Chapter 6

Strategy in the Global Environment

There are a number of ways in which expanding globally can enable companies to increase their
profitability and grow their profits more rapidly. At the most basic level, global expansion
increases the size of the market a company is addressing, thereby boosting profit growth.
Moreover, global expansion offers opportunities for reducing the cost structure of the enterprise,
or adding value through differentiation, there by potentially boosting profitability.
The corporate level strategy of RIA Insurance Company is to expand business globally and
increase profitability by giving good and quality services.

Expanding the Market: Leveraging Products and Competencies:

A company can increase its growth rate by taking goods or services developed at home and
selling them internationally. RIA insurance Company, developed most of its best services for the
local consumers that is the whole market in Pakistan.

Location Economies:
Economic benefits that arise from performing a value creation activity in the optimal location for
that activity. Countries differ from each other along a number of dimensions, including
differences in the cost and quality of services. These differences imply that some locations are
more suited than others for producing certain goods and services. Our company provides services
to customer according to location and demands means have good established in big cities and
vice versa.

Cost Pressures and Pressures for Local Responsiveness:

Companies that compete in the global marketplace typically face two types of competitive
pressures for cost reductions and pressures to be locally responsive. These competitive pressures
place conflicting demands on a company. Responding to pressures for cost reductions requires
that a company try to minimize its costs. To attain this goal, it may have to base its service
activities at the most favorable low- cost location, wherever in the world that might be. It may
also have to offer different strategies to the global marketplace in order to realize the cost
savings.

Firms Face Two Conflicting

Pressures Overseas
Reduce
costs

Respond to
local needs

Pressures for local responsiveness arise from differences in consumers demands and competitor
different policies, infrastructure and traditional practices, distribution channels, and host
government demands. Recall that responding to pressures to be locally responsive requires that a
company differentiate its products and marketing strategy from country to country to
accommodate these factors, all of which tends to raise a companys cost structures.

Differences in Consumer Tastes and Preferences:

RIA insurance provides number of polices for their customers mostly that people prefer or the
organization demands. Strong pressures for local responsiveness emerge when customer tastes
and preferences differ significantly between countries, as they may for historic or cultural
reasons. In such cases, a multinational companys products and marketing message have to be
customized to appeal to the tastes and preferences of local customers. This typically creates
pressures for the delegation of production and marketing responsibilities and functions to a
companys overseas subsidiaries.

Differences in Distribution Channels

RIA insurance have different ways of selling polices mostly their agents can do that on the
commission basis. A companys marketing strategies may have to be responsive to differences in
distribution channels among countries, which may necessitate the delegation of marketing
functions to national subsidiaries.

Global Standardization Strategy:

RIA insurance company globalize business through following reasons

New markets
More sources for innovative ideas
Keep up with competition
Technology

Companies that pursue a global standardization strategy focus on increasing profitability by

reaping the cost reductions that come from economies of scale and location economies; that is,
their strategy is to pursue a low- cost strategy on a global scale. The production, marketing, and
R&D activities of companies pursuing a global strategy are concentrated in a few favorable
locations.

Choices of Entry Mode:

If our company wants to move to another country then we can choice any of the following
strategy that suits us better. Another key strategic issue confronting managers in a multinational
enterprise is deciding upon the best strategy for entering a market. There are five main choices of
entry mode: exporting, licensing, franchising, entering into a joint venture with a host country
company, and setting up a wholly owned subsidiary in the host country. Each mode has its
advantages and disadvantages, and managers must weigh these carefully when deciding which
mode to use.

Licensing:
International licensing is an arrangement whereby a foreign licensee buys the rights to produce a
companys product in the licensees country for a negotiated fee (normally, royalty payments on
the number of units sold). The licensee then puts up most of the capital necessary to get the

overseas operation going. The advantage of licensing is that the company does not have to bear
the development costs and risks associated with opening up a foreign market. RIA insurance go
for licensing that gave a license to any other investor to start business there.

Franchising:
A specialized form of licensing in which the franchiser sells the franchisee intangible property
(normally a trademark) and insists that the franchisee agrees to abide by strict rules about how it
does businesses. We also go for franchising if we have good output and manage to make name in
the market then we are able to establish business there under our management.

Chapter 7

Corporate- Level Strategy and Long- Run Profitability

The corporate level strategy of our company is expending the business internationally and earns
long run profits. Many companies the appropriate choice of corporate-level strategy entails
concentration on a single industry, whereby a company focuses its resources and capabilities on
competing successfully within the confines of a particular product market.

Horizontal Integration:
Horizontal integration is the process of acquiring or merging with industry competitors in an
effort to achieve the competitive advantages that come with large size or scale.
RIA insurance company adopt horizontal integration according to country situation it performs
business.

Acquisition:
An acquisition occurs when one company uses its capital resources (such as stock, debt, or cash)
to purchase another company and a merger is an agreement between two companies to pool their
resources in a combined operation. An agreement between two companies to pool their
operations and create a new business entity.
Following the advantages take an RIA insurance company if adopt this process:

Increase polices
Differentiation
Reduces rivalry within an industry
Increases a companys bargaining power over competitors.

Outsourcing Functional Activities:

RIA company is basically belongs to service industry and there is not possible outsourcing
because of outsourcing. In recent years the amount of outsourcing of functional activities,
especially manufacturing and information technology (IT) activities, has grown enormously.

Vertical Integration
Once again, the justification for pursuing vertical integration is that a company is able to enter
new industries that add value to the core products it makes and sells because entry into these
new industries increases the core products differentiated appeal or reduces the costs of making
them. RIA insurance company cannot go for vertical integration because of the nature of
industry.

Diversification:
The process of entering into one or more industries that are distinct or different from a
companys core or original industry to find ways to use the companys distinctive competencies
to increase the value to customers of the products it offers in those industries. RIA insurance goes
for diversification in their products that are their policies they gave to their customer all around
the country.

Creating Value through Diversification:

RIA insurance company first consider diversification when they are generating financial
resources in excess of those necessary to maintain a competitive advantage in their original
business or industry. The question strategic managers must tackle is how to invest a companys
excess resources in such a way that they will create the most value and profitability in the long
run. Diversification can help a company create greater value in three main ways

By permitting superior internal governance,

By transferring competencies among businesses.

Restructuring:
Restructuring is often a response to excessive diversification, failed acquisitions, and innovations
in the management process that have reduced the advantages of vertical integration and
diversification.
Diversification discount refers to the fact that the stock of highly diversified companies are often
assigned a lower valuation relative to their earnings than the stock of less diversified companies.
There are two reasons for this. First, investors are often put off by the complexity and lack of
transparency in the financial statements of highly diversified enterprises that are harder to
interpret and may not give them a good picture of how the individual divisions of the company
are performing. In other words, they perceive diversified companies as riskier investments than
companies that focus on one or a few major industries. In such cases, restructuring can boost the
returns to shareholders when it splits the company into a number of parts that can each be
divested at a higher price.

Chapter 8

Strategic Change: Implementing Strategies to Build and Develop a

Company
Strategic Change:
Strategic change is the movement of a company away from its present state toward some desired
future state to increase its competitive advantage and profitability. In the last decade, most large
Fortune 500 companies have gone through some kind of strategic change as their managers have
tried to strengthen their existing core competencies and build new ones to compete more
effectively. Often, because of drastic unexpected changes in the environment, such as the
emergence of aggressive new competitors or technological breakthroughs, strategic managers
need to develop a new strategy and structure to raise the level of their businesss performance.

Types of Strategic Change:

One way of changing a company to enable it to operate more effectively is by reengineering, a
process in which managers focus not on a companys functional activities but on the business
processes underlying the value creation process.
A business process is any activity (such as order processing, inventory control, or product
design) that is vital to delivering services to customers quickly or that promotes high quality or
low costs. Business processes are not the responsibility of any one function but cut across
functions.

Stages in the Change Process:

These are following the stages of the change process.

Determining the need for change

Determining the obstacles to change
Managing change
Evaluating change

Implementing the Strategy through international new venture:

A companys creation of value chain functions necessary to start a new business from scratch. In
internal venturing, a company uses internal ideas and resources to establish a new business. This
is often in an effort to penetrate new markets and encourage growth. Internal ventures have the
advantage of support from the parent companies but making them successful can be challenging
because of long maturity periods, indeterminateness, and high start-up costs and staffing
difficulties. RIA insurance can start a new venture with an international firm to pool their sources
for a common purpose and for a mutual benefit.

Implementing strategy through acquisition:

Acquisitions (M&A)

are

and management dealing

both
with

aspects
the

of strategic

buying,

selling,

management,
dividing

corporate

and

finance

combining

of

different companies and similar entities that can help an enterprise grow rapidly in its sector or
location of origin, or a new field or new location, without creating a subsidiary, other child entity
or using a joint venture. There are four major reasons due to which acquisition fails to create
value:

Companies often experience difficulties when trying to integrate divergent corporate

cultures;
Companies overestimate the potential economic benefits from an acquisition;
Acquisitions tend to be very expensive companies.
Often do not adequately screen their acquisition targets.

Implementing strategies through strategic alliance:

A strategic alliance is an agreement between two or more parties to pursue a set of
agreed upon objectives needed while remaining independent organizations. This form of
cooperation lies between mergers and acquisitions and organic growth. Strategic
alliance is useful for entering in a new market because you work with a company that is
already operating in that market and area and it has enough experience. A major
disadvantage of strategic alliance and joint venture is that it can leak out your precious
and confidential information which you don`t want to disclose.

Chapter 9

Implementing Strategy through Organizational Design

Organizational
Organizational Design
The process through which managers select the combination of
organizational structure and control systems that they believe will enable the
company to create and sustain a competitive advantage.
The manager of RIA Insurance Company creates an organizational design
according to his competitor.

Building Blocks of Organizational Structure

The basic building blocks of organizational structure are differentiation and
Integration.

Differentiation
The way in which a company allocates people and resources to
organizational tasks and divides them into functions and divisions so as to
create value.
The RIA insurance company divides the work into its functional and divisional
manager and performs according to the division.

Horizontal Differentiation
The process by which strategic managers choose how to divide people and
tasks into functions and divisions to increase their ability to create value. In
the horizontal differentiation the manager of the RIA insurance company
divides the work and task of the people according to his duties.

Integration
The means a company uses to coordinate people, functions, and divisions to
accomplish organizational tasks.

Vertical Differentiation
The process by which strategic managers choose how to distribute decisionmaking authority over value creation activities in an organization. The aim of
vertical differentiation is to specify the reporting relationships that link
people, tasks, and functions at all levels of a company. The organizational
hierarchy establishes the authority structure from the top to the bottom of
the organization. The strategic managers of the company have an authority
to distribute his decision to his subordinates.
Span of control
Flat structure
Tall structure

Centralization or Decentralization?
Authority is centralized when managers at
organizational hierarchy retain the authority to
decisions. When authority is decentralized, it
functions, and managers and workers at lower
Decentralization has three main advantages:

the upper levels of the

make the most important
is delegated to divisions,
levels in the organization.

When strategic managers delegate operational decision- making

responsibility to middle and first- level managers, they reduce
information overload, enabling strategic managers to spend more time
on strategic decision making.
When managers in the bottom layers of the organization become
responsible for adapting the organization to local conditions, their
motivation and accountability increase. The result is that
decentralization promotes organizational flexibility because lower- level
managers are authorized to make on- the- spot decisions.
When lower- level employees are given the right to make important
decisions, fewer managers are needed to oversee their activities and
tell them what to do. And fewer managers mean lower costs.
The hierarchy of the company is centralized because one person takes
decisions and transfer to the functional and divisional manager.

Horizontal Differentiation

Managing the strategy- structure relationship when the number of

hierarchical levels becomes too great is difficult and expensive. Depending
on a companys situation, the problems of tall hierarchies can be reduced by
decentralization. As company size increases, however, decentralization may
become less effective.

Functional Structure
The issue facing an RIA insurance company is to find the best way to invest
its resources to create an infrastructure that allows it to build the distinctive
competencies that increase the amount of value a company can create. As
an RIA insurance company grows, two things begin to happen. First, the
range of tasks that must be performed expands. Functional structures
arrange and group people on the basis of their common expertise and
experience or because they use the same resources.

Geographic Structure
When a company is organized geographically, geographic regions become
the basis for the grouping of organizational activities. For example, a RIA
insurance company may divide up its manufacturing operations and
establish manufacturing plants in different regions of the country. This allows
it to be responsive to the needs of regional customers and reduces
transportation costs. Similarly, service organizations such as store chains
and banks may organize their sales and marketing activities on a regional,
rather than national, level to get closer to their customers

Multidivisional Structure
The multidivisional structure possesses two main advantages over a
functional structure; innovations that let a company grow and diversify yet
overcome problems that stem from loss of control. First, each distinct
product line or business unit is placed in its own self- contained unit or
division, with all support functions. Second, the office of corporate
headquarters staff is created to monitor divisional activities and exercise
financial control over each of the divisions. The Company divides the RIA
insurance company into multidivisional structure according to the demand of
the product.

Integration and Organizational Control

RIA insurance company must choose the appropriate form of differentiation
to match its strategy create diversification. It requires that a RIA company
move from a functional structure to a multidivisional structure. Choosing a
type of differentiation, however, is only the first organizational design
decision to be made. The second decision concerns the level and type of
integration and control necessary to make an RIA insurance company
structure work effectively.

Forms of Integrating Mechanisms

A RIA insurance company level of integration is the extent to which it seeks
to coordinate its value creation activities and make them interdependent.
The design issue can be summed up simply: The higher a RIA insurance
company level of differentiation, the higher the level of integration needed to
make organizational structure work effectively. There are high costs
associated with using managers to coordinate value creation activities.
Hence, a RIA insurance company uses more complex integrating
mechanisms to coordinate its activities only to the extent necessary to
implement its strategy effectively.

Direct Contact
Interdepartmental Liaison Roles
Permanent Teams
Temporary Task Forces
Integrating Roles.

Strategic Controls
Strategic control systems are developed to measure performance at four
levels in an organization, the corporate, divisional, functional, and individual
levels. Managers at all levels must develop the most appropriate set of

measures to evaluate corporate business and functional- level performance.

These measures should be tied as closely as possibly to the goals of
achieving superior efficiency, quality, innovativeness, and responsiveness to
customers. The manager of RIA insurance company is measure the
performance at every level of the RIA insurance company and also manages
the quality of their policies.

Financial Controls
The measures most commonly used by managers and other stakeholders to
monitor and evaluate a companys performance are financial controls.
Typically, strategic managers select financial goals they wish their RIA
insurance company to achieve (such as goals related to growth, profitability,
and/or return to shareholders), and then they measure whether or not these
goals have been achieved. One reason for the popularity of financial
performance measures is that they are objective.

Output Controls
Financial goals and controls are important, but it is also necessary to develop
goals and controls that tell managers how well their strategies are creating a
competitive advantage and building distinctive competences and capabilities
that will lead to future success. When strategic managers of the RIA
insurance company establish goals and measures to evaluate efficiency,
quality, innovation, and responsiveness to customers, they are using output
control. In output control, strategic managers of the RIA company estimate
or forecast appropriate performance goals for each division, department, and
employee and then measure actual performance relative to these goals.

Organizational Culture
The specific collection of values and norms that are shared by people and
groups in an organization and that control the way they interact with each
other and with stakeholders outside the organization. The culture of the RIA
insurance company is good and have cooperative environment in all the
branches so thats why the working is smooth and companies is showing
good results on that grounds.

Organizational Values
Beliefs and ideas about what kinds of goals members of an organization
should pursue and what behaviors they should use to achieve these goals. In
this process manager want to choose which type of behavior to achieve its
goals.