CA IPCC Strategic Management(SM) Syllabus has a total of seven chapters. The fourth chapter in SM is ‘Strategic Planning’. This is a very practical and conceptual chapter, as most of the questions are example based.
Michael Porter’s Generic Strategies
According to Micheal Porter theory, there are three strategies that a company can adopt which are explained as follows:
1. Cost Leadership Strategy: Here, Companies offers products that are targeted to consumers who are price sensitive. In this strategy, companies put so much emphasis on price, insisting customers to buy the product because it is cheap. For Eg: Tata Nano, Mircromax, Tide, Clinic Plus Rs.1 Sachets.
2. Differentiation Strategy: Companies offer unique products by charging premium prices on consumers
For eg: Apple, Mercedes Benz.
3. Focus Strategy: Companies focus on only a particular segment of a market, like a particular gender or age group etc.
For eg: jhonson & jhonson offering only baby care products, Ferrari targeting rich and influential customers only.
Igor Ansoff Matrix:
The great economist, Igor Ansoff has forumulated 4 Strategies for companies to chose from:
1. Market Penetration: Offer the same product in the same market, and tries to increase sales.
For eg: Colgate telling its consumers to brush their teeth twice a day. By this, a Colgate paste that is supposed to last for 30 days will now last for 15 days only, which means the sales will be doubled.
2. Product Development: Here, companies increase sales, by offering a new product in the same market. This new product may not be entirely new one. It can be an improvement of an existing one too.
For eg: As Colgate toothpaste sales has stopped increasing, they introduced a new products like Colgate Salt, Colgate Charcoal etc.
3. Market Development: Companies take their existing products to new markets. For eg: Mahindra has started selling their Scorpio cars in African countries.
4. Diversification: Here, companies enter into new market with a completely new product.
For eg: Samsung was originally a Noodles manufacturing company. Later they diversified into Electronics, Phones, Banking, Constructions etc.
Types of Mergers:
There are four types of Mergers or Diversification.
1. Horizontal: A company takes over its direct competitor. For example, A CA Coaching centre taking over another CA coaching centre.
2. Vertical: Here, a company takes over another company which is in its line of business (like a supplier). For example, A CA Coaching centre takes over a CA Book Shop business.
3. Concentric: A company takes over another company which is in some way related to its existing business. For eg., a CA Coaching centre takes over an UPSC coaching centre.
4. Conglomorate: Here, a company takes over business that is completely different from its existing business. For eg., A CA Coaching centre takes over a Restaurant.
A company which is in a bad position financially, implements this strategy. Some of the signs that a company needs a turnaround are Negative profits, Mismanagement, Declining market share.
Few of the companies in need of Turnaround strategy are Air India, Sony etc.