TYPOLOGY OF ALTERNATIVE STRATEGIES 1 : THE CORPORATE LEVEL 18 OCT 2017

BISMILLAHIRAHMANIRAHIM...... 18 OCT 2017 created by fatihah

Corporate level strategy is concerned with the strategic decisions a business makes that affect the entire organization. Financial performance, mergers and acquisitions, human resource management and the allocation of resources are considered part of corporate level strategy. There are three types of corporate level strategy that a business can employ.

Value-Creating Strategy

A value-creating strategy is one in which the business seeks to edge out its competitors by gaining more market share. These strategies seek to add real and perceived value to the business' products and services by exploiting economies of scope -- the resources and capabilities of the business that can be shared across the entire organization to reduce costs and increase efficiency. A key idea behind value-creating strategy is diversification: offering more products to more consumers within the market in an attempt to dominate all of part of the overall market share.

Value-Neutral Strategy

A business can employ a value-neutral strategy when the organization isn't so much concerned with allocating resources and manpower as it is with securing its current place within the market. In essence, value-neutral strategy helps shore up the business' operations plan. Initiating regulatory oversight, creating synergy between departments, working to reduce risk and securing a steady cash flow are value-neutral approaches.

Value-Reducing Strategy

Businesses also sometimes engage in value-reducing strategies. This happens on an organization-wide level when the stakeholders or customers perceive that the business is getting too big for its britches or that only the top-level executives are benefiting from diversification. In this case, value-reducing strategy refocuses the business' market, helps it define a target demographic and puts mechanisms in place to prevent unnecessary or harmful growth.

Deciding on a Strategy

While it sometimes is evident which type of corporate level strategy an organization should adopt, it is less clear at other times, particularly when the market is unsteady or the business cannot afford to waste resources trying new products and services that may not be profitable. Asking yourself a few strategy-level questions can help in the decision: Does my company feel threatened by competitors? If so, value-creating strategy is the right direction. Does my business need to tighten its resources and monitor its finances more closely? Focus on value-neutral strategy. Are just a select few people benefiting from the organization's success? Consider value-reducing strategy.

Business-Level Strategies

1. Cost Leadership – Organizations compete for a wide customer based on price. Price is based on internal efficiency in order to have a margin that will sustain above average returns and cost to the customer so that customers will purchase your product/service. Works well when product/service is standardized, can have generic goods that are acceptable to many customers, and can offer the lowest price. Continuous efforts to lower costs relative to competitors is necessary in order to successfully be a cost leader. This can include:

• Building state of art efficient facilities (may make it costly for competition to imitate)
• Maintain tight control over production and overhead costs
• Minimize cost of sales, R&D, and service.

Porter's 5 Forces Model 

Earlier we discussed Porter's Model. A cost leadership strategy may help to remain profitable even with: rivalry, new entrants, suppliers' power, substitute products, and buyers' power.

• Rivalry – Competitors are likely to avoid a price war, since the low cost firm will continue to earn profits after competitors compete away their profits (Airlines).
• Customers – Powerful customers that force firms to produce goods/service at lower profits may exit the market rather than earn below average profits leaving the low cost organization in a monopoly positions. Buyers then loose much of their buying power.
• Suppliers – Cost leaders are able to absorb greater price increases before it must raise price to customers.
• Entrants – Low cost leaders create barriers to market entry through its continuous focus on efficiency and reducing costs.
• Substitutes – Low cost leaders are more likely to lower costs to entice customers to stay with their product, invest to develop substitutes, purchase patents

18 OCT 2017 created by fatihah.