Levels of strategy
There are three levels of strategy we find particularly in every join stock company These three
levels are: Corporate-level strategy, Business-level strategy and Functional-level strategy.
Together, these three levels of strategy can be illustrated in a so called ‘Strategy Pyramid’
Corporate level strategy
At the corporate level, strategy is formulated for your organization as a whole. Corporate strategy
deals with decisions related to various business areas in which the firm operates and competes.
Corporate level strategy addresses the entire strategic scope of the firm. It is a “big picture” view
of the organization and includes deciding in which, product or service markets to compete and in
which, geographic regions to operate. For a multi-business firm, the resource allocation processhow cash, staffing, equipment and other resources are distributed – is established at the corporate
level.
Strategy formulation at this level involves integrating and managing the diverse businesses and
realizing synergy at the corporate level. The top management team is responsible for formulating the
corporate strategy. The corporate strategy reflects the path toward attaining the vision of your
organization. Corporate strategies are normally expected to help the firm earn above- average profits
and create value for the shareholders. Corporate strategy addresses the issues of a multi-business firm
as a whole. These include stability, growth and retrenchment.
For example, your firm may have four distinct lines of business operations, namely, automobiles, steel,
tea, and telecom. The corporate level strategy will outline whether the organization should compete in
or withdraw from each of these lines of businesses, and in which business unit, investments should be
increased, in line with the vision of your firm. Corporate-level strategy is an action taken to gain a
competitive advantage through the selection and management of combination of businesses competing
in several industries or product markets and Coco cola, Inc., has followed the growth strategy by
acquisition. It has acquired local bottling units to emerge as the market leader.
Types of corporate-level strategy
When you're constructing your company's corporate-level strategy, you're seeking the best ways
to evenly distribute resources to serve the needs of the company to complete planned objectives.
It can also help you come up with a contingency plan, you remain prepared to work under
unforeseen circumstances. Let's review the different types of corporate-level strategies that you
can employ:
1. Stability strategy
The Stability Strategy is adopted when the organization attempts to maintain its current position
and focuses only on the incremental improvement by merely changing one or more of its business
operations in the perspective of customer groups, customer functions and technology alternatives,
either individually or collectively.
For example, a consumer electronics company focuses on providing better after-sales services to
current customers and not on acquiring new customers.
Why any Company Adopts Stability Strategy?
Following are the reasons why a company may adopt a stability strategy:

If a firm plans to consolidate its position in the industry in which it is operating.

Suppose a country in which the company operates is facing a recession or slowdown. It
wants to save cash rather than spend it for expansion purposes.

If a company has significant debt or loans, then also it may pursue such a strategy rather
than going for expansion. Following such an approach would ensure that a company has
the cash to pay the interest and principal amount as well.

The industry in which the firm functions have hit maturity, and there is no more scope for
growth.

Another scenario is when the cost of expansion is more than the gains from it.

If the management is happy with the current market position and the level of profit
achieved.

Risk-averse management may also favor such a strategy.

A company can also choose this strategy post-merger. In such a case, this strategy allows
a smooth transition of the new entity before the company starts making significant changes.

This strategy could help a company take a rest following a fast growth in the past few years.
Such a tactic allows the company to consolidate the results and resources and plan its next
moves.

Family-owned businesses may decide to slow down in adverse market conditions. They do
this to avoid any loss of financial control.
Advantages and Disadvantages
Following are the advantages of a stability strategy:

Adopting this strategy does not disrupt the routine work.

This strategy is less-risky unless a company faces terrible conditions.

It allows the company to rethink its long-term strategies.
Following are the disadvantages of the stability strategy:

Such a strategy is not effective in the long run. In the long run, it could make the company
irrelevant or outdated.

There remains no incentive for any innovation.
2. Expansion strategy
The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth
as compared to its past achievements. In other words, when a firm aims to grow considerably by
broadening the scope of one of its business operations in the perspective of customer groups,
customer functions and technology alternatives, either individually or jointly, then it follows the
Expansion Strategy.
The reasons for the expansion could be survival, higher profits, increased prestige, economies of
scale, larger market share, social benefits, etc. The expansion strategy is adopted by those firms
who have managers with a high degree of achievement and recognition. Their aim is to grow,
irrespective of the risk and the hurdles coming in the way.
i.
Market Penetration Strategy
Market penetration refers to the percentage of the population that can access your business’s
products or services. If you are able to market your business to a specific market segment, you can
effectively increase the number of your customers or clients. One of the best ways to increase your
market penetration is to market to potential customers who are not yet committed consumers. You
can do this by launching local advertising campaigns. For example, if you are running a business
that provides pest control, you can launch a campaign where you offer free chemical treatments to
individuals who have pets. This will increase your market share because you are offering a service
that is in high demand in the market.
A good example of a brand that succeeded using market penetration is Facebook. When they
launched, they were available only to Harvard University students. Then, they expanded their
accessibility to Stanford, Yale, and Columbia. Gradually, they accommodated all Ivy League and
several schools in Boston, and then all colleges in the U.S. and Canada. Later they spread to
audiences beyond students.
ii.
Marketing and Promotion
You need to make sure that you have a solid marketing and promotional strategy in place in order
to maximize your market share. You can do this by creating strong customer loyalty to your
business. This can be achieved by attracting new customers through various means. One of the
best ways to do this is by creating a strong customer base.
By capturing a large number of new customers, you can expand your business faster because you
will have more new customers to spread your business name to. One of the most effective ways to
capture new customers is to create a website. A website is a great way to showcase the services
that your business offers and to create the image of a professional business. If you are planning to
expand abroad, you should also create a localized version of the website to have a better impact
on the local customers.
iii.
Expansion into A New Market
When a market becomes saturated with one type of product or service, there is a tendency for that
market to begin to dry up. If you take a look at traditional business expansion, you may have
noticed that many businesses have expanded into areas where they were previously unable to do
business. This may be due to limited local market penetration, lower capital costs, higher returns,
or a change in consumer preferences. Regardless of the cause of market saturation, you can use
new market expansion strategies to help your business thrive.
iv.
Expand Your Business Abroad
At some point, for businesses, the local market becomes saturated, and the only way to expand is
to go abroad. This is a step that many companies are afraid of because it comes with challenges,
but also many opportunities because you are able to sell your products or services to more users.
You should find local partners to manage part of your business operations and especially those
aspects, like HR and payroll, that can cause you to lose money and being non-compliant with the
local law. All aspects that can destroy your presence in the market.
In this specific situation, a PEO is the best solution for your business to outsource HR and payroll
abroad, so you do not have any risk with the local laws and regulations when hiring and managing
employees abroad.
v.
Start A Franchise
One of the best strategies for business expansion includes starting a franchise, which is a process
in which you open a business in a location where there is a need and people are willing to invest
money and energy into it. Franchises provide a controlled environment in which you can grow
your business without worrying about competitors.
vi.
Enter A Joint Venture or Acquisition Agreement
Another strategy that can help your business is to enter into a joint venture or acquisition agreement
with another business that has a larger market share. You can leverage your combined business’s
strengths and obtain access to resources and markets that you would not otherwise be able to do.
Your business’s success depends upon having the best strategies for business expansion. You want
to expand your business to the fullest extent possible so that you can serve a greater number of
consumers and provide better customer service.
The key is to make strategic decisions that will yield the greatest results. You may have an idea
for a business opportunity, but you should also consider expansion strategies that will allow you
to realize your dream.
Even if it seems like a business idea that you cannot afford, you may be surprised at how soon you
can afford it. Once you have started to expand, your business will continue to grow so you can
retire with some peace of mind.
3. Retrenchment strategy
Retrenchment is a corporate strategy that aims to decrease the scale of operations of the company.
It can also involve cutting down the expenditure of the company so that it becomes financially
viable. It can involve reducing the number of product lines or businesses, withdrawing from certain
geographical markets so that the company becomes financially sustainable.
The Retrenchment Strategy is adopted when an organization aims at reducing its one or more
business operations with the view to cut expenses and reach to a more stable financial position.
Reasons to Adopt Retrenchment Strategy
The reasons for adopting retrenchment strategy are as follows:
1. Poor Performance:
When the performance of the company is not satisfactory and it is incurring losses then it makes
sense to close down the business lines or centers which are not adding value and are acting as
performance laggards in the company.
2. Threat to Survival:
When the performance of the company is hampered by sudden activities in its product markets
then the company may often shut down some of its operation. Mar times such a strategy is also
forced by the company's shareholders.
3. Redeployment of Resources:
Sometimes excellent investment opportunities exist elsewhere and the company may be forced to
cut down its operations in the existing business and redeploy the resources released to more
productive areas.
4. Inadequate Resources:
The company may also be in the need of financial resources to sustain its existing market positions.
The company may not have the requisite funds for this and may be forced to hive off unproductive
areas of its business so that it may redeploy the resources.
5. For Securing Better Management and Improved Efficiency:
A company sometimes expands into too many areas. This affects its operational efficiency as it
becomes unmanageable. A strategy of retrenchment allows the company to become a manageable
size by simplifying its product portfolio.
Retrenchment Strategy Types
There are three types of Retrenchment Strategies:
i.
Turnaround
ii.
Divestment
iii.
Liquidation
1. Turnaround Strategy
A turnaround plan is a retrenchment strategy that reduces the harmful tendencies that affect the
performance of the business. It is a management strategy that has the potential to revive a failing
company. It reverses negative directions like declining market share, rising material costs, reduced
sales, a widening debt-to-equity ratio, lower profitability, working capital concerns, negative cash
flows, and numerous challenges. How businesses use this strategy differs depending on the
circumstances.
Dell Technologies declared in 2006 that it would employ a cost-cutting strategy by selling
products directly to customers. The direct sale was unsuccessful, and the corporation suffered a
significant financial loss. In 2007, Dell made a turnaround and abandoned its direct-sale strategy.
Dell is currently the second-largest retailer in the world for computers.
2. Divestment Strategy
A major firm that has accumulated several assets, product divisions, and departments; examine the
profitability of various divisions and departments. You release them if they aren't producing the
expected results. Put another way; a divestment strategy sells a section of your company, an asset,
or a division. Companies use a disposal plan after a failed turnaround strategy.
Diversification is a technique that businesses and companies use for a variety of reasons, including
merger plans, resource creation, the existence of multiple investment plans, technology upgrades,
enduring problems, mismatched assets, and negative cash flows. When a company divests, it scales
back operations or sells a division to concentrate on its core challenges and utilises the proceeds
to expand that division's business. Keep in mind that liquidation is not the same as divestment. In
a divestiture, a company sells a non-strategic business. It receives cash for strategic investments
in its core business, as opposed to a liquidation, where a company sells its unit and shuts the door.
3. Liquidation Strategy
The organization’s most disagreeable option is the liquidation approach, which entails selling off
its resources and ceasing all commercial operations altogether. It is the most important and final
option before retrenchment strategy because it has major negative effects, including a sense of
despair, lost possibilities in the future, a damaged reputation in the market, employee job loss, etc.
Because there may not be any purchasers, the company using the liquidation approach may have
trouble selling its assets and may not receive enough money for most of them.
The extreme level of the retrenchment strategy is the liquidation approach, in which you
permanently close your company and sell all of your resources. Because it might have negative
effects, liquidation is the last resort for any firm with issues. Most small enterprises close their
doors, and creditors, suppliers, financial institutions, trade unions, and government agencies are
large businesses that don't go out of business.
4. Combination strategy
The Combination Strategy means making the use of other grand strategies (stability, expansion or
retrenchment) simultaneously. Simply, the combination of any grand strategy used by an
organization in different businesses at the same time or in the same business at different times with
an aim to improve its efficiency is called as a combination strategy.
Such strategy is followed when an organization is large and complex and consists of several
businesses that lie in different industries, serving different purposes. Go through the following
example to have a better understanding of the combination strategy:
A baby diaper manufacturing company augments its offering of diapers for the babies to have a
wide range of its products (Stability) and at the same time, it also manufactures the diapers for old
age people, thereby covering the other market segment (Expansion). In order to focus more on the
diapers division, the company plans to shut down its baby wipes division and allocate its resources
to the most profitable division (Retrenchment).
In the above example, the company is following all the three grand strategies with the objective of
improving its performance. The strategist has to be very careful while selecting the combination
strategy because it includes the scrutiny of the environment and the challenges each business
operation faces. The Combination strategy can be followed either simultaneously or in the
sequence.