - more customer group- merger similar companiesSpartek Ceramics takeover of Neyveli Ceramics

DIVERSIFICATION AND INTEGRATION STRATEGIES3. Concentric diversificationMarketing & technology related - rain coat manufacturer - rubber based items - gloves, shoesTechnology related- leasing company - hire purchaseMarketing related - Unrelated technology (cosmetic & sewing machines - women)4. Conglomerate diversification- Unrelated to customer groups, function, technologyITC - Cigarette & HotelTTK group - Chemicals, hosiery, contraceptives

MERGER, TAKEOVER AND JOINT VENTURE STRATEGIESDiversification & IntegrationMerger ( Amalgamation)A acquires B - B merged with AA & BC - Consolidated

Horizontal Concentric Vertical Conglomerate

JOINT VENTURE2 firms in one industry2 firms across different industriesIndian & foreign firm in IndiaIndian & foreign firm in foreign countryIndian & foreign firm in third countryLast two types are on increase now

TURNAROUND STRATEGIESReversing a negative trendRetrenchment - internal/external - improve internal efficiency - Divestment/liquidationDanger signs:Persistent negative cash flowsNegative profitsDeclining market shareDeterioration in physical facilitiesHigh turnover, low morale, MismanagementUncompetitive products, sick company

MANAGING TURNAROUNDExisting team - support external consultant - if C.E - credibility - rareExisting team - withdraws temporarily - turnaround specialist - employedReplace existing team / C.EApproaches:- Surgical - Human approach

ACTION PLAN FOR TURNAROUNDAnalysis of product, market, production process, competition, market segment positioningClear thinking - market place &production logicImplementation of plans - target - setting, feedback, remedial action

DIVESTMENTDivestment - (divestiture or cutback) - sale of or liquidation of a portion of business- SBU or profit center1. Spinning it off - financially and managerially independent company with stake2. Sell a unit outrightKelvinator India - spin-off - Avanti scooters - high production cost

LIQUIDATIONRarely - large companies liquidateBuyers rare for purchase of assetsCourt, voluntary, subject to supervision of courtCombination strategies - popular

Criteria for strategic choice Does strategy exploit the opportunities present in the environment?Is it consistent with the resources of the firm, its competitive advantage & core competence?Is the chosen level of risk feasible?Is it appropriate to the values & aspirations of the firm?

Gap Analysis

Consider the Selection factor. -- Criteria for evaluation alternatives.Evaluate strategic alternatives.Make choice

Factors affecting strategic choiceNature of environment stable?Firms internal realitiesAmbition of CEO / ownersCompany cultureFirms capacity to execute the st.Resource allocation

Strategy ImplementationEvolve a systematic procedure to implement the strategy chosenProcedural implementation planProper resource allocation planStructural implementation planFunctional implementation planBehavioural implementation planEvaluate and control through strategic and operational control measuresSuccess of a strategy is very much dependent on how the strategy is executed