Corporate Level Strategy

20/03/2020 0 By indiafreenotes

Corporate-Level Strategy refers to the top management’s approach or game plan for administering and directing the entire concern. These are based on the company’s business environment and internal capabilities. It also called as Grand Strategy.

It reflects the combination and pattern of business moves, actions and hidden goals, in the strategic interest of the concern, considering various business divisions, product lines, customer groups, technologies and so forth.

Salient Features of Corporate Level Strategy

  • Corporate Level Strategies is developed by the company’s highest level of management considering the company’s overall growth and opportunities in future.
  • It describes the orientation and direction of the enterprise in the long run and the overall boundaries which acts as the basis for formulating the company’s middle and low-level strategies, i.e. business strategies and functional strategies.
  • While formulating corporate-level strategies, the company’s available resources and environmental factors are kept in mind.
  • It is concerned with the decisions regarding the two-way flow of company’s information and resources between the various levels of management.

In better words, corporate-level strategy implies the topmost degree of strategic decision making, which covers those business plans which are concerned with the company’s objective, procurement and optimal allocation of resources and coordination of business strategies of different units and divisions for satisfactory performance.

Classification of Corporate-Level Strategies

The corporate-level strategies are classified into four parts:

  1. Stability Strategy

Stability is a critical business goal which is required to defend the existing interest and strengths, to follow the business objectives, to continue with the existing business, to keep the efficiency in operations, etc.

In the stability strategy, the firm continues with its existing business and product markets, as well as it maintains the current level of endeavour as the firm is satisfied with the marginal growth.

When a company finds that it should continue in the existing business and is doing reasonably well in that business but no scope for significant growth, the stability is the strategy to be adopted.

The stability strategy is not a “do nothing” strategy. It may involve incremental improvements.

Long-term stability strategy also requires reinvestment, R& D and innovation. However, the business definition remains the same.

Reasons for Adopting Stability Strategy

  • The company is doing fairly well or perceives itself as successful and expects the same in the future.
  • The stability strategy is less risky. Frequent changes involving new products or new ways of doing things may lead to failure of the firm. The larger the firm and the more successful it has been, the greater is the resistance to the risk.
  • The stability strategy can evolve because the managers prefer action to thought and do not tend to consider any other alternatives. Many of the firms that follow stability strategy do this unconsciously. Such companies react to the changes in the forces in the environment.
  • To follow a stability strategy, it is easier and more comfortable for all concerned as activities take place in routines.
  • The management pursuing stability strategy does not have the mind-set of a strategist to appraise the environmental opportunities and threats and take advantage of the opportunities.
  • The company that has core competence in the existing business does not want to take the risk of diverting attention from the current business by opting for diversification.
  1. Expansion Strategy

Also called a growth strategy, wherein the company’s business is reevaluated so as to extend the capacity and scope of business and considerably increasing the overall investment in the business.

In the expansion strategy, the enterprise looks for considerable growth, either from the existing business or product market or by entering a new business, which may or may not be related to the firm’s existing business. Basically, it encompasses diversification, merger and acquisitions, strategic alliance, etc.

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.

Reasons for Adopting Expansion Strategy

  • If business environments are volatile, expansion may be a necessary strategy for survival.
  • Many executives may feel more satisfied with the prospects of growth expansion.
  • Chief Executive Officer may feel pride in presiding over organizations perceived to be growth-oriented.
  • Some executives believe that expansion is in the benefit of the society.
  • Expansion provides more financial and other rewards.
  • Expansion enables to reap advantages from the experience curve and scale of operations.
  1. Retrenchment Strategy

This is pursued when the company opts for decreasing its scope of activity or operations. In retrenchment strategy, a number of business activities are retrenched (cut or reduced) so as to minimize cost, as a response to the firm’s financial crisis. Sometimes, the business itself is dropped by selling out or liquidation.

Therefore, areas where there is a problem is identified and reasons for those problems are diagnosed, after that corrective or remedial steps are taken to solve those problems. So, when the firm concentrates on the ways to reverse the process of decline, it is called a turnaround strategy.

However, if it drops the loss-making venture or part of the company or minimizes the functions undertaken, it is called a divestment or divestiture strategy. If nothing works, then the firm may choose for closing down the firm, it is called a liquidation strategy.

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.

Reasons for following retrenchment strategy

  • The firm is doing poorly.
  • If there is pressure from various groups of stakeholders to improve performance.
  • If better opportunities of doing business are available elsewhere a firm can better utilize its strengths.

The retrenchment strategy is particularly followed for dealing with crises. For minor crises pace retrenchment will be suitable, for moderate crises, divestiture of some division or units may be inevitable whereas for serious crises, a liquidation strategy will be imperative.

  1. Combination Strategy

In this strategy, the enterprise combines any or all of the three corporate strategies, so as to fulfill the firm’s requirements. The firm may choose to stabilize some areas of activity while expanding the other and retrenching the rest (loss-making ones).

The primary focus on corporate-level strategies is on the “directing” the managers on ‘how to manage the scope of various business activities’ and ‘how to make optimum utilization of firm’s resources (material, money, men, machinery), etc. on different business activities’.

Reasons for following Combination strategies

  • When the organization is large and faces a fast changing complex environment.
  • The company’s products are in different stages of the life-cycle.
  • A combination strategy is suitable for a multiple-industry firm at the time of recession.
  • The combination strategy is best for firms, divisions of which perform unevenly or do not have the same future potential.