1. MANAGEMENT POLICY AND STRATEGY
SESSION - VI
Generic and Grand Strategies
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
Email: sushil@dms.iitd.ernet.in
Prof.SushilIITDSession-VI
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4. REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES
Generic
Strategy
Commodity Required
Skills and Resources
Overall cost Sustained capital investment
Common Organizational
Requirements
Tight cost control
access to capital
Frequent, detailed control
reports
Process engineering skills
leadership
Structured organization
and responsibilities
Intense supervision of labour
Incentives based on
Products designed for ease
Low-cost distribution system
meeting strict quantitative
targets in manufacture
Differentiation
Strong marketing abilities
Strong coordination
Product engineering
among functions in R&D,
Creative flare
product development, and
marketing
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5. REQUIREMENTS FOR GENERIC COMPETITIVE STRATEGIES
CONTD…
Focus
Strong capability in basic
Subjective measurement and
research
incentives instead of
quantitative measures
Corporate reputation for
Amenities to attract highly
quality or technological
skilled labour, scientists, or
leadership
creative people
Long tradition in the industry
or unique combination of skills
drawn from other businesses
Strong cooperation from
channels
Combination of the above
Combination of the above policies
policies directed at the
directed at the regular strategic
particular strategic target
target
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6. RISKS OF THE GENERIC STRATEGIES
Risks of Cost Leadership
Risks of Differentiation
Risk of Focus
Cost of leadership is not Differentiation is not
The focus strategy is
sustained
initiated
sustained:
Competitors imitate The target segment
•
Competitors imitate:
Bases for differentiation
becomes structurally
unattractive
•
Technology changes becomes less imported to
Structure erodes
•
Other bases for cost buyers
Demand disappears
leadership erode
Proximity in differentiation
Cost proximity is lost
Broadly targeted
is lost
competitors overwhelm
the segment:
The segment’s differences
from other segments narrow
The advantages of a broad
line increase
Cost focusers achieve
Differentiation focusers New Focusers sub-segments
even lower cost in segments
achieve even greater
the industry
differentiation in segments
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7. STAGE OF `INDUSTRY’ DEVELOPMENT
Growth
Leade
r
Strategic
position of
organizatio
n
Follower
Maturity
Decline
Keeping
ahead of the
field
Cost leadership
Raise barriers
Deter
competitors
Redefine scope
Divest
peripherals
Encourage
departures
Imitation at
lower cost Joint
ventures
Differentiati
on Focus
Prof.SushilIITDSession-VI
Differentiation
New
opportunities
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8. Types of Grand Strategies
Concentrated Growth
Conglomerate Diversification
Market Development
Turnaround
Product Development
Divestiture
Innovation
Liquidation
Horizontal Integration
Bankruptcy
Vertical Integration
Joint Ventures
Concentric Diversification
Strategic Alliances
Consortia
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9. Characteristics of a Concentrated Growth Strategy
• Involves focusing resources on the profitable growth of a single
product, in a single market, with a single dominant technology
• Rationale - Firm develops and exploits its expertise in a delimited
competitive arena
• Determinants of competitive market success
– Ability to assess market needs
– Knowledge of buyer behavior
– Customer price sensitivity
– Effectiveness of promotion
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10. Conditions Favoring a Concentrated Growth Strategy
Firm’s industry is resistant to major technological
advancements
Firm’s targeted markets are not product saturated
Firm’s markets are sufficiently distinctive to dissuade
competitors in adjacent markets from entering firm’s segment
Firm’s inputs are stable in price and quantity and available in
amounts and at times needed
Firm’s industry is stable
Firm’s competitive advantages are based on efficient
production or distribution channels
Success of market generalists
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11. Strategies of Market and Product Development
• Market development
– Consists of marketing present products, often with only cosmetic
modifications, to customers in related market areas by
• Adding channels of distribution or
• Changing content of advertising or promotion
• Product development
– Involves substantial modification of existing products or creation of
new but related products
– Based on penetrating existing markets by
• Incorporating product modifications into existing items or
• Developing new products connected to existing products
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12. Specific Options for Selected Grand Strategies
Concentration: Increasing use of present products in present
markets
1. Increasing present customers’ rate of use:
a. Increasing size of purchase
b. Increasing rate of product obsolescence
c. Advertising other uses
d. Giving price incentives for increased use
2. Attracting competitors’ customers
a. Establishing sharper brand differentiation
b. Increasing promotional effort
c. Initiating price cuts
3. Attracting nonusers to buy the product
a. Inducing trial use through sampling, price incentives, and
so on
b. Pricing up or down
c. Advertising new uses
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13. Specific Options for Selected Grand Strategies
(continued)
Market Development: Selling present products in new markets
1. Opening additional geographic markets
a. Regional expansion
b. National expansion
c. International expansion
2. Attracting other market segments
a. Developing product versions to appeal to other
segments
b. Entering other channels of distribution
c. Advertising in other media
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14. Specific Options for Selected Grand Strategies
(concluded)
Product Development: Developing new products for present markets
1. Developing new product features
a. Adapt (to other ideas, developments)
b. Modify (change color, motion, sound, odor, form, shape)
c. Magnify (stronger, loner, thicker, extra value)
d. Minify (smaller, shorter, higher
e. Substitute (other ingredients, process, power)
f. Rearrange (other patterns, layout, sequence, components)
g. Reverse (inside out)
h. Combine (blend, alloy, assortment, ensemble; combine
units, purposes, appeals, ideas)
2. Developing quality variations
3. Developing additional models and sizes (product
proliferation)
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16. Strategies of Horizontal and Vertical Integration
• Horizontal integration
– Based on growth via acquisition of one or more similar firms
operating at the same stage of the production-marketing
chain
– Involves eliminating competitors, providing acquiring firm with
access to new markets
• Vertical integration
– Involves acquiring firms
• To supply acquiring firm with inputs - backward integration or
• Are customers for firm’s outputs - forward integration
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17. Vertical and Horizontal Integrations
Textile producer
Textile producer
Shirt manufacturer
Shirt manufacturer
Clothing store
Clothing store
Acquisitions or mergers of suppliers or customer
businesses are vertical integrations
Acquisitions or mergers of competing
businesses are horizontal integrations
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18. Motivations Related to Diversification Strategies
Increase firm’s stock value
Increase growth rate of firm
Investment is better use of funds than using them for
internal growth
Improve stability of earnings and sales
Balance or fill out product line
Diversify product line
Acquire a needed resource quickly
Achieve tax savings
Increase efficiencyProf.SushilIITDSession-VI
and profitability
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19. Diversification Strategies
• Concentric diversification
– Involves acquisition of businesses related to acquiring firm in
terms of technology, markets, or products
• Conglomerate diversification
– Involves acquisition of a business because it represents a
promising investment opportunity
– Primary motivation is profit pattern of venture
• Difference between the approaches
– Concentric diversification emphasizes commonality whereas
conglomerate diversification emphasizes profits for each
individual unit
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20. Turnaround Strategy
Involves a concerted effort over a period of
time to fortify a firm’s distinctive
competencies, returning it to profitability
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21. A Model of the Turnaround Process
Turnaround situation
Cause
Turnaround response
Severity Retrenchment phase
Recovery phase
(operating)
Declinin
g sales
or
margins
Cost
reductio
n
Stability
Low
Efficiency
maintenanc
e
Recovery
Internal
factors
High
External
factors
Imminent
bankruptc
y
Asset
reductio
n
Entrepreneuria
l
reconfiguratio
n
(strategic)
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22. Divestiture and Liquidation Strategies
• Divestiture strategy
– Involves selling a firm or a major component of a firm
– Reasons for divestiture
• Partial mismatches between acquired firm and parent firm
• Corporate financial needs
• Government antitrust action
• Liquidation strategy
– Involves selling parts of a firm, usually for its tangible asset value and
not as a going concern
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23. The Strategy of Bankruptcy
• Two approaches
– Liquidation - Involves complete distribution of a firm’s assets
to creditors, most of whom receive a small fraction of
amount owed
– Reorganization - Involves creditors temporarily freezing their
claims while a firm reorganizes and rebuilds its operations
more profitably
• Advantage of a reorganization bankruptcy
– Proactive option offering maximum repayment of a firm’s
debt in the future if a recovery strategy is successful
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24. Corporate Combination Strategies
• Joint venture
– Involves establishing a third company (child), operated for the
benefit of the co-owners (parents)
• Strategic alliance
– Involves creating a partnership between two or more companies
that contribute skills and expertise to a cooperative project
• Exists for a defined period
• Does not involve the exchange of equity
• Consortia, Keiretsus, and Chaebols
– Defined as large interlocking relationships between businesses of
an industry
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25. The Top Five Strategic Reasons for Outsourcing
1. Improve Business Focus
2. Access to World-Class Capabilities
3. Accelerated Reengineering Benefits
4. Shared Risks
5. Free Resources for Other Purposes
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26. INDIAN BUSINESS HOUSES
TATA GROUP
Group Overview
•
•
•
•
•
•
•
India’s largest business house
More than 85 companies
39 listed
8% of India’s market capitalization
2.6 Million shareholders
2,70,000 employees
Turnover Rs 343 billion (1996-1997)
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27. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
Financial Highlights
1996-97 Rs (Billion)
Assets
322
Turnover
343
PBT
30
PAT
23
Exports
40
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% change Over 199596
18.8
18
-7.1
- 16
19
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28. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
•
•
•
•
•
•
Metals
Automobiles
Energy
Engineering
Chemicals
Pharmaceuticals
•
•
•
•
•
•
Consumer Products
Services
Agro Industries
IT and Communication
Exports
Finance
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29. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
Tata Heritage
• Jamsetji Tata
– Started textile mill in 1877
– Inspired steel and power industry
– Technical education and philanthropy
• JRD Tata
– Pioneered civil aviation
– Funded Hom Bhabha’s nuclear programme
– Guided the Tata group for over half a century
• Ratan Tata
– Present Chairman since 1991
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30. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
Holding Companies
• Tata Sons
– Founded by Jamsetji Tata
– Promoted many of the present Tata companies
– 63% held by Tata philanthropic trusts
• Tata Industries
– 100% subsidiary of Tata Sons founded in 1945
– Managing agency till 1970
– Promoted new Tata companies in technology based businesses
• Cross holdings among other Tata companies
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31. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
Restructuring
• Prompted by post 1991 changing environment
• Need to identify and focus on core businesses
• Resistance from satraps
– Russi Mody, Darbari Seth, Ajit Kerkar
• Shrink number of companies
– From over 85 to about 30
• Shrink number of core businesses
– From about 25 to around 10 or 12
• Mergers and divestments
• McKinsey hired as a consultants
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32. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
Restructuring Strategy
• Keep and grow
– Power, watches, metals, chemicals, telecom, hospitality, financial
services, infotech, emerging services, infrastructure, automobiles
• Forge strategic tie ups
– Tea and beverages, retailing
• Remain only as strategic investors
– Luxury cars, infotech, printing, cosmetics
• Sell
– Refrigeration, paints, textiles, trading, electronics, oil drilling,
petrochemicals, pharma, specialty chemicals
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33. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
Recent Developments
• Voltas focus on air conditioning and engineering business
– Hive off pesticides business to Ralchem Pesticides (wholly owned
subsidiary of Rallis - largest integrated agrochemical company in India)
• Electrolux Voltas - JV between Voltas and AB Electrolux
– Refrigerators
– Washing machines
– Compressors for refrigerators
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34. INDIAN BUSINESS HOUSES
TATA GROUP
Contd...
Recent Developments
• Tata Tea focusing on global agro business
– Manages 32 tea gardens in Sri Lanka
– Adding tea gardens inTurkey
– Acquired a 9.5% stake in Asian Coffee
• Overseas Operations
–
–
–
–
Automobile assembly in Bangladesh
Instant tea operations in the US
Chain of hotels across the world
Precision tooling operations in Singapore
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