Environmental analysis and organizational analysis bring us to the generation of strategic alternatives that an organization can consider for adoption The choice of strategies is wide and much would depend on how an organization perceives its strengths and weaknesses vis-à-vis the opportunities and threats the external environment poses.
Strategies could be formulated at different levels- functional, business and corporate. Therefore, three level strategic alternatives exist for a firm. A firm has to exercise a choice for selecting alternatives for implementation i.e. corporate strategies, business-level strategies and the functional level strategies.
Generic Strategies: The corporate level generic strategies pertain to identify the businesses the company shall be engaged in. They determine the direction that firm takes in order to achieve its objectives. There could be a small single business firm or a large, complex and diversified firm with several different businesses. In both the cases the corporate strategy concerns the basic direction of the firm as a whole. For a small firm it could identify the courses of action yielding better profit to the firm. In the case of the large firm the corporate strategy means managing the various businesses to maximize their contribution to the achievement of overall corporate objectives. Strategic alternatives revolve around the question of whether to continue or change the business the enterprise is currently in or improve the efficiency and effectiveness with which the firm achieves its corporate objectives in its chosen business sector. There are four generic ways in which alternatives can be considered: stability, expansion, retrenchment, and combination. These generic strategies are sometimes referred to as grand strategies. Firms explore the generic strategy alternatives while formulating their corporate strategy because only through this exploration they can locate the particular route best suited for achieving the chosen growth objective. Corporate level strategy is concerned with two main questions:
(1) what business areas a company should participate in so as to maximize its long-term profitability? (2) What strategies should it use to enter into and exit from business areas? Corporate- level strategies are basically about decisions related to allocating resources among the different businesses of a firm, transferring resources from one set of businesses to others, and managing a portfolio of businesses in such a way that the overall corporate objectives are achieved. A business definition based analysis provides a set of strategic alternatives that an organization can consider to adopt.
Strategies could be formulated at different levels- functional, business and corporate. Therefore, three level strategic alternatives exist for a firm. A firm has to exercise a choice for selecting alternatives for implementation i.e. corporate strategies, business-level strategies and the functional level strategies.
Generic Strategies: The corporate level generic strategies pertain to identify the businesses the company shall be engaged in. They determine the direction that firm takes in order to achieve its objectives. There could be a small single business firm or a large, complex and diversified firm with several different businesses. In both the cases the corporate strategy concerns the basic direction of the firm as a whole. For a small firm it could identify the courses of action yielding better profit to the firm. In the case of the large firm the corporate strategy means managing the various businesses to maximize their contribution to the achievement of overall corporate objectives. Strategic alternatives revolve around the question of whether to continue or change the business the enterprise is currently in or improve the efficiency and effectiveness with which the firm achieves its corporate objectives in its chosen business sector. There are four generic ways in which alternatives can be considered: stability, expansion, retrenchment, and combination. These generic strategies are sometimes referred to as grand strategies. Firms explore the generic strategy alternatives while formulating their corporate strategy because only through this exploration they can locate the particular route best suited for achieving the chosen growth objective. Corporate level strategy is concerned with two main questions:
(1) what business areas a company should participate in so as to maximize its long-term profitability? (2) What strategies should it use to enter into and exit from business areas? Corporate- level strategies are basically about decisions related to allocating resources among the different businesses of a firm, transferring resources from one set of businesses to others, and managing a portfolio of businesses in such a way that the overall corporate objectives are achieved. A business definition based analysis provides a set of strategic alternatives that an organization can consider to adopt.
1. Stability Strategy: When a company finds that it should continue in the existing business and is doing reasonably well in that business but finds no scope for significant growth, the stability is the strategy to be adopted. A stability strategy is pursued when a firm continues to serve the customers in the same product or service, market, and function sectors as given in its business definition. Its main strategic decisions focus on incremental improvement of functional performance. A stability strategy is pursued when the company is doing fairly well or perceives itself as successful and expects the same in the future. The stability strategy is less risky. An organization adopts the stability strategy when it aims at an incremental improvement of its functional performance but marginal changes to one or more of its businesses in terms of their customer groups, functions or alternative technologies are required. Its focus is confined to improving functional efficiencies in an increment way, through better deployment and utilization of resources. The stability strategy does not mean an absence of concern about business growth and improvement in profit. Firms adopting the stability route do seek and plan for business growth and profit improvement with modest targets.
2. Expansion Strategy: An expansion strategy is pursued when the firm serves the public in additional product or service sectors or adds markets or functions and focuses its strategic decisions on major increases in the pace of activity within its present business definition. This strategy involves redefining the business either adding to the scope of activity or substantially increasing the efforts of the present business. When expansion strategy is pursued, it could lead to addition of new products or new markets or functions. Even without a change in business definition many firms undertake major increases in the pace of activities. Expansion strategy is often considered as “entrepreneurial” strategy where firms develop and introduce new products and markets or penetrate markets to build share. Expansion is usually thought as the way to improve performance. Strategists need to distinguish between desirable and undesirable expansion.
3. Retrenchment Strategy: Retrenchment strategy may require a firm to redefine its business and may involve divestment of a major product line or an SBU, abandon some markets or reduce its functions. Retrenchment in pace may necessitate a firm to use layoffs, reduce R&D or marketing or other outlays in order to increase the collection of receivables etc. The efforts aimed at redefining the business and reducing the pace of activities can improve performance of a firm. Retrenchment in combination with expansion is not uncommon. Retrenchment is probably the least frequently used generic strategy. Retrenchment strategy involves a partial or total withdrawal either from products, markets or functions in one or more of a firm’s businesses. Retrenchment strategy is generally followed during the period of decline of a business when it is thought possible to bring profitability back to the firm. If the prospects of restoring profitability are not good, abandoning market share, reducing expenses and assets can use controlled divestment.
4. Combination Strategy: When an organization adopts a mix of stability, expansion and retrenchment either simultaneously or sequentially for the purpose of improving its performance, it is said to follow the combination generic strategy. With combination strategies, the strategists consciously apply several generic strategies to different parts of the firm or to different future periods. The possibility for a simultaneous approach are stability in some areas, expansion in others; stability in some area, retrenchment in others; retrenchment in some areas, expansion in other; and all three strategies in different areas of the company. The possibilities for time-phased combinations are greater, especially when the products, markets, and functions are considered and when the choice occurs through changing the pace or the business definition For example a paints company adopts combination strategies when it augments its offering of decorative paints to provide a greater variety to its customers (stability) and increases its product range to add industrial and automotive paints (expansion), and closes down the paint-contracting division (retrenchment).
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