Tuesday, July 26, 2011

Choosing Your Business Directional (Grand) Strategy – GEC Business Review

by Kelvin Wong

Every corporation must decide its intention and orientation towards growth by asking three fundamental questions:

1. Should we expand, cut back, or continue our businesses unchanged?
2. Should we concentrate our activities within our industry boundaries or should we diversify into other lines of business?
3. If we want to grow and expand nationally or internationally, should we do so via self-development or through external acquisition, mergers, or strategic alliances?

Wheelen and Hunger (2004) pointed out that executives at the corporate level normally choose a directional strategy from three general directional orientations, often called grand strategies:

• Growth strategies expand the corporation’s activities
• Stability strategies make no change to the existing activities
• Retrenchment strategies reduce the corporation’s level of activities.

Having chosen the general directional orientation of the corporation (growth, for example), strategic managers can then consider one or more specific sub-strategies such as concentration or diversification. They might decide to concentrate their efforts on one product line or one industry, or diversify into other market segments or even different industries. Such decisions should be based on a high degree of objectivity rather than subjectivity. Jackson (2008) noted that a successful growth strategy requires careful preparation to identify attractive markets/industries and new sources of competitive advantage. Porter (2008) pointed out that it is a common mistake to assume that fast-growing industries are always attractive.

Growth sometimes tends to mute rivalry because an expanding pie offers opportunities for all competitors. A high growth rate with low entry barriers will draw in new entrants. Even without new entrants, a high growth rate will not guarantee profitability if customers are powerful or substitutes are attractive. Porter (2008) stressed that a narrow focus on growth is one of the major causes of bad strategic decisions.


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