Diversification Strategy A diversification strategy is an appropriate growth strategy when the original industry appears to have matured, plateaued, and consolidated already. Diversification growth strategies can be categorized as follows: 1. Concentric diversification strategy 2. Conglomerate diversification strategy Concentric diversification strategy. The concentric diversification growth strategy is more appropriate in a less attractive industry and for a company with a strong competitive position. In this case, a company has a greater chance to succeed by utilizing its core competency in exploiting a related industry. For example, a company manufacturing refrigerators employs concentric diversification as its growth strategy when it starts to manufacture air-conditioning units for houses and commercial units. Conglomerate diversification strategy. Conglomerate diversification happens when a company enters another industry which is not related to the industry where it presently belongs. A company may consider this strategy as its growth strategy when its present industry is no longer attractive Scanned with CamScanner Chapter 7 | Corporate Level Strategy 83 and it lacks the required abilities to transfer resources to related products or services. For example, a company engaged in transportation may enter the manufacturing industry.STABILITY STRATEGY Another type of corporate strategy is stability strategy. In this strategy, a company plans to continue its current activities without substantial change in its direction. It is effective for short-term planning but may be detrimental if used for long-term planning. Small businesses can benefit using this strategy because they usually belong to a predictable environment. The common types of stability strategies are the following: 1. Pause or proceed-with-caution strategy 2. No-change strategy 3. Profit strategy Pause or Proceed-with-Caution Strategy In a pause or proceed-with-caution strategy, a company takes a temporary timeout from its major activities while observing changes in its external environment. It is a temporary strategy. In such a situation, a company does not make significant moves until the environment becomes favorable to them. This is the strategy adopted by most companies when there is a financial crackdown and a pessimistic economic outlook. The pause or proceed-with-caution strategy does not imply that a company will shut down its operations. It only temporarily stops major critical activities before shifting to the growth or retrenchment strategy. The company makes a deeper critical analysis of the environment before making any bold steps. This will enable the company to consolidate its resources for a competitive position before moving to the growth strategy. No-Change Strategy When an industry is not facing turbulent variables and a company is enjoying the fruits of its continued successful activities, it may adopt the no-change strategy as its corporate strategy. This indicates that the company, which has a dominant position in the market, will not take anything new; rather, it will continue implementing its current activities in the near future. The no-change strategy is effective when an industry is relatively stable with little expected growth, and consolidation is not expected to occur in the foreseeable future. However, businesses that are not maintaining successful operations may find this strategy detrimental. Scanned with CamScanner 84 Unit 2 | Strategy Formulation Profit Strategy As a corporate strategy, the profit strategy is a temporary plan for a company in its desire, increase its profits when revenues are declining. It is a cost-cutting mechanism to address a deci; to at profit because of a decrease in sales. Companies may reduce their discretionary expenditure Perating expenses on advertising, research and development expenditures, and investments es, way of supporting the profits. in a profit strategy, a company usually has a disadvantaged position in an industry. The inanagement blames their company's poor position in relation to the external factors of the environment such as the lack of government support, unethical competition, financial crackdown or unfavorable market conditions. This strategy may not be beneficial for a company if adopted as long-term strategy.RETRENCHMENT STRATEGY The third type of corporate strategy that a top-level management may formulate is the retrenchment strategy. This is the strategy to be adopted when a company experiences poor competitive position and operating performance and competitive disadvantage. The most common retrenchment strategies include the following: 1. Turnaround strategy 2. Captive company strategy 3. Sell-out or divestment strategy 4. Bankruptcy or liquidation strategy Turnaround Strategy The turnaround strategy is adopted when a company is not yet critically bleeding financially. A company intends to improve its operational efficiency by adopting drastic actions for a leaner organization. It undergoes two basic phases-contraction and consolidation. In contraction, being the initial stage of this strategy, there is an overall cost reduction in the entire company. Businesses that do not appear profitable are divested, processing plants are closed and jobs across the company are eliminated to have a strong lean business. In the consolidation stage, resources are consolidated, programs are developed, and the remaining best and qualifies personnel are motivated to establish a new look and a strong company that can achieve competitive advantage in an industry. Scanned with CamScanner Chapter 7 | Corporate Level Strategy 85 Captive Company Strategy The captive company strateg pany strategy is adopted by a company that has a weak competitive position in an industry and does not have the capability to implement a complete turnaround strategy. In this strategy, a weak company becomes the captive of a strong company, which is usually its customers, in order to have continued existence. This means that the majority of the sales of the weak company is dependent on the strong company, which is conducted through long-term contracts. It is inevitable for the weak company to lose its corporate independence in exchange for financial security