Corporate Strategy

In simple words, ‘strategy’ is plan of action intended to accomplish specific goal. Strategy is the direction and scope of an organization in a changing business environment through the configuration of its resources and competence with a view to meeting stakeholder expectation.

Although the CEO is?responsible?for leading the?strategy?development process, and the Board has ultimate fiduciary?responsibility?for determining strategic direction, an organization is missing an opportunity if it doesn't engage the entire staff in the development of?strategy. Thus, corporate strategy must not only define the product and business direction but also what a firm must do to achieve goals. What resources must invest to and how to organize them. What people’s skill profiles need, which competencies must be developed and how they must be used to develop the business.

Organisation defines vision, goal & set of objectives. Strategy refers to a direction toward a goal. Tactics are?the actions taken to support that strategy.? Long years ago, Chinese military strategist Sun Tzu wrote “The Art of War.” In it, he said,?“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”?Tactics and strategy are not at odds with one another—they’re on the same team. (And they have been for many centuries!) Here’s how we define the tactical vs. the strategy.

·?????? Strategy?defines your long-term goals and how you’re planning to achieve them. In other words, your strategy gives you the path you need toward achieving your organization’s mission.

·?????? Tactics?are much more concrete and are often oriented toward smaller steps and a shorter time frame along the way. They involve best practices, specific plans, resources, etc. They’re also called “initiatives.”

seeking to understand how corporate structures and the managers that oversee them can add value to or destroy value in their constituent businesses.

Corporate Strategy in terms of Functional & Business?

A complete organizational strategy is?divided into three distinct levels, based on the concerns and goals of the three hierarchical elements which make up an organization - at the corporate level, the business level, and the functional level.

The functional level?strategy is the most granular level of strategy - the realm of practical decisions and concerns which are less relevant at the business or corporate strategic levels. At the functional level, strategies and goals from the business and corporate level are turned into meaningful,?functional?results which ultimately determine outcomes for a business.?

The?business level?strategy is the strategic level that mediates the abstract strategic goals which underpin corporate strategy, with the needs and capacities of the business unit level, for organizations with more than one business unit.

The corporate level Strategy are concerned with questions about what business to compete in. Corporate Strategy involves the careful analysis of the selection of businesses the company can successfully compete in. Corporate level strategies affect the entire organization and are considered delicate in the strategic planning process.

Importance of Corporate Strategy

As described in earlier topic: ‘evaluation of corporate strategy, ‘, organisation started growing their business and eventually venturing into multi business firms. For these multi business organisations, need felt to adopt administrative structures to accommodate and promote the growth and development of organizations. Corporate strategy defines how corporate structures and the managers that oversee them can add value in their constituent businesses.

By defining a clear corporate strategy organization can?improve decision making?and?motivate their employees.?Without clearly defined strategies at a corporate level, business and functional level units will perform sub-optimally. The abstract level of decision making that is only possible at the corporate level will translate to better results at other decision-making levels, and?help employees to feel?that their organization has a clear direction and purpose.

Strategic Methods of Implementation

As noted, corporate strategy is characterized by its dynamic nature. In response to the needs and the environment of a business, corporate strategy must reflect an optimal approach to these variables. With this in mind, it is helpful to divide corporate strategy into below possible classifications based on external and internal factors that may affect organisation.

Growth strategy : Like the name implies, corporate strategies are those corporate level strategies designed to achieve growth in key metrics such as sales / revenue, total assets, profits etc.? A growth strategy could be implemented by expanding operations both globally and locally; this is a growth strategy based on internal factors which can be achieved through internal economies of scale. Aside from the illustration of internal growth strategies above, an organization can also grow externally through mergers, acquisitions, and strategic alliances.?The two basic growth strategies are concentration strategies and diversification strategies. ???????????????????????

Stability Strategy?: Stability strategies are mostly utilized by successful organizations operating in a reasonably predictable environment. It involves maintaining the current strategy that brought it success with little or no change. Stability strategies are more conservative strategies, focused on preserving profit, reducing costs, and investigating future strategic possibilities.

Retrenchment Strategies : Retrenchment strategies are pursued when a company’s product lines are performing poorly as a result of finding itself in a weak competitive position or a general decline in industry or markets. The strategy seeks to improve the performance of the company by eliminating the weakness pulling the company back. Examples of retrenchment strategies are:??????????????????????????????????????????????????????????????????????????????????????? ?????????

-????????? Turnaround Strategy: This strategy is adopted for the purpose of reversing the process of decline. This strategy emphasizes operational efficiency and is most appropriate at the beginning of the decline rather than the critical stage of the decline.

-????????? Divestment Strategy: Divestment also known as divestiture is the selling off assets for the different goals a company seeks to attain. This strategy involves the cutting off loss-making units, divisions, or Strategic Business Units (“SBU”).

Liquidation Strategy: Liquidation strategy is considered a last resort strategy; it is adopted by company’s when all their efforts to bringing the company to profitability is futile. The company chooses to abandon all activities totally, sell off its assets and see to the final close and winding up of the business.

Corporate Strategy Model

Different organisations adopt different strategy models as per their goals, system & organisation culture. Below model broadly defines how organisation (board/top management) follows top down approach in implementing corporate strategy. Corporate strategy planning is the topmost level of strategic planning within a business or organization. As a result, the corporate planning process is the most sophisticated level of strategic planning and must consider number of variables.

Defining a Vision: Corporate planning starts with defining an abstract vision or overarching goal, based on the current organization and the environment in which it exists. This vision will provide a point of reference against which goals and strategies can be measured.

Describing Values: Vision statement of organisation is a destination. Company values describe the way you will arrive at this destination. The values that you outline should be clear, concise, and above all real.

Choose Focus Area: Focus areas can be thought of as the?pillars on which corporate planning is based. The abstract ideas represented in your vision statement and company values are here applied to choose areas in which your company can?act?to affect its stated goals.

Defining Objective: Once a clear vision has been defined and areas of focus selected, corporate strategists must outline definable objectives which will represent a more concrete and?specific?example of?what?you want to achieve, with stated deadlines and objectives. Note that you might have several different levels of objectives aligned to each other at your corporate strategy level.

Define Key Performance Indicators (KPIs): A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. High-level KPIs may focus on the overall performance of the business. Low-level KPIs may focus on processes in departments such as sales, marketing, HR, support, and others

Case Study on Downfall of Kingfisher Airlines

Introduction

Kingfisher Airlines Ltd. ?was owned by biggest liquor tycoon of India Mr. Vijay Mallya with an ambition to become an industry leader. Kingfisher Airlines started operations in 2003. Soon Kingfisher depicted a very attractive & innovative picture of the company by growing share in aviation market, wide number of destinations and by achieving numerous awards. But by the end of 2011, Kingfisher Airlines suffered a huge financial crisis & could not pay debt. DGCA suspended their flying license in 2012 & operations came to halt. Reasons behind the financial failure of the company occurred mainly due to mistakes in strategic decision making.

Background

India's one of the most highly profiled airlines- Kingfisher, has turned into shambles whereas in the market scenario, other competitors of the Kingfisher are flying high. Kingfisher initially launched as the all-economy, with single-class layout aircraft with high quality eatables and entertainment systems. A year later after the airline was set up, the focus shifted to the high luxury class. The airline could not hold stability with changing time and ideas of its models and expecting random expansion. Since 2005, as the airline-initiated operations, the business was proclaiming the losses. In India, a large number of aircrafts were added by most of the upcoming airlines since 2006 and they deployed them mostly on metro sectors which resulted into baneful price war among all the airlines. But after the company acquired Air Deccan in the year 2007, the situation became even more dreadful and this made the airline face financial issues for long. Kingfisher Airlines holding second largest share in India's domestic air travel market till December 2011, faced extreme financial crisis.

There was a time when Kingfisher airlines was one of the best rated airlines in India and got success in gaining customer satisfaction, but it failed to sustain that for a long time. With the economic slowdown in 2008 and the increasing fuel prices as well as the KFA’s mandatory requirement to provide services on non-profitable routes, the path ahead was full of difficulties. The cash strapped Kingfisher airlines was caught in a precarious web and burdened under huge debt, which it owed for airport fees, fuel, and salaries to employees, repayment of loans to different banks and service tax. In Sept 2010, ex-CEO of SpiceJet, Sanjay Agarwal, joined Kingfisher Airlines and Vijay Mallya assumed the role of MD and Chairman of Kingfisher Airlines. In September 2011, in order to get along with the cash crunch, kingfisher airlines decided to exit Kingfisher Red, which was its low-cost segment, but the survival mantra was very late for the ailing airlines. During the year 2012, losses of over Rs. 7,000 crores were accumulated by the company, with about half of its aircrafts grounded and many members of its staff going on strike. As all its operation suspended, the airline came to a halt. In view of these predicaments, Vijay Mallya appealed the government for a bailout, but was refused the same. DGCA suspended its flying license on 20th December 2012, and the airline had to shut down its operations.

What went wrong?

Strategic Issues

The major mistake committed by the owner of KFA Mr. Mallya is that he failed to make proper decisions. He failed to understand the requirement of consumers and made all decisions on the basis of luxury sells. For him airlines were considered to be a luxury travels but in India only selected classes were ready to pay extra for luxury.

Mr. Mallya being a liquor tycoon was unable to identify the differences between the two industries. Customer might pay extra for alcohol but not for transport, because transport is type of necessity than luxury.

In 2008 Deccan airlines was rebranded as Kingfisher Red by Mr. Mallya. So Kingfisher Airlines operated both business and economy class airlines. This looks perfect but wasn’t actually. Mr. Mallya was in different businesses at the same time. For his liquor business officials were appointed but for airlines all was going by itself. The business needed the attention of Mr. Mallya.

In 2011 there was a time when Kingfisher was not able to pay the salaries to employees. Salaries were due for 4 to 5 months. After this the employees started refusing to sign the mandatory “Tech Log” which states that aircraft is fit and ready to fly. This was noticed by Directorate General of Civil Aviation (DGCA) and they cancelled the license of KFA

Operational Issues

1. ?The maintenance, navigation, landing cost of KFA in 2012 was about 11% of the total revenue generated and 3% more than that of Jet Airways.

2. The employee cost of KFA was also higher than any other airlines. Overall operating cost was very high compared to earnings, which was overlooked consistently.

3. The cost of value-added Services (VAS) by KFA was also very high and, they paid less attention on cleanliness, connectivity, scheduling and low prices that were the basic requirements of Indian customers.

Management Issues

The frequent change of CEO for more than once in a year and malfunctioning of top-level management, which Mr. Vijay Mallya never took any serious intervention. Later airline was gifted to Siddarth Mallya (son of Vijay Mallya) by his father on birthday. He lacked the maturity to handle such a big airlines business and so, lack of correct proficiency and experience in the airline industry, kingfisher airlines suffered severe downfall due to lack of proper management.

External factors

Some of the external factors such as government unfriendly policies for aviation industry, raising fuel prices added to piling losses at KFA & in turn, raising debt.

Conclusion of Case Study

?The grand and ambitious Kingfisher Airline’s project suffered huge downtime due to improper strategic decisions and mismanagement by the group. Instead of trying to utilize this grand airline project opportunity, Mr. Mallya focused to achieve a glamorous status. The airline became for the luxurious design, food and ambience including big goals for settling in international market but neglected the basic economic class.

Another important issue was lack of customer focus. ?There was missing link with customer expectations. Kingfisher focused on luxury & ignored customer’s basic need such as on time flights, better connectivity, economy etc. Whereas Indigo airlines tagged as low-cost airline who started airlines around same time of KFA, focused on right strategy of customer focus by delivering consistent on time flights, better connectivity & proper cost management. Indigo declared highest profit in 2012 when Kingfisher became bankrupt.

Learnings from some more business case studies

Depending on nature of business, business model, organisation vision, goals & state of business (profitable / non profitable), top management need to decide focused strategic approach. There could be many strategic approaches depending on nature of industry. I list below some of the approaches relevant to this dissertation.

1. Customer focused strategy

2. Core business focused strategy ??

3. Glocal strategy

4. Product differentiation or competitive advantage strategy

1. Customer Focused Strategy

Starbucks

When the financial crisis hit in 2008, Starbucks was forced to close almost 1,000 stores and experienced a 28% profit loss over the next two years. During this time Howard Schultz, Chairman took back control of the company and sent out a message to all employees on his first day back: “The company must shift its focus away from bureaucracy and back to its customers.”.

Through the campaign, ‘My Starbucks Idea’, Starbucks implemented over 100 ideas from customers and developed a community of like-minded baristas and coffee lovers. Only two months later, the company implemented a new strategy based on technology, free thinking, and community involvement

Today, the company employs 250,000 people at 27,000 locations worldwide, owns several successful subsidiaries and continues to grow into new markets.

TATA Motors

TATA Motors (passenger vehicle division) bounced back & made its position in top 3 car makers in India after Maruti Suzuki & Hyundai. TATA Motors sales considerably declined around 2013 to 2015 & they went down to 5th position from 3rd position.? Board of director’s made its decision to regain its lost market shares. TATA Motor’s made huge new investment & launched totally new car models with modern design & features that will attract customer. They include the strong product portfolio in high volume segments, product-focused branding strategy, high safety ratings, and overall ownership experience helped them to grow exponentially. This resulted in YOY growth & regaining Top 3 position in 2020.

One of the interesting things that Tata Motors has done recently is that it has shed umbrella branding. Here the product is the hero, not the brand. For example, Customers are buying Nexon, not Tata Nexon,”

2. Core business focused strategy

Apple

Apple went into a decade-long downward spiral after CEO?Steve Jobs?left the company in 1985 .Lower-priced products from competitors, like?Microsoft Windows, took over the personal computer market. For 12 years its innovation, popularity?and?sales continued to plummet, almost reaching bankruptcy until Jobs rejoined the company in 1997. He cut all other business-like desktop, printer & peripherals, software development to focus on highly personalised laptop which is Apple’s core competency. In short, he cut apple back to a core that survive. Now, Apple is one of the most well-known and valuable companies in the world, raking in almost $300 billion in revenue each year.

Jain Irrigation

‘Diversifying into unknown areas without required management bandwidth and eyeing disproportionate growth using debt is not sustainable. That was the lesson of a lifetime for me’: - This statement made by Bhavarlal H. Jain, Founder, Jain Irrigation Systems.

Needless diversification had left Jain Irrigation on the brink. Between 1992 and 1994. Jain irrigation acquired an IT company, took a granite quarry on lease, ventured into merchant banking and even bought an advertising agency. Organisation lacked management bandwidth. The investments turned bad, leading to diversion of working capital, which hurt their core businesses resulting in posting losses. The share prices, which had touched Rs 365 (on a face value of Rs 10) in February 1994, crashed to a low Rs 8 in October 2000. As a new strategy, they exited all non-core business & focused on core business as they got funding from Aqua international partners. They repaid debt & brought share price to 80 Rs by 2020.

3. Glocal strategy for MNC.

MacDonald’s

Glocal strategy is global company specially making products suitable to regional (local) needs. In some cases, products made in other regions say USA & EU can be made in India with some fine tuning in design & features such as appliances, consumer electronics products etc.? But in some cases, it must be made totally differently to suit local requirement. Take example of MacDonald’s. No body will buy burger in India if Mac D offers same one as in USA or EU. MacDonald follows glocal strategy. They make burgers as per taste of Indians in India. Under glocal strategy, basic values, management, organisation structure remains same but only product offerings made as per local taste.

Skoda VW

After struggling for more than decade in Indian automotive market, VW ?could hardly sell vehicles as planned in India. They could reach less than 2% market shares. VW manufactured European car models ‘Vento’, ‘Polo’ in India without much design & feature change (except RHD (right hand drive) to LHD). Though VW is one of the strongest global brands in world, above cars were not received very well by car buyers in India. Understanding importance of Glocal strategy VW launched India 2.0 strategy, where in they decided to launch India specific car models. Skoda ‘Kushaq’ is one of them. Name Kushaq is derived from Sanskrit word Kushak which means King or emperor. This vehicle will be produced in second half of year 2021.

4. Product differentiation or competitive advantage strategy

GoPro

GoPro is well-known name in action camera. GopPro cameras used to shoot images during adventure sports such as surfing, diving etc. GoPro had first mover’s advantage in a segment?in the photography, a segment they created itself. GoPro, being the leader in a market, took the sales figures for granted and did not pay heed to what the future of the company was. A company, specially in the tech industry, needs to constantly keep innovating to compete.

GoPro underestimated competition. Meanwhile companies like DJI, Yi and SJCam were developing action cameras, gimbals, and drones. They offered cameras at much cheaper price than GoPro with similar quality. GoPro started losing market. GoPro ventured into drone camera without any competitive advantage. However, in 2018, competitor DJI has completely taken over the drone business. So much so that GoPro has finally shut down their drone division and laid-off a lot of employees to cut losses.?This is classic example of non-sustainable business model which ignored competition & tried to sale products without any competitive advantage.

Recommendations on basis of case studies

From above case studies, I highly recommend following learnings which can be implemented by relevant organisation to either sustain, grow or turnaround the business. These are strategic decisions, however, to successfully implement strategy, organisation need to follow model (Fig -2 corporate strategy model) describing vision, values, focus areas & objective by involving related employees.

·?????? Only visioning will not help. Kingfisher had a great vision: ‘The Kingfisher Airlines family will consistently deliver a safe, value-based and enjoyable travel experience to all our guests.” ?It is important to ensure that strategic decisions made are in favor of shareholders & business. It is equally important to ensure proper operational efficiencies & close watch on expenditure.

·?????? Organisation should never ignore ‘What customer want’? Business should be driven as per customer needs. This can be well related to famous quote by Laura Ashley "We don't want to push our ideas on to customers, we simply want to make what they want."

·?????? When business start earning profits, it is quite alluring for top management to invest money in highly profitable diversified business. Diversifying into unknown areas without required management bandwidth and eyeing disproportionate growth using debt is not sustainable. Core business should not be ignored.

·?????? Global MNC’s must launch product or services as per regional needs. They may finetune or completely launch new products. Copy paste may not help to achieve sustainable business.

·?????? Organisation need to continuously innovate themselves. Their product & services should innovative enough so that it is not easily copied. In the ear of globalisation & tough competition in every segment industry, it is imperative to have competitive advantage of your product over competition may be in form of price, service, product differentiation, features, technology etc.

?Key Findings

The benefits of well-defined corporate strategy for an organization increase as the organization scales. Corporate strategy offers? strategic direction to business. by defining a clear corporate strategy organization can?improve decision making?and?motivate their employees.

Corporate level strategies are formulated by the top management with inputs from middle level management and lower level management. Corporate level strategies are mapped out around the goal and objectives of an organization. They seek to translate these goals and objectives to reality. Some of the important components of corporate strategy is allocation of resources, organisational design, portfolio management, strategic trade-offs.

Depending on business status & influence of internal & external factors, organisation decide which type of strategy should be implemented such as growth strategy, stability strategy or retrenchment strategy.

Finally, board of directors or top management is responsible to define clear strategy involving management. Strategic decisions taken by board will ultimately drive company towards growth or downfall of organisation.

‘Ship needs a captain. The crew is important but the captain steers everything. Captain needs to have a clear vision to lead’. ?Here captain is Board of Directors & crew is people of organisation.

Thank you for reading.

Article by : Santosh Rathod. BE, PGDPE, MBA, GBPL, Certified Corporate Director

Reference

1. Corporate strategy: The four key components: Harvard business review journal

2. Good strategy bad strategy: Richard Rumelt

3. Strategy execution: Cascade Strategy

4. Scholarly articles on corporate strategy: Google Scholar

5. Failure of Kingfisher airlines: Aircraft nerds, Wikipedia, Times of India