Levels of Strategy

Three levels of the strategy

1. level: The corporate level
At this level the fundamental task is to develop a
balanced portfolio of businesses which will achieve the
goals of the corporation and satisfy its stakeholders.
2. level: The strategic business unit level (SBU)
At this level the business, or set of activities is given
and the major task for strategic planner at this level is
for business to succeed against competitors and also
satisfy corporate success criteria.
3. level: The functional level:
At this level the major task is to provide an appropriate
functional strategies ( finance and accounting,
marketing, R+D, production, personnel) for SBU or
corporate level strategy.

A Simple Organization Chart

(Single Product Business)
Business
Level
Strategy

Research and
Development Manufacturing

Functional
Level
Strategy

Business

Marketing

Human
Resources

Finance

A Simple Organization Chart

(Dominant or Related Product Business)
Corporate
Level

Business
Level

Multibusiness
Corporation

Business 1
(Related)

Business 2
(Related)

Business 3
(Related)

Functional
Level
Research and
Manufacturing
Development

Marketing

Human
Resources

Finance

An example of an Unrelated Product Business

(Note: By itself, an SBU can be considered a related product
business)
SBU: a single
business or
collection of related
businesses that is
independent and
formulates its own
strategy

A
(Multi-business)
Corporation

Strategic
Business Unit 1

Company 1

Co. 2

Ex.: G.E. (General

Electric Corp.)

S.B.U.
2

Co. 3

Division 1

Div. 2

Div. 3

Corporate Level Strategy

What businesses are we in? What
businesses should we be in?
Four areas of focus
Diversification management (acquisitions and
divestitures)
Synergy between units
Investment priorities
Business level strategy approval (but not
crafting)

Corporate-Level Strategies
Valuable
strengths

Firm
Status

Concentric Diversification
(Economies
Corporate
of Scope)
growth
strategies
Conglomerate
Diversification
(Risk Mgt.)

Critical
weaknesses
Abundant
environmental
opportunities

Corporate
stability
strategies
Corporate
retrenchment
strategies
Can still go for business-level
growth (economies of scale)
Environmental Status

Critical
environmental
threats

Organizational Strategies occur on 3 levels:

Corporate(Grand), Business, and Functional
A. Corporate(Grand)level strategies:
- 1. Growth (a. concentration; b.
diversification)
- 2. Retrenchment
- 3. Stability (status quo)
- 4. Combination (multiple strategies)

1a. Growth through concentration

concentrating on your existing specialization
i. market penetration aggressively targeting
current markets with existing product specialties
ii. market development/geographic expansion
expanding into new markets
iii. market segmentation dividing existing
markets
iv. product development modify existing
products, or develop new but related
products

1b. Growth through diversification branching

out into new areas
i. horizontal integration expanding across the
general industry (e.g. Coke acquires Minutemaid).
ii. vertical integration expanding into industries
populated by suppliers/buyers (e.g. Ford buys steel
plant).
iii. conglomerate diversification expanding into
unrelated industries (e.g. GM buys Hersheys
candy).
iv. joint venture expanding together with another
company in order to diversity efficiently.

2. Retrenchment
i. Turnaround downsizing existing
company/divisions
ii. Divestiture selling off existing
divisions/subdivisions
iii. Liquidation Chapter 11 bankruptcy

3. Stability - maintain status quo (e.g.

continuous improvement)
4. Combination multiple use of strategies

Corporate Level Issues

The Multi-Business Organisation

Exhibit 6.2

Reasons for Diversification (1)

Value creation
Efficiency gains from applying existing
resources/capabilities to new markets/products
Economies of scope
Benefits of synergy

Applying corporate managerial capabilities to

new markets/products/services
Dominant logic

Increased market power from diverse

product/service range
Cross subsidy
Possible monopoly in long-run

Reasons for Diversification (2)

Less obvious value creation
In response to environmental change
To defend existing value
Or straying too far from dominant logic?

To spread risk across range of businesses

Investors can diversify more effectively?
Important for private businesses

In response to expectations of powerful

stakeholders
Pressure from financial analysts to produce constant
growth

Business Level Strategy

How do we support the corporate strategy?

How do we compete in a specific business arena?
Three types of business level strategies:
Low cost producer
Differentiator
Focus
Four areas of focus
Generate sustainable competitive advantages
Develop and nurture (potentially) valuable capabilities
Respond to environmental changes
Approval of functional level strategies

Functional / Operational Level Strategy

Functional: How do
we support the
business level
strategy?
Operational: How do
we support the
functional level
strategy?

An example.
Business L.S.: Become
the low cost producer
of widgets
Functional L.S. (Mfg.):
Reduce manufacturing
costs by 10%
Operational (Plant #1):
Increase worker
productivity by 15%

 B. Business level strategies

1. Michael Porters Competitive Strategies:
i. low cost (e.g. Wal-Mart)
ii. differentiation (Volvo/Mercedes)
iii. focus (Pennys/Pea in a Pod)
2. Adaptive business level strategies:
a. prospecting
b. defending
c. analyzing

 B. Business level strategies (contd)

3. Product life cycle
i. introduction stage
ii. growth stage
iii. maturity stage
iv. decline stage

Product Life Cycle:

 C. Functional level strategies

i. Marketing
ii. Manufacturing
iii. Human resources
iv. Etc.

What is the portfolio stratregy?

From viewpoint of strategic management the
corporations are collections of different product-marketconsumer-resource packages. These are the SBUs.
We can describe the sum of SBUs, as portfolio.
The portfolio analysis:

Combines the assessment of business position with market

attractiveness evaluation, which emerges from external analysis in
general and market analysis, in particular.
Includes multiple SBUs in the same analysis and addresses the
SBU investment decision - which organizational units should
receive resources, which should have resource withheld , and
which should be resource generators.
Offers baseline recommendations concerning the investment
strategies for each SBU based on an assessment of business
position and market attractiveness.

Corporate Portfolio Management

Portfolio balance
Markets
Organisations needs

Attractiveness of business units

Profitability
Growth rates

Portfolio fit
Synergies between business units
Synergies with corporate parent

The Growth Share (or BCG) Matrix

Strategic implication of the BCG matrix

The strategies for the overall portfolio products are concerned

with the issue of balance, I.e. is the portfolio of products balanced
internally in terms of the following?

Are there a sufficient number of cash cows to support those

other products in the portfolio which are at stages of their
lifecycles when they are require cash?

Are there questions-marks which have resonable prospects of

becoming future stars and which do not , at present, constitute a
disproportionate drain on current cash flow?

Are there an appropriate number of stars which will provide

sufficient cash generation when the current cash cows are no
longer able to fulfill this role?

Are there any dogs and if so why?

How to do a portfolio analysis?

Construct a summary of the industry and competitive environment

of each business units.
Appraising the strength and competitive position of each business
unit. Understanding how each business unit ranks against its
rivals on the key factors for competitive success.
Identifying the external opportunities, threats and strategic issues
peculiar to each business units.
Determining how much corporate financial support is needed to
fund each units business strategy and what corporate skills and
resources could be deployed to boots the competitive strength of
various business units.
Comparing the relative attractiveness of the businesses in the
corporate portfolio. Compare the businesses on various historical
and projected performance measures - sale growth, profit margin,
return on investment, and the like.
Checking the corporate portfolio to ascertain whether the mix of
businesses is adequately balanced

Industry Sales

The
The Industry
Industry Life
Life Cycle
Cycle

Introduction

Growth

Maturity

Decline

Time
Drivers of industry evolution :
demand growth
creation and diffusion of knowledge

Assumptions and limitations of BCG

The use of highs and lows to make just four categories

is too simplistic.
The link between market share and profitability isnt
necessarily strong. Low-share businesses can be
profitable, too (and vica versa.)
Growth rate only one aspect of industry attractiveness.
High-growth market may not always be the best for
every business unit or product line.
It considers the product line or business unit only
relation to one competitor: the market leader. It misses
small competitors with fast-growing market share.
Market share is only one aspect of overall competitive
position.

Indicators of SBU Strength

and Market Attractiveness

Market Attractiveness/SBU Strength Matrix

Strategy Guidelines Based on Directional Policy

Matrix