Such a strategy is basically suitable where business is showing poor performance in short run which can be overcome shortly. It can not be taken for granted in long run. Examples ; Steel Authority of India has adopted stability strategy because of over capacity in steel sector. Instead it has concentrated on increasing operational efficiency of its various plants rather than going for expansion Cigarette, liquor industries fall in this category because of strict control over capacity expansion. Both these industries require license under the provisions of Industries (Development and regulations) Act, 1951.
Growth / Expansion Strategies Internal Expanding Operations Growth Mergers External Diversification Acquisition Joint Ventures Benefits Economies of Scale Profits of the org. Will increase Us arrival To attract talented workforce. Types of Growth Strategies ; Intensive Strategies ; Integration Strategies ; Diversification Strategies Intensive Strategies ; Focuses on organ. ‘s current products and services without moving outside. Helps in increasing market share and value of current business line Market Penetration: Seeks to increase market share for products through greater emphasis on marketing. For egg.
Increasing sales force, Promotional benefits, giving incentives to sales force etc. Strategies that can be followed: ; Increasing sale to the current customers. For egg. Convincing customers to brush twice ; Attracting competitors customers ; Attracting non – users to buy the product for egg. Trial use through free samples, price incentives Market Development It Seeks to increase market share by selling the present product in new market. Strategies can be: ; Entering new geographical areas: national or international ; Entering new market segment – entering other channels of distribution or adding more versions to product
Product Development Seeks to increase the market share by developing new product or introducing improved version of consumer product. It includes: a. Developing a new product b. Developing quality variation c. Developing additional models and sizes Suitable: d. Firms products are in maturity stage e. Technological developments are taking place f. Firm is in high growth industry g. Firm has strong R& D department. Integration Strategies Means combining activities relating to the present activity of the firm. No. Of activities are performed to transform input into output.
These activities include procurement of raw material to production of fin shed product and their distribution. Integration involves moving backward or forward in the industry value chain. Can be of two types: a. Vertical Integration b. Horizontal Integration Vertical Integration Expanding firms range of activities backward into sources of supply or forward into distribution channel is called Vertical Integration. Backward Forward Backward Integration Involves gaining ownership or control over suppliers. For egg. MFC.
Of finished product may take over the business of supplier of raw material. Egg- Brook Bond’s acquisition of tea plantations. Suitability: 1 . Present suppliers are unreliable, too costly or can not supply adequate material 2. Firm’s industry is growing NO. Of suppliers are small and competitors are large 3. 4. Suppliers have high profit margins 5. Firm has capital and workforce Forward Integration ; Involves gaining ownership or increased control over distributor or retailers. Egg. Retail outlets of Raymond, DC or Bombay Dying. Suitability a.
Present distributors are expensive b. Quality of distributors is limited c. Advantage of stable production will be high d. High profit margins of distributors Advantage & Disadvantages of Vertical Integration +eve’s of Vertical Integration ; Secured supply of raw material ; Elimination of need to deal with variety of suppliers and distributors ; Access of new opportunities -eve’s of Vertical Integration: a. Increased costs, expenses and capital requirements b. Loss of flexibility in investment c. Problem of unbalanced facilities or unfulfilled demand d. Additional damn.
Costs to manage a more complex set of activities. Horizontal Integration It is a strategy of seeking ownership or increased control over firms competitors. Also called as horizontal diversification For Egg. : Acquisition of Record by Metal Steels Or Air Decca by Kingfisher Suitability: a. Firm is growing b. Economies of scale provide competitive advantage c. Competitors are faltering due to lack of managerial expertise and resources which the firm has Diversification Diversification is the process of adding new businesses to the existing business of company.
Diversified strategy is concerned with achieving a greater market from a greater range of products in order to maintain / maximize profits. Helps in spreading off risk among several products or services. Mergers and Acquisitions Diversification: Joint Ventures Starting a new business Why the organ. Go for Diversification Saturation or decline in current business Better opportunities Sharing of resources and strengths use brand names Risk minimization ; Risk involved includes: a.
No guarantee of success b. Huge losses suffered may affect the old business c. Neglect Of old business Types of Diversification – Concentric Diversification 1. Adding a new but related business 2. Involves acquiring firms which are similar in terms of technology, markets or products 3. Main focus is on synergy Advantages: 4. Increases firms stock value 5. Increased growth rate 6. Reduced risk 7. Improves stability of earnings and sales Conglomerate Diversification a. Adding a new and unrelated business b.
No relationship between company products, technology or market c. Egg. TIC – Cigarette, Hotels, Edible Oils d. Main focus is profit Advantages ; Diversification of risk ; Resources are invested in industries that offer best profits ; Shareholder’s wealth can be improved ; Company’s profitability can be more stable in economic upswings and downswings a. Difficult to manage different businesses effectively Retrenchment Strategies When the firm’s position is disappointing or its survival is at stake, firms resort to Retrenchment Strategies.
These strategies includes: 1) Turnaround Strategy 2) Divestment 3) Liquidation Turnaround Strategy The aim of turnaround strategy is to transform the organization in to learner and more effective business. It strives to reverse the negative trends. This strategy is necessary if, 1) 2) 3) 4) 5) If the firm is incurring losses Demand for company product are declining Declining production or productivity High rate of turnover and employee job dish-satisfaction creasing debts Approaches ; Surgical Approach: requires a tough attitude of top executive.
The executive issues directions for change, fires employees, drops product lines, replacing m/c, fixing responsibility for results. ; Humane Approach: it involves bettering work culture, introducing participative management and empowering employees to suggest course of action to be followed and then implementing the correct method in a more coordinated way till the situation is reversed. Divestment Strategies Under Divestment Strategy, the company sells off some of its business units. It is adopted where a particular business unit is performing poorly and is no longer fitting the strategic profile of company.
This helps the org. To l) Unlock funds To use the cash generated to revivalist core competencies To invest in emerging technologies Availability of better alternatives Liquidation Strategy ; It is an extreme retrenchment strategy ; Mostly adopted when all other alternatives are closed ; Involves closing down a business organization and selling its assets ; Consequences Of this Strategy includes: loss Of jobs to employees, dues of creditors, dealers, financial positions may remain unmet. Stakeholders interest will be partially met.
Combination Strategies ; These are to combinations of all the three strategies. Generally no organization follows one strategy at time. A combination of stability, growth and turnaround is required to be followed to ensure that organization is matching its strengths and weakness with external environment. Growth / expansion strategies can be introduced where demand is increasing while stability is required to be maintained where industry has already matured. The product lines which are no more profitable or where demand is declining can be divested.