Business and Corporate Level Strategies

Strategic Choices at the Corporate Level

a) Business Closure.
* This is an undesired act of folding up or shutting down nonprofitable business units
to control or avoid further losses.
* This effort means avoiding or controlling dissipation of assets of the firm and
recover is left out of the business.
 Operationally, this means declaring either bankruptcy, liquidation or simply closing down to withdraw from the
business.

b) Business Disposal.
 This calls for disclosing or unloading some of the members, subsidiaries, affiliates or investments in other business
concerns deemed unprofitable or less profitable and/or deemed a burden to the mother organization.
 Operationally, this option could take the form of investiture by way of selling out the entire business unit or selling
its interests or shares in any of its affiliates or members which the corporation partly owns.

c) Business Acquisition.
 This is an option of business establishments meant to expand their size and make their presence felt in whatever
area they want to do business.
 It is a growth strategy that in operations may take the form of acquisition and merger. The idea is to scout for
existing firms that the company can buy out as a whole or it may also take the form of acquiring substantial share in
the ownership or stockholding of the firm, thus, gaining the control of its operations and making it a force to reckon
with as part of the conglomerate.

d) Business Reorganization.
 This option may or may not lead to ownership changes among members of the organization or the conglomerate
nor it may result to business acquisition or disposal options.
 Rather, it may result to restructuring, reorganizing and consolidating to make the entire organization more
responsive to the needs of the time.
 It is more of an internal shake-up which is either dressing down or dressing up to make the conglomerate more
manageable and competitive.
 Operationally, it can take the form of consolidation, and retrenchment ( downsizing) or reorganization that may
even lead to expanding organizational structure and manpower complement. Hence, it may also lead to hiring and
firing to make an organization lean and mean.

e) Business Start Up.

 Realizing the need to create new business units to cater to market opportunities, this option means purposely
organizing another business concern instead of simply acquiring an existing business organization or investing in it
 The idea is to create a fresh and liability- free ( as oppose to acquisition or investments in other firms with existing
inherent problems) as well as employ a dynamic team of managers to pursue certain strategic business options to
support the vison and mission of the mother unit.
 The new business unit maybe wholly owned by the firm or in partnership which other strategic partners which can
enhance competitiveness and profitability of the new investment.
 Typically, top management of this new unit will come from the officers of the mother unit and also from its strategic
partner if it opts to do so.

f) The Impact of Doing Nothing Different.

 Sounding weird and uncalled for , status quo can be an option if after a thorough study and analysis such situation is
deemed appropriate.
 At the corporate level, any move to expand, reduce or invest requires serious study.
 For as long as there is no adverse effect in the short term, doing nothing but merely sustaining its market share and
profitability is a valid option for the time being.
 Operationally, this option is simply status quo which also comes in the form of pause or no change strategy as
postulated by Wheelen and Hunger (2004).

Corporate Integration and Diversification Options

A) Vertical Integration.
 It is where two businesses at different stages of the supply chain join together. In turn, it may vertically integrate
with its supplier in order to reduce late deliveries and increase efficiencies. Businesses will look to integrate in order
to obtain greater control of the supply chain.

 A strategy that allows a company to streamline its operations by taking direct ownership of various stages of its
production process rather than relying on external contractors or suppliers.
  An example of a company that is vertically integrated is Target, which has its own store brands and manufacturing
plants. They create, distribute, and sell their products—eliminating the need for outside entities such as
manufacturers, transportation, or other logistical necessities.

B) Horizontal Integration/ Diversification

* Horizontal integration. The acquisition of a business operating at the same level
of the value chain in the same industry. This is in contrast to vertical integration,
where firms expand into upstream or downstream activities, which are at different
stages of production.

 Horizontal diversification involves providing new and unrelated products or services to existing consumers. For
example, a notebook manufacturer that enters the pen market is pursuing a horizontal diversification strategy.

It is also, a corporate strategy to enter into a new products or product lines, new services or new markets,
involving substantially different skills, technology and knowledge. Diversification is one of the four main growth
strategies defined by Igor Ansoff in the Ansoff Matrix: Products. Present.

C) Forward and Backward Integration

* Forward Integration. A business strategy that involves a form of downstream vertical integration whereby the
company owns and controls business activities that are ahead in the value chain of its industry, this might include among
others direct distribution or supply of the company's products.
* Backward Integration. a form of vertical integration in which a company expands its role to fulfill tasks formerly
completed by businesses up the supply chain. In other words, backward integration is when a company buys another
company that supplies the products or services needed for production.

D) Forward Vertical Integration

* Another corporate option where the firm engages in business activities in the area
of distribution and retailing of the product or service directly to the customers.
 What this means is that a business organization that seeks ownership or is investing in business concerns dealing with
delivery or distribution of its own product lines including opening new retail outlets either fully or partly- owned is
involved in forward vertical integration.

E) Backward Vertical Integration

* A corporate option to engage in the business concentrating the efforts at the stage
of raw materials production or close the source of raw materials.
* What it means is that a business organization investing in new businesses or buying
other business concerns dealing with raw materials or inputs to what they are
presently doing is engaged in backward vertical integration strategy.

F) Conglomerate Diversification ( or unrelated diversification)

* A diversification option that involves investing in or buying into business
organizations whose products and/or services have nothing to do or not
related to the kind of products or services it is presently dealing with.
* This option allows the company to venture into other products or services not
only as a fallback but as a venue opportunity for other expansionary options
in the future.

G) Concentric Diversification ( or related diversification)

* A corporate diversification option that involves engaging or dealing with products or
services that are somehow related to or associated with what the firm is presently
handling.
* Doing this option is done either by investing in a new business or start-up or simply
investing in existing business organization.
* This option will not only allow the business to grow by investing in other profitable
ventures but this is also a strategy to have in its fold a business concern whose
products or services it can make use of in the furtherance of its primary course of
business.
* This is also appropriate where the resources of the firm( that is human or financial
resources) whose potential for growth and development remain unexplored or used
to the fullest.
Directions of Corporate Level Strategies
1. Growth Strategy expands the company’s activities.
Options
 Merger. Involves a transaction involving two or more corporations in which a stock is exchanged or swapped among
independent business organizations from which only one company survives. It usually occurs between firms of
somewhat similar in size and are usually “friendly” in nature, meaning there was a mutual consent among merging
companies and not a hostile takeover.
 Acquisition. An option that involves the purchase of a company then completely absorbed as an operating
subsidiary or division of the acquiring corporation. Like merger, acquisition may occur between firms of different
sizes but can be either
“friendly” or “hostile.”
 Strategic Alliance. Another option involving a partnership among two or more corporations or business units to
achieve strategically significant objectives that are mutually beneficial.
< The alliance generally does not involve stock purchase or swap bur merely
formalizes the union in the form of a memorandum of agreement, memorandum of
understanding or other form of formal or written agreement between parties
designed to achieve mutually beneficial goals.

2) Stability Strategies make no change to the company’s current activities.

Forms:
 Pause/proceed with caution. This is in effect, a sort of time out. An opportunity to rest before continuing a growth
or retrenchment strategy. A very deliberate attempt to make only incremental improvement until a particular
environment situation changes.
< 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
a prolonged rapid growth.
 No change strategy. It involves the decision to do nothing new- a choice to continue current operations and policies
for the foreseeable future.
< Rarely articulated as a definite strategy, a no change strategy’s success depends
on a lack of significant change in a corporation’s situation.
 Profit strategy. It involves a decision to do nothing new in a worsening situation and instead, to act as though the
company’s problems are only temporary.
< This strategy is an attempt to artificially support profits when a company’s sales
are declining by reducing investment and short- term discretionary expenditures
< Rather than announcing the company’s poor position to shareholders and
investment community at large, top management may be tempted to follow this
very seductive strategy.

3. Retrenchment Strategy. The notion of retrenchment evolves around the concept of reduction in a variety of aspects
usually in terms of size, capital, personnel complement, and the like.

It may take form in any of the following:

 Turnaround Strategy. This strategy emphasizes on the improvement of the operational efficiency and is probably
most appropriate when a corporation’s problems are pervasive but not yet critical.

It comes in two ways:

< Contraction. It is the initial effort to quickly “stop the bleeding” with a general
across-the-board cutback in size and costs.
< Consolidation. It implements a program to stabilize the now-learner corporation.

 Sell-out/ Divestment strategy. This strategy is resorted to when a company has a week competitive position in its
industry and unable to either pull itself up by its bootstrap or find a customer to which it can become a captive
company
< It makes sense if management can still obtain a good price for its shareholders and the employees can keep their
jobs by selling the entire company to another firm.
 Bankruptcy strategy. Bankruptcy involves giving up management of the firm to the courts in return for some
settlement of the corporation’s obligation.
< 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.
 Liquidation strategy. In contrast to bankruptcy, which seeks to perpetuate the corporation, liquidation is the
termination of the firm’s business operation.
< Because the industry is unattractive and the company too weak to be sold as a going concern, management may
choose to cinvert as amny saleable assets as possible to cash, which is them distributes to the shareholders after all
the obligations are paid.
 < The benefit of liquidation over bankruptcy is that the Board of Directors, as representatives of the shareholders,
together with the top management makes the decision instead of turning them over the court, which may choose
to ignore shareholders completely.

Other Product / Market Growth Types

Market Penetration
Market penetration occurs when a company penetrates a market in which current products already exist. This
strategy generally requires great competitive strength, a strong brand, or both, as most market penetrations
demand actively taking market share from current incumbents. It is an aggressive and often risky approach to
growth.

Market Development Strategy

Market development strategy entails expanding the potential market through new users or new uses for a product.
The strategy is best accomplished through identifying unique niche needs in a specific type of user and filling those
needs. Market research is critical in development strategies. New users can be defined as new geographic
segments, new demographic segments, new institutional segments, or new psychographic segments.

New Product Development

In business and engineering, new product development (NPD) is the process of developing, researching, and
bringing a new product to market. A product is a set of benefits offered for exchange and can be tangible (that is,
something physical you can touch) or intangible (for example, a service, experience, or belief). Identifying new
needs or new ways of filling them and developing a new process or product that accomplishes this aim are the goal
of this growth strategy. NPD requires investment in research and development, usually over the long term, and
extensive trial and error.

BASIC PLAN OF ACTION

Strategies/Activities Person/Department Involved
1. Preparation of the proposal CEO
2. Presentation and Approval of the proposal BOD
3. Implementation Top Management
4. Monitoring and Evaluation of the Success Top Management