CHAPTER FOUR: STRATEGY FORMULATION

4. INTRODUCTION
The Nature of Strategy Analysis and Choice:
Strategy analysis and choice seeks to determine alternative courses of action that could best
enable the firm to achieve its mission and objectives. The firm’s present strategies, objectives, and
mission, coupled with the external and internal audit information, provide a basis for generating
and evaluating feasible alternative strategies.

Unless a desperate situation faces the firm, alternative strategies will likely represent incremental
steps to move the firm from its present position to a desired future position. Alternative strategies
do not come out of the wild blue yonder; they are derived from the firm’s mission, objectives,
external audit, and internal audit; they are consistent with, or build up on, past strategies that have
worked well.

Strategists never consider all feasible alternatives that could benefit the firm, because there are an
infinite number of possible actions and an infinite number of ways to implement those actions.
Therefore, a manageable set of the most attractive alternative strategies must be developed. The
advantages and disadvantages, trade-offs, costs, and benefits of these strategies should be
determined.

Identifying and evaluating alternative strategies should involve many of the managers and
employees who earlier assembled the organizational mission statement, performed the external
audit, and conducted the internal audit.

Formulation of Corporate Strategy

Corporate level strategies are basically about the choice of direction that a firm
adopts in order to achieve its objectives. Corporate level strategies are basically about
decisions related to allocating resources among the different businesses of a firm, transferring
resources from one set of businesses to others, and managing and nurturing a portfolio of
businesses in such a way that the overall corporate objectives are achieved. An analysis based on
business definition provides a set of strategic alternatives that an organization can consider.
A Comprehensive Strategy-Formulation Framework
Important strategy-formulation techniques can be integrated into a three-stage decision-making
framework, as shown below. The tools presented in this framework are applicable to all sizes and
types of organizations and can help strategists identify, evaluate, and select strategies.
1|
Stage-1 (Formulation Framework): called the input stage.
1. External factor evaluation
2. Competitive matrix profile
3. Internal factor evaluation
Stage 1 summarizes the basic input information needed to formulate strategies. The input tools
require strategists to quantify subjectivity during early stages of the strategy-formulation process.
Stage-2 (Matching stage)
Strategy is sometimes defined as the match an organization makes between its internal resources
and skills and the opportunities and threats created by external factors. The matching stage of the
strategy formulation framework consists of five techniques that can be used in any sequence: the
TOWS matrix, the SPACE matrix, the BCG matrix, the IE matrix, and the Grand Strategy Matrix.
The tools rely upon the information derived from the input stage to match external opportunities and
threats with internal strengths and weaknesses. Matching external and internal critical success
factors is the key to effectively generate feasible alternative strategies.
1. TOWS Matrix (Threats-Opportunities-Weaknesses-Strengths)
2. SPACE Matrix (Strategic Position and Action Evaluation)
3. BCG Matrix (Boston Consulting Group)
4. IE Matrix (Internal and external)
5. GS Matrix (Grand Strategy)
Stage 2, called the Matching Stage, focuses upon generating feasible alternative strategies by
aligning key external and internal factors. These tools rely up on information derived from the input
stage to match external opportunities and threats with internal strengths and weaknesses.
1. The Threats-Opportunities-Weaknesses-Strengths (TOWS)
It is also named as SWOT analysis. A TWOS Analysis is a strategic planning tool used to
evaluate the Threats, Opportunities and Strengths, Weaknesses, involved in a project or in a
business venture or in any other situation requiring a decision.
This is an important tool in order to formulate strategy. This Matrix is an important matching
tool that helps managers develops four types of strategies: SO Strategies (strength-
opportunities), WO Strategies (weakness- opportunities), ST Strategies (strength-threats), and
WT Strategies (weakness-threats). The most difficult part of TOWS matrix is to match internal
and external factor.

2|
 Once the objective has been identified, TOWS are discovered and listed. TOWS are defined
precisely as follows:
Strengths are attributes of the organization that are helpful to the achievement of the objective.
Weaknesses are attributes of the organization that are harmful to the achievement of the
objective.
Opportunities are external conditions that are helpful to the achievement of the objective.
Threats are external conditions that are harmful to the achievement of the objective.
Strengths and weaknesses are internal factors. For example, strength could be your specialist
marketing expertise. A weakness could be the lack of a new product.
Opportunities and threats are external factors. For example, an opportunity could be a
developing distribution channel such as the Internet, or changing consumer lifestyles that
potentially increase demand for a company's products. A threat could be a new competitor in an
important existing market or a technological change that makes existing products potentially
obsolete. It is worth pointing out that SWOT analysis can be very subjective - two people rarely
come-up with the same version of a SWOT analysis even when given the same information
about the same business and its environment. Accordingly, SWOT analysis is best used as a
guide and not a prescription. Adding and weighting criteria to each factor increases the validity
of the analysis.
 SO Strategies: Every firm desires to obtain benefit from its resources such benefit
can only be obtained if utilize its strength to take external opportunity. Resources (Assets) an
important firm’s strength to get opportunity for external resources. For example the firm
enjoying a good financial position which is strength for a firm and externally opportunity to
expand business. The strong financial position provides an opportunity to expand the
business. The matched strategy is known as SO strategy.
 WO Strategies: WO Strategies developed to match weakness with opportunities of
the firm. WO strategy is very useful if the firm take advantage to external resources in order
to overcome the weakness. For example the firm is in the critical financial problems that is
weakness and firm is availing merger with Multinational Corporation.
 ST Strategies: ST Strategies is an important strategy to overcome external threats.
This does not mean that a strong organization should always meet threats in the external
environment head-on. This strategy is adopted by various colleges by opening new branches

3|
 in order to overcome competitive threat. These threats also explain by the Porter in its
competitive model.
 WT Strategies: Every firm has a desire to overcome its weakness and reducing
threats. This type of strategy is helpful when weaknesses are removed to overcome external
threats. It is difficult to target WT strategy. For example weak distribution network creating
many problems for the firm if it strong many external threats can be removed.
2. The Strategic Position and Action Evaluation (SPACE)
It explains that what is our strategic position and what possible action can be taken. This follows
counter clock wise direction. It contains four-quadrant named aggressive, conservative, defensive,
or competitive strategies. The axes of the SPACE Matrix represent two internal dimensions
financial strength [FS] and competitive advantage [CA]) and two external dimensions
(environmental stability [ES] and industry strength [IS]). These four factors are the most important
determinants of an organization's overall strategic position.
FS
Conservative Aggressive
CA IS
Defensive Competitive
ES
Figure 4.1 the SPACE Matrix
These dimensions are explained below:

Internal Strategic Position External Strategic Position

Financial Strength (FS) Environmental Stability (ES)
Risk involved in business Impact of technology
Debt to equity ratio Price elasticity of demand
Working capital condition Political situation
Leverage Demand variability
Liquidity Price range of competing products
Ease of exit from market Rate of inflation
Cash flow statement Competitive pressure
Return on investment

4|
Competitive Advantage (CA) Industry Strength (IS)
Access to the market Demand and supply factors
Market share Resource utilization
Quality of product and services Growth potential
Product life cycle Profit potential
Customer loyalty Financial stability
Capacity, location and layout Technological know-how
Technological know-how Productivity, capacity utilization
Backward and forward integration Capital intensity
Ease of entry into market

3. The Boston Consulting Group Box ("BCG Box")

Using the BCG Box (an example is illustrated above) a company classifies all its SBU's according
to two dimensions:
On the horizontal axis: relative market share- this serves as a measure of SBU strength in the
market.
On the vertical axis: market growth rate- this provides a measure of market attractiveness.
By dividing the matrix into four areas, four types of SBU can be distinguished:

5|
Figure 4.2 the Boston Consulting Group Box
Stars - Stars are high growth businesses or products competing in markets where they are relatively
strong compared with the competition. Often they need heavy investment to sustain their growth.
Eventually their growth will slow and, assuming they maintain their relative market share, will
become cash cows.
F High relative market share and high growth rate.
F Best long-run opportunities for growth & profitability.
F Integration strategies, intensive strategies, joint ventures.
F Substantial investment to maintain or strengthen dominant position.
Cash Cows- Cash cows are low-growth businesses or products with a relatively high market share.
These are mature, successful businesses with relatively little need for investment. They need to be
managed for continued profit - so that they continue to generate the strong cash flows that the
company needs for its Stars.
 High relative market share, competes in low-growth industry
 Generate cash in excess of their needs
 Milked for other purposes
 Maintain strong position as long as possible
 Product development, concentric diversification
 If weakens—retrenchment or divestiture
Question marks- Question marks are businesses or products with low market share but which
operate in higher growth markets. This suggests that they have potential, but may require substantial
investment in order to grow market share at the expense of more powerful competitors.
Management have to think hard about "question marks" - which ones should they invest in? Which
ones should they allow to fail or shrink?
 Low relative market share – compete in high-growth industry
 Cash needs are high
 Case generation is low
 Decision to strengthen (intensive strategies) or divest
Dogs- Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share
in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are
rarely, if ever, worth investing in.
 Low relative market share & compete in slow or no market growth

6|
  Weak internal & external position
 Liquidation, divestiture, retrenchment

Using the BCG Box to determine strategy

Once a company has classified its SBU's, it must decide what to do with them. In the diagram
above, the company has one large cash cow (the size of the circle is proportional to the SBU's
sales), a large dog and two, smaller stars and question marks. Conventional strategic thinking
suggests there are four possible strategies for each SBU:
 Build Share here the company can invest to increase market share (for example turning a
“question mark" into a star).
 Hold here the company invests just enough to keep the SBU in its present position.
 Harvest here the company reduces the amount of investment in order to maximize the
term cash flows and profits from the SBU. This may have the effect of turning Stars into
Cash Cows.
 Divest: the company can divest the SBU by phasing it out or selling it - in order to use
the resources elsewhere (e.g. investing in the more promising "question marks").
4. The Internal-External (IE) Matrix
It relates to internal (IFE) and external factor evaluation (EFE). The findings from internal and
external position and weighted score plot on it. It contains nine cells.
Its characteristics are as follows:
Positions an organization’s various divisions in a nine-cell display.
 Similar to BCG Matrix except the IE Matrix:
 Requires more information about the divisions
 Strategic implications of each matrix are different
 Based on two key dimensions
 The IFE total weighted scores on the x-axis
 The EFE total weighted scores on the y-axis
 Divided into three major regions
 Grow and build – Cells I, II, or IV
 Hold and maintain – Cells III, V, or VII
 Harvest or divest – Cells VI, VIII, or IX
The IFE total weighted scores

7|
 Figure 4.3 the internal-external (IE) matrix
Steps for the development of IE matrix
1. Based on two key dimensions IFE and EFE.
2. Plot IFE total weighted scores on the x-axis and the EFE total weighted scores on the y axis.
3. On the x-axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents a weak
internal position; a score of 2.0 to 2.99 is considered average; and a score of 3.0 to 4.0 is
strong.
4. On the y-axis, an EFE total weighted score of 1.0 to 1.99 is considered low; a score of 2.0 to
2.99 is medium; and a score of 3.0 to 4.0 is high.
5. IE Matrix divided into three major regions.
Grow and build – Cells I, II, or IV
Hold and maintain – Cells III, V, or VII
Harvest or divest – Cells VI, VIII, or IX
5. Grand Strategy Matrix
It is popular tool for formulating alternative strategies. In this matrix all organization divides into
four quadrants. Any organization should be placed in any one of four quadrants. Appropriate
strategies for an organization to consider are listed in sequential order of attractiveness in each
quadrant of the matrix.
It is based on two major dimensions:
1. Market growth

8|
 2. Competitive position
All quadrant contain all possible strategies

RAPID MARKET GROWTH

Quadrant II Quadrant I
Market development Market development
Market penetration Market penetration
Product development Product development
Horizontal integration
Forward integration
Divestiture Backward integration
Liquidation Horizontal integration
Concentric diversification
WEAK COMPETITIVE STRONG
POSITION COMPETITIVE POSITION
Quadrant III Quadrant IV
Retrenchment Concentric diversification
Concentric diversification Horizontal diversification
Horizontal diversification Conglomerate diversification
Conglomerate diversification Conglomerate diversification
Liquidation

SLOW MARKET GROWTH

Figure 4.4 the Grand Strategy Matrix
Quadrant-1 contains that company’s strong having competitive situation and rapid market growth.
Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position.
These firms must focus on current market and appropriate to follow market penetration, market
development and products development are appropriate strategies.
Quadrant-2 contains that company’s having weak competitive situation and rapid market growth.
Firms positioned in Quadrant II need to evaluate their present approach to the marketplace

9|
seriously. Although their industry is growing, they are unable to compete effectively, and they need
to determine why the firm's current approach is ineffectual and how the company can best change
to improve its competitiveness. Because Quadrant II firms are in a rapid-market-growth industry, an
intensive strategy (as opposed to integrative or diversification) is usually the first option that should
be considered.
Quadrant-3 contains that company’s weak competitive situation and slow market growth. The
firms fall in this quadrant compete in slow-growth industries and have weak competitive positions.
These firms must make some drastic changes quickly to avoid further demise and possible
liquidation. Extensive cost and asset reduction (retrenchment) should be pursued first. An
alternative strategy is to shift resources away from the current business into different areas. If all
else fails, the final options for Quadrant III businesses are divestiture or liquidation.
Quadrant-4 contains that company’s strong competitive situation and slow market growth. Finally,
Quadrant IV businesses have a strong competitive position but are in a slow-growth industry. These
firms have the strength to launch diversified programs into more promising growth areas. Quadrant
IV firms have characteristically high cash flow levels and limited internal growth needs and often
can pursue concentric, horizontal, or conglomerate diversification successfully. Quadrant IV firms
also may pursue joint ventures.
Stage-3 (Decision stage)
1. QSPM (Quantitative Strategic Planning Matrix)
Stage 3, called the Decision Stage, and involves a single technique, the Quantitative Strategic
Planning Matrix (QSPM). A QSPM uses input information from Stage 1 to objectively evaluate
feasible alternative strategies identified in Stage 2. A QSPM reveals the relative attractiveness of
alternative strategies and, thus, provides an objective basis for selecting specific strategies.
All nine techniques included in the strategy-formulation framework require integration of intuition
and analysis. Autonomous divisions in an organization commonly use strategy formulation
techniques to develop strategies and objectives. Divisional analyses provide a basis for identifying,
evaluating, and selecting among alternative corporate-level strategies.
Strategists themselves, not analytic tools, are always responsible and accountable for strategic
decisions. Lenz emphasized that the shift from a words-oriented to a numbers-oriented planning
process can give rise to a false sense of certainty; it can reduce dialogue, discussion, and argument
as a means to explore understandings, test assumptions and foster organizational learning.

10 |
Strategists, therefore, must be wary of this possibility and use analytical tools to facilitate, rather
than diminish, communication. Without objective information and analysis, personal biases,
politics, emotions, personalities, and halo error (the tendency to put too much weight on a single
factor) unfortunately may play a dominant role in the strategy-formulation process.
Preparation of matrix
Now the question is that how to prepare QSPM matrix. First it contains key internal and external
factors. An internal factor contains (strength and weakness) and external factor include
(opportunities and threats). It relates to previously IFE and EFE in which weight to all factors.
Weight means importance to internal and external factor. The sum of weight must be equal to one.
After assigning the weights examine stage-2 matrices and identify alternatives strategies that the
organization should consider implementing. The top row of a QSPM consists of alternative
strategies derived from the TOWS Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and
Grand Strategy Matrix. These matching tools usually generate similar feasible alternatives.
However, not every strategy suggested by the matching techniques has to be evaluated in a QSPM.
Strategists should use good intuitive judgment in selecting strategies to include in a QSPM. After
assigning the weight to strategy, determine the attractiveness score of each and afterwards total
attractiveness score. The highest total attractiveness score strategy is most feasible.
Steps in preparation of QSPM:
1. List of the firm's key external opportunities/threats and internal strengths/weaknesses in the
left column of the QSPM.
2. Assign weights to each key external and internal factor.
3. Examine the Stage 2 (matching) matrices and identify alternative strategies that the
organization should consider implementing.
4. Determine the Attractiveness Scores (AS).
5. Compute the Total Attractiveness Scores.
6. Compute the Sum Total Attractiveness Score.
Limitations:
1. Requires intuitive judgments and educated assumptions.
2. Only as good as the prerequisite inputs.
3. Only strategies within a given set are evaluated relative to each other.
Advantages:
1. Sets of strategies considered simultaneously or sequentially.

11 |
 2. Integration of pertinent external and internal factors in the decision making process.
Formulation of Generic competitive strategy
 Michael Porter’s generic strategies
According to porter, strategies allow organizations to gain competitive advantage from three
different bases: cost leadership, differentiation, and focus. Porter calls these bases generic
strategies.

F Cost leadership emphasizes producing standardized products at very low per-unit cost for
consumers who are price sensitive.
F Differentiation is a strategy aimed at producing products and services considered unique
industry wide and directed at consumers who are relatively price insensitive.
F Focus means producing products and services that fulfil the needs of small groups of
consumers.

Porter strategies imply different organizational arrangements, control procedures, and incentive
systems. Larger firms with greater access to resources typically compete on a cost leadership
and/or differentiation basis; whereas smaller firms often compete on a focus basis. Porter stresses
the need for strategists to perform cost-benefit analysis to evaluate “sharing opportunities” among
firm’s business units. He also stresses the need for firms to “transfer” skills and expertise among
autonomous business units effectively in order to gain competitive advantage.

COST LEADERSHIP STRATEGIES

The aim of this strategy is to operate the business in highly cost effective manner and open up a
sustainable cost advantage over rivals. Successful low-cost leaders are exceptionally good at
finding ways to drive costs out of their business. A primary reason for pursuing forward,
backward, and horizontal integration strategies is to gain cost leadership benefits. But cost
leadership generally must be pursued in conjunction with differentiation. It is appealing to a broad
spectrum of customers based on being the overall low cost provider of a product or service. A
number of cost elements affect the relative attractiveness of generic strategies includes economies
or diseconomies of scale achieved, learning and experience curve effects, the percentage of
capacity utilization achieved, linkage with suppliers and distributors, the potential for sharing
costs and knowledge, labor costs, tax rates, energy costs, and shipping costs.

Striving to be low cost leader is effective when the market is comprised of many price-sensitive
buyers, when there are few ways to achieve product differentiation, when buyers do not care
12 |
much about differences from brand to brand, or when there are a large number of buyers with
significant bargaining power. The basic idea is to under-price competitors and thereby gains
market share and sales, driving some competitors out of the market.

A successful cost leadership strategy usually permeates the entire firm, as evidenced by high
efficiency, low overhead, limited perks, intolerance of waste, intensive screening of budget
requests, wide span of control, reward linked to cost containment, and broad employee
participation in cost control efforts.
The Some risks of pursuing cost leadership are:-
 Competitors may imitate the strategy.
 Technological breakthrough may make the strategy ineffective.
 Buyer may swing to other differentiation feature besides price.
DIFFERENTIATION STRATEGIES
The essence of a differentiation strategy is to be unique in ways that are valuable to customers and
that can be sustained. Successful differentiation can mean greater product flexibility, greater
compatibility, lower costs, improved service, less maintenance, greater convenience, or more
features. Differentiation does not guarantee competitive advantage, especially if standard products
sufficiently meet customer needs or if rapid imitation by competitors is possible. A differentiation
strategy should be pursued only after careful study of buyers’ needs and preferences. A successful
differentiation strategy allows a firm to charge a higher price for its product and to gain customers
loyalty since customers may become strongly attached to the differentiation features. Features
include superior service, spare parts availability, engineering design, product performance, useful
life, or ease of use. Common organizational requirements for a successful differentiation strategy
include strong coordination among the R&D (Research and Development) and marketing
functions and substantial amenities to attract scientists and creative people.

Some of the risks of this strategy are:-

 Unique product may not value by customer to justify the higher price.
 Competitors may develop ways to quickly copy the differentiating feature.
FOCUS STRATEGY
This strategy focuses on concentrating attention on a narrow piece of the total market. A
successful focus strategy depends upon an industry segment that is of sufficient size, has good
growth potential, and is not crucial to the success of other major competitors. Midsize and large

13 |
firms can effectively pursue focus based strategies only in conjunction with differentiation or cost
leadership-based strategies. All firms follow a differentiated strategy. This strategy is effective
when consumers have distinctive preferences or requirements and when rival firms are not
attempting to specialize in the same target segment. A focus strategy may concentrate on a
particular group of customers, geographic markets, or product line segments in order to serve a
well-defined narrow market. A focuser’s basis for competitive advantage is either (1) lower costs
than competitors in serving the market niche or (2) an ability to offer niche members something
they perceive is better.

This strategy is effective when:

 The target market niche is big enough to be profitable.
 The niche has good growth potential.
 The niche is not crucial to the success of competitors.
 The focusing firm has the capabilities and resources to serve the niche.
 The focuser can defend itself against challengers.
The risk of this strategy includes:-
Numerous competitors recognize the successful focus strategy and copy the strategy.
Consumer preferences drift toward attributes desired by the market as a whole.
OFFENSIVE AND DEFENSIVE STRATEGY
STRATEGIES IN ACTION (TYPES OF STRATEGIES)
Alternative strategies that an enterprise could pursue can be categorized in to thirteen actions:
forward integration, backward integration, horizontal integration, market penetration, market
development, product development, concentric diversification, conglomerate diversification,
horizontal diversification, joint venture, retrenchment, divesture, liquidation, and a combination
strategy.
1. INTEGRATION STRATEGIES
a Forward Integration: involves gaining ownership or increased control over distributers or
retailers. An effective means of implementing forward integration is franchising. Business can
expand rapidly by franchising because costs and opportunities are spread among many
individuals. E.g. Coca-Cola continues to purchase domestic and foreign bottlers.
b Backward Integration: Both manufacturers and retailers purchase needed materials from
suppliers. Backward integration is a strategy of seeking ownership or increased control of a

14 |
 firm’s supplier. This strategy is can be especially appropriate when a firm’s current suppliers
are unreliable, too costly, or cannot meet the firm’s standard.
c Horizontal Integration: refers to a strategy of seeking ownership of or increased control over
a firm’s competitors. Mergers, acquisition, and takeovers among competitors allow for
increased economies of scale and enhanced transfer of resources and competencies.
Horizontal integration has become the most favoured growth strategy in many industries
2. INTENSIVE STRATEGIES
These types of strategies require intensive efforts to improve a firm’s competitive position with
existing products.

a Market Penetration: this strategy seeks to increase market share for present products or
service in present market through grater marketing efforts. It includes increasing the
number of sales persons, increasing advertising expenditures, offering extensive sales
promotions, or increasing publicity efforts.
b Market Development: involves introducing present products or services in to new
geographic areas. In many industries such as airlines, it is going to be hard to maintain a
competitive edge by staying close to home.
c Product development: is a strategy that seeks increased sales by improving or modifying
present products or services. It usually entails large research and development
expenditures.
3. DIVERSIFICATION STRATEGIES
There are three general types of diversification strategies: concentric, horizontal, and
conglomerate. However diversification strategies are becoming less and less popular as
organizations are finding it more and more difficult to manage diverse business activities.

a Concentric Diversification: adding new, but related, products or service is widely called
concentric diversification. E.g. entry of Bell Corporation, a telephone company, in to
video programming business.
b Horizontal diversification: adding new, unrelated products or service for present
customers is called horizontal diversification. This strategy is not as risky as conglomerate
diversification, because a firm should already be familiar with its present customers.
c Conglomerate Diversification: Adding new, unrelated products or services is called
conglomerate diversification. Some firms pursue this strategy based on an expectation of
15 |
 profits from breaking up acquired firms and selling divisions piecemeal. It is based on a
stand that there is some kind of anti-synergy, the whole being worth less that the parts.
4. DEFENSIVE STRATEGIES
a. Joint Venture: is a popular strategy that occurs when two or more companies form a
temporary partnership or consortium for the purpose of capitalizing on some opportunity.
This strategy can be considered defensive only because the firm is not undertaking the
project alone. Joint venture and cooperative arrangements are being used increasingly
because they allow companies to improve communications and networking, to globalize
operations and to minimize risk.
b. Retrenchment: occurs when an organization regroups through cost and asset reduction to
reverse declining sales and profits. It is sometimes called turnaround or reorganizational
strategy, retrenchment is designed to fortify an organization’s basic distinctive
competencies. This strategy entail selling off land and buildings to raise needed cash,
pruning product line, closing marginal business, closing obsolete factories, reducing number
of employees, and instituting expense control systems.
c. Divestiture: selling a division or part of an organization is called divestiture. It is used to
raise capital for further strategic acquisitions or investments. It can be part of an overall
retrenchment strategy to rid an organization of business that are unprofitable, that require
too much capital, or that do not fit well with the firm’s other activities.
d. Liquidation: selling all of a company’s assets, in parts, for their tangible worthies called
liquidation. Liquidation is recognition of defeat and consequently can be emotionally
difficult strategy.
e. Combination: many organizations pursue a combination of two or more strategies
simultaneously, but this strategy can be exceptionally risky if carried too far. No
organization can afford to pursue all the strategies that might benefit the firm. Organizations
cannot do too many things well because resources and talents get spread thin and
competitors gain advantage. In large diversified companies, a combination strategy is
commonly employed when different divisions pursue different strategies.

16 |