Principal Grand Strategies: Types, Features and Examples

Grand Strategies

Grand strategies, often referred to as master strategies or business strategies, provide the basic direction for a firm's strategic actions. They indicate the time period over which an organization’s long-term objectives are to be achieved. Firms operating in multiple industries, businesses, product lines, or customer groups generally combine several grand strategies. However, any one of these strategies may also serve as the basis for achieving the major long-term objectives of a single firm.

Grand strategies are the basis for coordinated and sustained efforts directed toward the achievement of long-term business objectives. They can therefore be defined as a comprehensive and general approach that guides a firm's major strategic actions.

Managers can use various tools and techniques, such as the Grand Strategy Selection Matrix, Grand Strategy Clusters, and Matched-Pair Analysis, to select and design appropriate strategies for achieving long-term objectives.

Four Alternatives of Grand Strategies

The four major alternatives of grand strategies are:

1. Stability Strategy

A stability strategy aims to maintain the organization at its existing size or achieve growth slowly and in a controlled manner. Under this strategy, the firm continues to operate in its existing business areas without making major changes to its products, markets, or operations.

2. Growth Strategy

A growth strategy focuses on expanding the size, operations, markets, products, or overall business activities of an organization. Growth strategies can be broadly classified into:

• Internal Growth: This involves expansion through the organization's own resources and capabilities. It may include the development of new or modified products, expansion of existing operations, or entry into new markets.
• External Growth: This generally involves expansion through diversification, mergers, acquisitions, joint ventures, or strategic alliances. Diversification may involve entering businesses related to the firm's existing product lines or moving into completely new areas.

3. Combination Strategy

A combination strategy involves the deliberate use of different strategies for different business units or divisions at the same time. It may also involve the sequential use of different strategies over a period of time.

For example, a firm may pursue a growth strategy in one business unit, a stability strategy in another, and a retrenchment strategy in a third unit, depending on their individual circumstances and objectives.

4. Retrenchment Strategy

A retrenchment strategy is adopted when an organization faces declining performance or unfavorable business conditions. Under this strategy, the organization goes through a period of planned or forced decline by reducing the size of existing business units, selling off businesses, or liquidating entire business operations.

Quick Summary 

Thus, grand strategies provide an overall framework for directing an organization’s major strategic actions and achieving its long-term objectives. The appropriate grand strategy depends on the firm's current position, resources, competitive environment, and future objectives. By selecting an appropriate combination of stability, growth, combination, and retrenchment strategies, organizations can coordinate their efforts and pursue sustainable long-term success.

Grand Strategy Cluster

The Grand Strategy Cluster is a strategic planning tool used to help organizations identify appropriate grand strategies based on their market growth rate and competitive position.

The model is based on the idea that a firm's strategic situation can be assessed by considering two important factors simultaneously:

1. Growth rate of the general market
2. The firm's competitive position in that market

When these two factors are considered together, a business can be broadly classified into four quadrants:

Four Quadrants of the Grand Strategy Cluster

1. Strong Competitive Position in a Rapidly Growing Market
   Firms in this quadrant are in a favorable strategic position and can pursue strategies such as market development, product development, market penetration, and related diversification.
2. Weak Competitive Position in a Rapidly Growing Market
   Firms in this quadrant operate in attractive and growing markets but have a relatively weak competitive position. They may consider strategies such as market development, product development, or diversification to strengthen their position.
3. Weak Competitive Position in a Slow-Growing Market
   Firms in this quadrant face both a weak competitive position and a low-growth market. They may consider retrenchment, divestiture, or liquidation to improve their overall performance.
4. Strong Competitive Position in a Slow-Growing Market
   Firms in this quadrant have a strong competitive position but operate in relatively slow-growing markets. They may pursue strategies such as concentration, product development, diversification, or maintaining their existing position.

Thus, the Grand Strategy Cluster helps managers identify the strategic position of a business and select suitable grand strategies according to its market growth rate and competitive strength.

Grand Strategy Selection Matrix

The Grand Strategy Selection Matrix is a strategic management tool used to help managers select an appropriate grand strategy for achieving the organization’s long-term objectives.

The basic idea underlying the matrix is that two key variables are of central concern in the strategy selection process:

1. The principal purpose of the grand strategy
   This refers to the primary objective that the organization seeks to achieve through its grand strategy, such as growth, stability, profitability, or improving its competitive position.
2. The choice between internal and external emphasis
   This refers to whether the organization seeks to achieve growth or profitability through internal means—such as developing existing resources, products, and capabilities—or through external means, such as mergers, acquisitions, strategic alliances, diversification, or joint ventures.

By considering these two variables together, managers can identify and select the most suitable grand strategy for the organization’s current situation and long-term objectives.

Principal Grand Strategies

The principal grand strategies represent the major strategic alternatives available to an organization for achieving its long-term objectives. The important grand strategies are discussed below.

1. Concentrated Growth Strategy

A concentrated growth strategy involves focusing on increasing the firm's market share in existing markets. It is also referred to as a concentration or market-dominance strategy.

In a stable environment where demand is growing, concentrated growth is generally considered a low-risk strategy. Concentration may be achieved by:

• Increasing the rate of product usage among existing customers.
• Attracting customers from competitors.
• Attracting non-users or new customers.

Example:
XYZ Company's market analysis shows that declining sales are driven by negative publicity, perceptions of poor customer service, and concerns about price compared with the value of its services, particularly because of the availability of do-it-yourself alternatives. To increase market share, the company may address quality, price, and value issues, discontinue products perceived as unsafe by the public or environmental authorities, and improve the quality of its workforce.

 

2. Market Development Strategy

A market development strategy involves selling existing products or services in new markets. Managers may implement this strategy through:

• Targeted promotional campaigns.
• Opening new sales offices.
• Entering new geographical markets.
• Creating strategic alliances.

Example:
DuPont used market development when it identified a new application for Kevlar, an organic material originally used primarily by police, security, and military personnel for bulletproofing. Kevlar was subsequently used in the refitting and maintenance of wooden-hulled boats because it is lighter and stronger than glass fiber and has very high tensile strength.

 

3. Product Development Strategy

A product development strategy focuses on the substantial modification of existing products or the development of new products for currently served markets and customers.

The focus is generally on products or services related to the firm's current offerings. Product development may involve:

• Developing new models, sizes, or variations.
• Improving product quality.
• Introducing new features.
• Reducing production costs.
• Improving product performance.
• Increasing product reliability.
• Bringing products to market more quickly.

In some situations, product development may be constrained by the available development budget.

Example:
Pepsi changed its beverage-product strategy by introducing new products in response to the industry's movement away from mass branding. The objective was to attract a younger and more contemporary customer segment. Examples included Mountain Dew Code Red, Pepsi Twist, and Pepsi Blue.

 

4. Vertical Integration Strategy

A vertical integration strategy involves acquiring firms that either supply inputs to the organization, such as raw materials, or purchase/distribute its outputs, such as distributors and warehouses for finished products.

The transaction may involve:

• Purchase of shares.
• Acquisition of assets.
• Stock swaps.

Vertical integration can be of two types:

Backward Integration

Backward integration involves acquiring a firm operating at an earlier stage of the value chain, such as a supplier of raw materials.

Forward Integration

Forward integration involves acquiring a firm operating at a later stage of the value chain, such as a distributor or retailer.

Example:
Amoco emerged as a major leader in North American natural-gas reserves and products following its acquisition of Dome Petroleum. This backward integration supported Amoco's downstream businesses in refining and gas stations.

 

5. Concentric Diversification Strategy

Concentric diversification is a strategic approach that focuses on creating a portfolio of related businesses. Such portfolios are usually developed through acquisitions rather than through the creation of entirely new businesses internally.

A major consideration in concentric diversification is the existence of product-market synergies among the different strategic business units (SBUs).

Example:
Head Ski initially sought to diversify into summer sporting goods and clothing to reduce the seasonality associated with its snow-sports business.

 

6. Conglomerate Diversification Strategy

Conglomerate diversification involves acquiring or developing a portfolio of businesses based primarily on financial performance criteria.

Unlike concentric diversification, product-market synergies are generally not a major consideration. The businesses may operate in completely unrelated industries.

The primary focus is on factors such as:

• Financial performance.
• Investment returns.
• Profitability.
• Cash-flow potential.

 

7. Horizontal Integration Strategy

A horizontal integration strategy involves acquiring firms operating in the same or similar markets. Such acquisitions can help the acquiring firm:

• Eliminate or reduce competition.
• Increase market share.
• Gain access to new markets.
• Expand its customer base.
• Strengthen its competitive position.

Horizontal integration can support either a concentrated growth strategy or a market development strategy.

Examples:

• N.V. Homes' purchase of Ryan Homes.
• Nike's acquisition of a company in the dress-shoe business.

 

8. Divestiture Strategy

A divestiture strategy is a strategic action that involves selling a major component of a firm or the entire firm.

Under divestiture, the business or business unit is generally sold as an ongoing operation to another organization. The buyer continues to operate the business.

Divestiture may be undertaken when:

• A business unit is no longer strategically important.
• The unit is performing poorly.
• The firm wants to raise cash.
• Management wants to focus on its core businesses.

 

9. Liquidation Strategy

Liquidation involves selling parts of a firm or the entire firm, usually through an auction or to a private buyer, primarily for the tangible asset value.

The objective is not to continue operating the business as an ongoing concern.

Difference Between Divestiture and Liquidation

• Divestiture: The business is sold as an ongoing operation.
• Liquidation: The assets are sold for their tangible or breakup value, and the business generally ceases operations.

Example:
Columbia Corporation, a diversified firm valued at approximately $130 million, liquidated its assets for more cash per share than the market value of its stock.

 

10. Turnaround Strategy

A turnaround strategy is used when a firm is experiencing financial difficulties or declining performance. The strategy generally involves cost reduction and asset reduction.

Managers may reduce costs by:

• Reducing staff.
• Leasing rather than purchasing equipment.
• Reducing marketing expenditures.
• Reducing research and development expenditure.
• Eliminating unnecessary operating expenses.

Assets may also be sold to generate cash for new initiatives. In some cases, a company may sell an asset and then lease it back from the purchaser.

Once costs and assets have been reduced, the organization can focus on improving efficiency, restoring profitability, and strengthening its competitive position.

 

11. Innovation Strategy

An innovation strategy involves the creation of new devices, products, processes, or business ideas through study, research, experimentation, and development.

Important features of an innovation strategy include:

• It involves the development of new processes, business ideas, products, and services.
• It generally requires more fundamental research and development (R&D) than is normally associated with product development.
• Innovation may involve creating entirely new products or services.
• It is usually combined with other strategies as a supporting or complementary strategy.
• Its success often depends on customer acceptance of a new or substantially improved product.
• As competition increases and profitability shifts from innovation toward marketing competence, firms may search for new and original ideas to maintain their competitive advantage.

 

12. Joint Venture Strategy

A joint venture strategy involves creating complementary synergies by combining the resources, capabilities, and expertise of two or more organizations.

Sometimes, two or more capable firms may individually lack an essential component required for success in a particular competitive environment. By forming a joint venture, they can combine their complementary resources and capabilities.

Example: Alaskan Pipeline

No single petroleum company had sufficient resources to construct the Alaskan Pipeline. Similarly, no single firm was capable of processing and marketing all of the oil that would flow through the pipeline.

The solution was a set of joint ventures—commercial organizations created and operated for the mutual benefit of the participating parent companies. These cooperative arrangements provided:

• The funds required to construct the pipeline.
• Processing capabilities.
• Marketing capabilities.
• The resources necessary to profitably handle the flow of oil.

Thus, a joint venture allows organizations to share resources, risks, expertise, and capabilities while pursuing a common strategic objective.

Summary of Principal Grand Strategies

No.	Grand Strategy	Main Purpose
1	Concentrated Growth	Increase market share in existing markets
2	Market Development	Sell existing products in new markets
3	Product Development	Develop new or modified products for existing markets
4	Vertical Integration	Control suppliers or distribution channels
5	Concentric Diversification	Develop a portfolio of related businesses
6	Conglomerate Diversification	Acquire unrelated businesses based on financial performance
7	Horizontal Integration	Acquire competitors or firms in the same industry
8	Divestiture	Sell a business as an ongoing operation
9	Liquidation	Sell assets and discontinue the business
10	Turnaround	Restore profitability through cost and asset reduction
11	Innovation	Create new products, processes, or business ideas
12	Joint Venture	Combine complementary resources and capabilities

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