Corporate Level Strategy

• Is the vehicle for allocating resources among

all of the business units.
• Define the realms of a company – the business
it wants to be in and the general arena of play
• Analyzes the mix of the business and makes
decisions about whether the mix should
change in order to earn the best sustainable
return on the company’s capital
Example – Proctor & Gamble and its mix of
products
 Corporate Level Strategy
• Management’s overall strategy for improving
companywide performance usually involves:
• Pursuing rapid-growth strategies in the most
promising businesses
• Keeping the other core businesses healthy
• Initiating turnaround efforts in weak-
performing businesses with potential
• Divesting businesses that are no longer
attractive or that don’t fit into the
organization’s long-range plans.
 Corporate Level Strategy
Summary - Corporate Level Strategy
• Is crafted at the highest levels of
management in the organization.
• It is the overall managerial game plan for a
diversified company; it extends
companywide - an umbrella over all a
diversified company’s businesses.
• Corporate strategy consists of the moves
made to establish business positions in
different industries and the approaches used
to manage the company’s group of
businesses.
 Corporate Level Strategy
Four (4) categories:-
• Vertical Integration Strategies (3) –
Forward; Backward; Horizontal
• Intensive Strategies (3) – Market
Penetration; Market Development;
Product Development
• Diversification Strategies (2) – Related
and Unrelated
• Defensive Strategies (3) – Retrenchment;
Divestiture; Liquidation
 Vertical Integration Strategies
• Allow a firm to gain control over distributors,
suppliers and or competitors.
• They are part of the Value Chain.
• They are growth strategies.
Forward Integration
• Involves gaining ownership or increased control
over distributors or retailers.
• Distributors produce the product. The distributor
is integrated into the system.
• Retailers sell to the final consumer.
Example – Grace Kennedy buying a supermarket
in Jamaica - Forward Integration
 Vertical Integration Strategies
Forward Integration
• Concerned with a company’s outputs such as
transport, distribution, repairs and servicing.

Example - Fast food outlets engage in forward

integration - Franchising

• Forward / Upstream / Outbound logistics – after

the product is produced – distributors, brokers,
retailers

• Backward / Downstream / Inbound logistics –

before the product is produced – from the suppliers
When is Forward Integration Effective?

• Present distributors are especially

expensive, or unreliable, or incapable of
meeting the firm’s distribution needs.
• Availability of quality distributors is
limited as to offer a competitive advantage
to those firms that integrate forward
• Competing in an industry that is growing
and is expected to continue to grow
markedly
When is Forward Integration Effective?
• Having the capital and human resources needed to
manage the new business of distributing its own
products.
• Advantages of stable production are particularly
high - this is a consideration because an
organization can increase the predictability of the
demand for its output through forward integration.
• Present distributors or retailers have high profit
margins; this situation suggests that a company
could distribute its own products and price them
more competitively by integrating forward.
 Vertical Integration Strategies
Backward Integration
• Both the manufacturer and the retailer
purchase needed materials from the
supplier.
• It is a strategy of seeking ownership or
increased control of a firm’s suppliers.
• Involves activities concerned with the
inputs into the company’s current
business. This includes raw materials,
machinery and labour.
When is Backward Integration Effective?
• Present suppliers are especially expensive, or
unreliable, or incapable of meeting the firm’s
needs for parts, components, assemblies, or raw
materials. There is then better control over
costs.
• The number of suppliers is small and the number
of competitors is large.
• Competing in an industry that is growing rapidly;
this is a factor because integrative-type strategies
(forward, backward, and horizontal) reduce an
organization’s ability to diversify in a declining
industry.
When is Backward Integration Effective?
• Having both the capital and human resources to
manage the new business of supplying its own raw
materials.

• Advantages of stable prices are particularly important;

this is a factor because an organization can stabilize
the cost of its raw materials and the associated price of
its product(s) through backward integration.

• Present suppliers have high profit margins, which

suggests that the business of supplying products or
services in the given industry is a worthwhile venture.

• When an organization needs to quickly acquire a

needed resource.
 Vertical Integration Strategies
Horizontal Integration

• Seeking ownership of or increased control over a

firm’s competitors.
• Where the organizations are making the same product
– at the same level in the market / competitor
• Is a growth strategy. The firm gains a greater market
share.

Examples – Mergers; Acquisitions; Take-overs – hostile

or friendly among competitors

• Buying out or owning the competitor

When is Horizontal Integration Effective?
• Ability to gain monopolistic characteristics in a
particular area / region without being challenged by the
government for tending substantially to reduce
competition.
• Competing in a growing industry.
• Increased economies of scale provide major
competitive advantages.
• Having the capital and human talent needed to
successfully manage an expanded organization.
• Competitors are faltering due to a lack of managerial
expertise or a need for particular resources that an
organization possesses
Horizontal integration would not be appropriate if
competitors are doing poorly, because in the case
overall industry sales are declining.
 Intensive Strategies
• Market Penetration
• Market Development
• Product Development

They require intensive efforts if a firm’s

competitive position with existing
products is to improve.
 Intensive Strategies
Market Penetration
• Seeks to increase market share for present
products / services (more customers) in the
same markets / same location through greater
marketing efforts.
• Used alone and in combination with other
strategies.
• Allows a firm to go deeper into the market.
• The company seeks to re-brand its product /
service.
 Intensive Strategies
Market Penetration
Requires greater marketing efforts in the same market /
same location and involves:-

• Increased advertising / increased advertising

expenditure
• Publicity - increased publicity efforts.
• Increasing the number of salespersons / hire more
salesmen.
• Offering extensive service promotions (Christmas,
other occasions, etc.)

Examples – Digicel; TSTT

 When is Market Penetration Effective?
• Current markets are not saturated with particular
product or service.
• Usage rate of present customers could be increased
significantly.
• Market shares of major competitors have been
declining while total industry sales have been
increasing.
• Correlation between dollar sales and dollar marketing
expenditures historically has been high.
• Increased economies of scale provide major
competitive advantages.
 Intensive Strategies
Market Development
Involves introducing the same / present products / services
into new geographic areas. E.g. Airlines

When is Market Development Effective?

• New channels of distribution are available that are
reliable, inexpensive, and of good quality.
• Organization is very successful at what it does.
• New untapped or unsaturated markets exist. - LIAT
• Having the needed capital and human resources to
manage expanded operations.
• Organization has excess production capacity.
• Organization’s basic industry is becoming rapidly
global in scope.
 Intensive Strategies
Product Development

• Seeks to increase sales by improving or

modifying the present product / service -
changing the product.
• Changes / improvements are made in the same
market.
• Entails large research and development (R&D)
costs / expenditure.
When is Product Development Effective?
• Organization has successful products that are in
the maturity stage of the product life cycle; Seeks
to attract satisfied customers to try new (improved)
products as a result of their positive experience
with the present products or services.
• Competing in an industry that is characterized by
rapid technological developments. E.g. The
computer industry
• Major competitors offering better-quality products
at comparable prices.
• Competing in a high-growth industry.
• Organization has strong research and development
capabilities.
 Diversification Strategies
Related and Unrelated Diversification
• Refers to an organization engaging in businesses that
they are familiar / unfamiliar with.

• Businesses are said to be Related (Concentric

Diversification) when their Value Chain possess
competitively valuable cost business strategic fits.
There is a blend – they are similar in nature.
E.g. If Coca-Cola or Pepsi buys a sugar factory.

• Businesses are said to be Unrelated (Conglomerate

Diversification Strategy) when their Value Chain are
so dissimilar that no valuable cost business relationship
exists.
E.g. If Grace Kennedy buys shares in Disneyworld.
When is Related Diversification Effective?
• Organization is competing in a no-growth or a
slow-growth industry.
• Adding new, but related, products would
significantly enhance the sales of current products.
• New, but related, products could be offered at
highly competitive prices.
• New, but related, products have seasonal sales
levels that counterbalance an organization’s
existing peaks and valleys.
• Organization’s products are currently in the
declining stage of the product’s life cycle.
• Organization has a strong management team.
When is Unrelated Diversification Effective?
• Revenues derived from an organization’s current
products or services would increase significantly
by adding the new, unrelated products.
• Competing in a highly competitive and/or a no-
growth industry - Low industry profit margins and
returns.
• Organization’s present channels of distribution can
be used to market the new products to current
customers.
• New products have countercyclical sales patterns
compared to an organization’s present products.
• Organization’s basic industry is experiencing
declining annual sales and profits.
 When is Unrelated Diversification Effective?
• Organization has the capital and managerial talent
needed to compete successfully in a new industry.
• Organization has the opportunity to purchase an
unrelated business that is an attractive investment
opportunity
• Financial synergy exists between the acquired and
acquiring firm.
• Existing markets for an organization’s present
products are saturated.
• Antitrust action could be charged against an
organization that historically has concentrated on a
single industry.
 Defensive Strategies
Defensive Strategies are used when organizations are in trouble

Retrenchment – An organization regroups through cost and asset

reduction to reverse declining sales and profits

-Bankruptcy is an effective type of retrenchment strategy.

Examples - General Motors; Chrysler; Air Jamaica

Divestiture / Selling off - Selling a division or part of an

organization. It can also be part of a retrenchment strategy – used
together or separately.

Liquidation - Selling all of a company’s assets, in parts, for their

tangible worth. Similar to Divestiture
 Defensive Strategies
Retrenchment Activities
• Sell off lands and buildings to raise much
needed cash
• Prune / cut product lines
• Close marginal businesses
• Close obsolete factories
• Close factories that are not needed or automate
the processes
• Reduce the number of employees –
Redundancy
• Introduce expense control systems
 When is Retrenchment Effective?
The Organization:
• Has a clearly distinctive competence but has failed
consistently to meet its objectives and goals overtime.
• Is one of the weaker competitors in a given industry.
• Is plagued by inefficiency, low profitability, poor
employee morale, and pressure from stockholders to
improve performance.
• Has failed to capitalize on external opportunities,
minimize external threats, take advantage of internal
strengths, and overcome internal weaknesses over time -
Strategic managers have failed (and possibly will be
replaced by more competent individuals).
• Has grown so large so quickly that major internal
reorganization is needed.
 Defensive Strategies
Divestiture
Selling a division or part of an organization. It can also
be part of a retrenchment strategy – used together or
separately.

• Often is used to raise capital for further strategic

acquisitions or investments.

• Can be part of an overall retrenchment strategy to rid

an organization of businesses that are unprofitable,
that require too much capital, or that do not fit well
with the firm’s other activities.
 When is Divestiture Effective?
• Organization has pursued a retrenchment strategy and
failed to accomplish needed improvements.
• A division needs more resources than the company can
provide to be competitive.
• A division is responsible for an organization’s overall
poor performance.
• A division is a misfit with the rest of an organization;
this can result from radically different markets,
customers, managers, employees, values, or needs.
• Large amount of cash is needed quickly and cannot be
obtained reasonably from other sources.
• Government antitrust action threatens an organization.
 Defensive Strategies
Liquidation
• Represents an orderly and planned means of
obtaining the greatest possible cash for an
organization’s assets. A company can legally
declare bankruptcy first and then liquidate
various divisions to raise needed capital.
• Selling all of a company’s assets, in parts, for
their tangible worth - Similar to Divestiture
• Is recognition of defeat and consequently can
be an emotionally difficult strategy.
• It may be better to cease operating than to
continue losing large sums of money.
 When is Liquidation Effective?
• Organization has pursued both a retrenchment
strategy and a divestiture strategy, and neither has
been successful.
• Organization’s only alternative is bankruptcy.
Liquidation represents an orderly and planned
means of obtaining the greatest possible cash for
an organization’s assets. A company can legally
declare bankruptcy first and then liquidate various
divisions to raise needed capital.
• Stockholders of a firm can minimize their losses
by selling the organization’s assets.