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Strategic Management Q. No.1.

Concept of Strategy & Meaning Strategy, as a term is essentially linked with military science: It implies facing the enemy under conditions that are to ones advantage. Strategy can be defined as interpretative planning. Strategy includes the determination and evaluation of alternative paths to an already established mission or objective, and eventually choosing the right alternative. In order words a strategy outlines how management decides and plans to achieve its goal and objectives. The term, strategy is derived from the Greek word "Stratetia" which implies the science, art, tact and quality of being an efficient and effective army general. Due to industrial advancement in 18 th century strategic management started gaining importance, after Ist & Iind. world wars strategic management gained much importance. Management / exponents opined : " Business is also like war in one respect . In war a nation is to right with enemies to win. In business every organization has to lie with competitors, in a competitive market share. The objective, in both the cases are the same - to win for survival, growth and development". In 1962, business historian Aftred. D. Chandler defined strategy as "The determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action necessary for carrying out these goals" Charles Hofer & Dan Schendel After having gone through various historical events, developed a definition of strategic management. approach that considered 4 components: The need to match product or markets with Geographic territories (known .as Scope). 2) The need to deploy a large quantity & variety of resources both humans material. 3) The need to recognize & seize competitive advantages. 4) The need to convince a complies variety of functional divisions that departmental cooperation is better for overall organizational performance than isolated departmental activity (a principle known as synergy.) 1) Strategic Planning Planning is deciding in advance the future course of action i.e. what is to be done as well as how and when it is to be done it involves projecting the future course of action for the business as a whole & also for the different livings within it. The crucial pivot is strategic planning is to gather first hand information about the plans, programme and policy of the competitors relating to their products, pricing, marketing strategy, target customers, distribution networking, distributing channels, source of forwarding, technical lie - ups, Govt. support. So that more aPpropr:iate & competitive decisions can be taken regarding its own future business planning.

Careful business planning with through evaluation and scanning of the business environment and resources of competitors can be termed as strategic planning. It includes the plan, programme 86 policies of the existing as well as likely future competitors, their strengths 86 weaknesses in relations to one's strengths 86 weakness. It calls for a SWOT analysis before decision making for the future. the strategic planning process comprise determination and laying down of : i) ii) iii) iv) v) vi) vii) Objectives Policies Procedures Rules Programmes Budgets Strategies.

'today's approach to business planning is called "strategic planning": Here the top management i.e. the owners, board of directors 86 corporate planners have a role to play in strategic management. But the general managers and executors, play a key role as they strategically plan for proper implementation of the corporate plan. ?lanning Environment: The term environment refers to the ability of all the factors which involves both internal and external conditions of business, commerce and industry. A business firm does not operate in vacuum , it. operates in an environment and becomes part of it. If there is conflict between the enterprise and the environment, it is the enterprise that will suffer. Planning' environment, therefore has to take into account the constraints imposed by the environment 86 also take advantage of the opportunities presented. "The various factors that contribute to the business environment can be divided into 2 categories. (a) External environment Like Country's economic policy, laws, globalization, infrastructure like transport, power, raw material , competitors, markets, values of society. (b) Internal environment : Like attitude values, shareholders, work culture, Morale of employees, trade unions, Technology etc. Environment is the sum total of history geography, culture, sociology, politics and economies of a nation 86 interaction between economic 86 non - economic forces is bound to take place. For planning environment , we can categorize the total environment into two segments. (a) Mega environment i.e. the overall environment prevailing in the business would, it indicates the trend' of business, the market - whether the trend is encouraging and positive or recessionary in the market. Major elements of the mega environment are political, social, technological, economic & legal, could be regional or international. (b) The micro environment which is related organizations current business, the major elements of micro - environment are supplies, customers, employees, dealers, retailers, financial institutions, who may have direct influence on business. For Strategic management 2

environmental planning it is of tremendous importance to decide whether the existing strategy is working or not. Political factors in Environment: Any business organization is to operate within the parameters of industrial and business laws. The direction of all such laws, rules, regulations are based on political ideological belief of the leaders who rule the country. Social Environment : Social environment concerns the values, attitude, opinion, beliefs and lifestyle of the people in the society & of those in a firm's external environment, as developed" from their cultural, religious, educational, ecological , demographic & ethnic 'conditioning. With the change of social attitude the demand of various goods and articles among the people in the society automatically changes e.g. entry of women in all spheres of activity . social changes is bringing a gradual changes in employment of child labour. Economic Environment: The business sector has economic relations with the Govt. , the capital market, the household sector and the foreign sector. The different sectors together influences the trends & structure of the economy. The form & functioning of the economy varies from country to country. Capital; sales of inflation ad growth trend of the gross national. product are all important economic factors that should be taken into consideration in strategic planning. Technological Environment & Forecasting: Technological environment with the change and development of technology has radically contributed towards advancemcnt of industrialization. Technological advances gave rise to newer products, processes & technology to efficiently meet the customers needs. Technological achievements .have reduced the time and cost of communication & -transportation, Legal Environments: Changes in laws as required for business : i) ii) iii) iv) Q.Z. Discuss the different levels and types of strategy and tasks in strategic management a) Corporate Level Strategy It is formulated by top management to decide the actions that the total organization is taking and attempts to determine the roles each business activity . is playing & should play in the organization. Corporate level strategy defines the long term objectives such objectives involves major . decisions for future business plans about market, product, profitability, return on investment, technological leadership. b) Business unit strategy:- Business unit level strategy should be formulated the Strategic management 3 Changes in laws e.g. FERA / FEMA SEBI Companies act. Neq. Instruments.

comprehensive general plan, programme, budget, schedule and policies through which a

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business unit intends to achieve its long term objective, i.e. corporate level strategy in an ever - charging environment, is called the business unit level strategy. the major activities in business unit level strategy involves product development as per technological forecasting and decision of corporate level strategy, market development innovation, diversification etc. e Functional Level Strategy:- It creates the frame work for the management of functions such as finance, R&D, production materials, personnel & marketing so that they conform to the business unit level strategy. Corporate level strategy Business level strategy

Multi-Business organizations

Functional level strategy

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R&D

Strategy Business Unit Producing

Strategy Business Unit Marketing

Strategy Business Unit Personnel

Finance

Marketing Strategy American marketing association "Marketing Management is the process of planning and executing the conception, pricing, promotion and distribution of goods, services and ideas to create exchanges with target. groups that satisfy customers and organizational objectives.". Peter Ducker, claims that marketing is so basic to `business that it cannot be considered as a separate function rather it is the whole business from the customers point of view. Present - day business success is not determined by the producer but by the customers.

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Marketing Objectives 1, 2, 3. 4. 5. Consumer focus Profit focus. Broadened functional base Integrated of marketing function Research base decision .

Marketing Strategies:- Marketing / markets can be described and defined by their nature of competition. Basically, the company's overall marketing strategy is its competitive poster in the market place. The marketers first task is to select a promising market and identifying its. needs and buying patterns, after which he formulates , strategies for each controllable factor (product, distributions, promotion and pricing) In formulating 85 implementing marketing strategy, management concerns itself with identifying opportunities to serve target markets profitability & serving them so effectively that it is difficult for competitors to take business away on profitable basis: Competitive posters are either aggressive or defensive .. When a market's products are already estbed in market, there is a strong temptation to adopt a defensive poster i.e. to maintain a holding action. The danger in defending the status - quo is that this means yielding the initiative to competitors . If the competitors develop important product innovations, they may succeeded in breaking estbed customer loyalty & buying patterns. The importance of formalized overall marketing strategies' (i.e. deliberately planned competitive postures).__ Varies with the competitive setting.. There are 4 types of competitive settings. 1. No direct competition 2. Pure competition 3 _ Monopolist competition 4. Oligopolistic competition . Marketing Strategy as a part of corporate strategy: Marketing strategy is a well outlines game plan which is the fundamental strategy based on ,which all activities of the organization are decided marketing strategy bro adly comprises 3 main steps. 1) 2) 3) Developing the product / service Selecting the target market Assembling the marketing mix.

Developing the product / service:- Organizations are increasingly recognizing the necessity & advantages of regularly developing new products and services, especialLy in view of changing tastes, technologies and competition. Every product goes through a life cycle . It is conceived & born, developed through phased and eventually .dies as younger products come in the market . Every company needs a product development programme. A company may develop new products in 2 days.
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Through its own R&D & experimentations programmes. b) Through acquit ions of a new company. Buying a plant as a license to produce someone else's product / brand. Product development usually involves 8 stages : 1) 2) 3) 4) 5) 6) 7) 8) Idea generations Idea screening Concept developments testing Marketing strategy development Business analysis Product development Market testing Commercialization.

a)

Selecting the Target Market:- The process of market segmentations opens up ,several new market segments with varying potential, profitability & risks. Market targeting is the process of fixing one's target market. Marketing strategy should aims to cash at each segment as a distinct marketing opportunity. Marketing segmentations and target market selection are closely related to market strategy formulations. Assembling the Marketing Mix:- Assembling the market mix means assembling the 4 ps of marketing in the right combination i.e. he product, place, promotion & price. At first, a company chooses or develops the product which would meet the customers need, demand, aspirations & full satisfaction. Secondly, it organizes various distribution functions such as transportation, warehousing, distribution channel management etc. so as to make the product easily available to the ultimate customers. Thirdly the company develops a number of promotional measures . such as advertising sales campaign, personal selling and other sales promotional programmes. Lastly, he company uses the pricing mechanism in consideration of competitive advantage & profitability. Marketing Costs as Profitability:- Marketing & distribution functions account for a major portion of increasing costs towards sales of products and services and have a direct effect on profitability. There are various elements of marketing costs which vary from company to company in relation to size, significance, measurability & controllability. Various elements & marketing costs broadly include the following :1. Cost of market survey & market research 2. Cost of advertisement . 3. Sales promotion cost 4. Over heads & admn cost for sales & marketing 5. Physical distribution cost 6. Warehousing costs 7. Costs of distribution channel (discounts) Strategic management

8. 9.

Cost of credit sales Cost of marketing Information systems.

For better profitability through sales it is necessary to analyze the marketing costs and service control whenever necessary. E.g. (a) (b) (c) (d) Assigning marketing costs to different segments of marketing functions Analyzing each cost with related functional area of marketing Identifying the areas for cost control. Methods of cost control.

Cost Benefit Analysis:Costs incurred in different segments and functions of marketing need to be evaluated and analysed in terms of results achieved towards profitability To be more effective marketing costs should include standard costing for various marketing activities and should be compared with the budget provisions. Standard 'cost per each and every activity of sales & marketing should be set & then the actual costs are to be noted and against the standards . The standard cost approach will highlight what ought to have happened or what could have happened, if the activity was managed 85 controlled efficiently with the objective of higher profitability. Cost benefit analysis should also include the areas such as credit control, credit rating, after sales - services. Pricing Policies and strategies:- Pricing policy should be made to tackle various competitive situations. This implies that the firm can follow different pricing policies with regard to different markets for different customers e.g. full cost pricing may be followed for a nig customer particularly when the plant capacity is lying idle. Some of the pricing policies could be :1. Prices should aim at maximizing profits for the entire product line. 2. Prices should be, set to promote the long-term welfare of the enterprise. 3. A pre-determined systematic method of pricing should be adopted especially for new products. 4. Prices should be adopted and individualized to fit the diverse competitive situations encountered by different products. Certain factors affecting pricing policy:Cost of the goods Cost 8s price of competitors products. The nature and condition of demand. The quality of the product 8s services 5. Certain types of seasonal goods can be sold at a price which is higher when compared with the actual cost of production due to .unusual risk. Pricing Objectives:1. 2. 3. Target rate of return on investment or net sale. Price stabilization Meet or prevent competition
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1. 2. 3. 4.

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4. 5.

Maintain or improve share of the market Maximize profit.

Basic Methodology of pricing are:1. Cost - Plus Pricing:- This is a common method, formula is

unit selling price = Unit total cost + Desired unit profit. 2. Marginal cost pricing:- It is the amount of money at any given volume of output by which the aggregate cost is charged if the volume of output is increased or _decreased by one unit. 3. Break - Even analysis:- BEP = Selling price / unit - variable cost / unit fixed cost
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Fixed cost = Contribution / unit CASE STUDY Small cars may cost good deal more Strategic Management Q. No.1. The BCG growth matrix has long remained and excellent tool for evaluation businesses by any companies? How this tool is utilized by the companies. Q. No.2. A turn around strategy is used for converting a failed company or a risk company into a successful company. Discuss the action plan for a risk unit. Q. No.3. Prepare a swot analysis for a company and suggest on the bases of the analysis its future of action? Q. No.4. What could be the probable reason for companies to use the mergers & acquisition route? Give examples of recent takeovers. Q. No.5. What is strategic Management Process? Explain the frame work and key elements of this process? Q. No.6. How do you tackle the process of change management? Do you require a dynamic leader or a proper strategy or both? Q. No.7. Explain the following with examples:a) b) c) d) Cost based strategies and pitch based strategies. Sustainable competitive advantage. Strategic audit Poter's Model & its utility. 8

Strategic management

Q. No.8. short notes on :a) b) c) d) e) f) g) Supplier value chain and forward chain Vision & mission statements Value chain analysis Diversification options Competence and care competence Divestment & spin - off. Entry barriers & exist barriers.

Vision & Mission Statements The first task of strategic management is formulating the organization's vision, mission and value statements. They have the greatest impact on the identity and the future of the organization and reflect the strategic intent of the organization. Vision:- is what keeps the organization moving forward. Vision is the motivator in an organization. It needs to be meaningful with a long term perspective, so that it can motivate .people even the organization is facing discouraging odds. When you begin the process of strategic planning , visioning comes first. Martin Luther King Jr. said "I have a dream" and what followed was a .vision that changed a nation. That famous speech is a dramatic example of the power that can be generated by a compelling vision of the future. A vision is a guide to implementing strategy. Vision are about feelings, beliefs, emotions, and pictures. The process and outcomes of vision is. to develop an effective basis for business strategy. The fore-sight of the organization is to fit the strengths of the organizations with the market demands, to make the organization highly competitive with growth and profits as the rewards. Mr. Sunil Alagh when he was CEO of Britannia, decided to come up with a one line vision for the company "Every third Indian must be a Britannia Consumer by 2004". Y. C. Deveshwar chairman of ITC, had a vision of ITC, reminiscent of Jack Welch. He said that in a mature economy , with developed market institutions. ITC was unlikely to be successful unless it was focused on a one theme vision "Either we become world class or we leave the business". Hindustan Levers Ltd. "Our vision is to meet the everyday needs of people everywhere". Tata Irons & Steel Co. Ltd. :- "To seize the opportunities of tomorrow and create a future that will make us an economic value added positive company. to continue to improve the quality of life of our employees & the communities we serve. Revitalize the core business for a sustainable future Venture into new business chat will own. a share of our future. Uphold the spirit and values of Tata's towards nation building." Mission Statements:- Vision is the critical focal point and beginning to high performance. But obviously a vision alone won't make it happen, even the most exciting vision will remain only a dream unless it followed up with string, building & improving Strategic management 9

What is Mission ? "A mission statement is an enduring statement of purpose, that disting-uishes one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms". Fred David Observes, a mission statement reveals the long term vision of an organization in terms of what it wants to be and whom it wants to serve. It describe an organization `s purpose, customers, products or services, markets philosophy 85 basic technology. In combination these components of a mission statement answer a key question about on enterprise "What is our business"? A good answer to this question makes strategy formulation, strategy implementation & strategy evaluation activities much easier. "A .well crafted mission statement must be narrow enough to specify the real area of interest, it should serve as a signal on where the top management intends to take the firm." RANBAXY LABORATORIES LTD.. - MISSION STATEMENT "Our mission is to become a research based international pharmaceutical company" McDonald's - Mission Statement : "To offer the fast food customer food prepared in the same high quality world wide, tasty and reasonably period, delivered in a consistent low key decor and friendly manner. Ford Foundation : Mission Statement " Our dream is a world free of poverty. To fight poverty with passion and professionalism for last results. To help people, help themselves and their environment by providing resources, sharing knowledge, building capacity and forging partnership in the public and private sectors. To be an excellent institutions able to attract, excite and nurture diverse and committed staff with exceptional skills who know how to listen and learn. Our Principles:- Client centered, working in partnership, accountable for quality results, dedicated to financial integrity and cost effectiveness , inspired and innovative. OTIS Elevators:- "To provide any customer a means of moving people and things up, down and sideways, over that distances with higher reliability than any other enterprise in the world." If we study the mission statements carefully we will notice that these statements have three distinct & identifiable components e.g. The key market, contribution 8s distinction. Organizational Values and their impact on strategy:- The value statements give a common cause and a common sense of purpose across the organization. Just like the

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mission statement, it provides the direction to the strategy of the organization. I t provides an explicit depiction of values to guide the organization in choosing among competing priorities, thereby setting the organization apart from others. .Ford Foundation - Our Values :"Personal honesty, integrity, commitment working together in terms, with openness and trust , empowering others and respecting differences, encouraging risk-taking and responsibility, enjoying our work and our families". Wipro Technologies:- Values:"With utmost respect to human value, we promise to serve our customers with integrity through innovative value for money solutions, by applying thought day after day". Figure : Hierarchy of Vision, Mission & Objectives:-

Objectives, Goals & Targets : Objectives may be defied as "these ends which the organization seeks to achieve by its existence and operation". `Objectives defines the enterprise, used broadly , the word objectives covers "Long range company aims, more specific department goals, and even individual assignments. Thus, objectives may pertains to a wide or narrow part of an enterprise, and they may be either long or short range ".

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Objectives may be tangible or intangible. Intangible objectives include achievement o f materially quantifiable targets or goals. Intangible objectives include factors like brand or company image, employee morale. Objectives should not be static, they should be dynamic as kotter remarks "Objectives can grew obsolete because of the continuous changes occurring in the company's marketing environment" Importance of obectives:The following points elucidate the importance or usefulness of objectives. 1. 2. 3. 4. 5. 6. 7. Justify the organizations Provide direction Basis for management by objectives Help strategic management Help coordination's Provide standards for assessment and control. Help decentralization.

hierarchy of objectives at different levels. Promoters vision & Value ock holders Stock holders expectations Environment

Mission_________________________________________ Corporate objectives SBU - Objectives Dept - Objectives___________________________________ Individual Objectives

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Classification of Objectives:1. Economic Objectives:- (Survival, Roi, Growth, Innovation Market share.) 2. Social Objectives:- (Protect interests of consumers, Employees & society). Example:- Nike's Strategic Objectives are :Protect Nike's position as the number one athletic brand in America. Build a strong momentum in growing fitness market. Intensify the company's efforts to develop products that women need and want. 4. Explore the markets for products specifically designed for the requirements of maturing Americans. 5. Direct and manage the company's international business as it continues to develop. 6. Continue the drive for increased margins through proper inventory management and fewer, better products. Value chain analysis:According to porter, the business of a firm can best be described as a value chain , in which total revenue minus total costs of all activities undertaken to develop & market a product or services yields value. All firms in a given industry have a similar value chain, which includes activities such as obtaining raw materials, designing products, building manufacturing facilities, developing cooperative agreement & producing customer service. A firm will profit as long as total. revenues exceed the total costs--incurred in creating & delivering the product or service firms should strive to understand not only their own value chain, operations, but also their competitors, suppliers 85 distributions value chains. Value chain analysis VCA refers to the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products. VCA aims to identify where low cost advantages or disadvantages exist anywhere along the value chain from raw material to customer service activities. VCA enable a firm to better identify its own strengths and weaknesses, especially as compared to' competitors value chains analyses 85 their own data -examined over time. 'Substantial judgment may be required in performing a VCA because different items along the value chain. may impact other items positively or negatively, so their exist comp lex relationships e.g. receptional customer service may be especially expensive yet may reduce the costs of returns & increase revenues. Cost and price difference among rival firms. can have their origins in activities performed by suppliers, distributors, creditors on even shareholders. Despite the complicity of VCA, the initial step in implementing this procedure is to divide a firm's operations into specific activities on business process. The analyst attempts to attach a cost to each discrete activity 86 the costs could be in 'terms of both times money. Finally, the analyst converts the cost data into information by looking for competitive cost strength & s weaknesses that may yield competitive advantage or dis-advantage. Conducting VCA is supportive of the RBV's examination of a firms assets and capabilities as sources of distinctive competence.
Strategic management
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1. 2. 3.

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When a major competitor or new market entrant offers products or services at very low prices, this may be because that firm has substantially lower value chain costs ox perhaps the rival firm is just waging a desperate attempt to gain sales or market share . Thus. VCA can be critically important for a firemen monitoring whether its prices and costs are competitive (e.g. is given on the next page). Value chain differ immensely across industries and firms. Whereas. a paper products company, such as stone container, would include on its value chains timber farming ,logging, pulp mills and papermaking, a computer company such as Hewlett - Packard would include programming, peripherals, software, hardware and laptops. A matel would include food, housekeeping check-in & check-out operations, website, reservations system etc.

lustration :- A value chain for a Typical Manufacturing Company Supplier Costs Raw material Fuel Energy Transportation Truck Drivers Truck Maintenance Component Parts Inspection Storing Warehouse Production Costs Inventory Plant Layout Maintenance Plant Location Computer R&D Cost Accounting Distribution Costs Loading Shipping Strategic management
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Budgeting Personnel Internet


0

Trucking

Railroads Fuel Maintenance Sales & Marketing Persons Promotion Advertising Transportation. Food & Lodging Customer Service. Cost Postage Phone Internet Warranty Management Costs HR Admn. Employees benefits Labour Relations Managers Employees Finance Legal ,All firms should use value - chain system (VCA) to develop & nurture core competence 85 convert this competence into a distinctive competence. A core competence evolves into a major competitive advantages, then it is called a distinctive competence.
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Sales

Website

Internet Publicity

Illustration Company perform activity in its VC Competen cies & capabilitie s gradually emerge in certain impt V. C. activities Co, proficiency in performing I&2VC activities reses to the level of a core competen cies
Co - proficiency in performing a core competencies - contd. To build & evolve a distinctive

competencies

Co - gains for sustainabl e competitiv e advantage .

Translating Company performance of VC activities into competitive advantage:More and more companies are using VCA to gain and sustain competitive advantage by being specially efficient and effective along various parts of the value chain e.g. Wal - Mart has built powerful value advantages by focusing on exceptionally tight inventory control volume purchasing of products, & offering exemplary customer service. What is Benchmarking? Benchmarking is an analytical tool used to determine whether a firm's value chain activities are competitive compared to rivals & thus conducive to winning in the marketplace. Benchmarking entails measuring costs of value chain activities across on industry to determine "best practices" among competing firms for the purpose of duplicating or improving upon those best practices. Benchmarking enables a firm to take action to improve its competitiveness by identifying (improving upon) value chain activities where rival firms have comparative advantages in cost, service, reputation, or operations. The hardest part of benchmarking can be gaining access t other firms' value chain activities with associated costs, Typical sources of benchmarking information however, include published reports, trade publication suppliers, distributors, customers, partners creditors shareholders, Lobbyists & willing rival firms, ,because of ifs popularity . many consulting firms are using benchmarking e.g. Acceptors. Strategic in . Action. 1) 2) 3) 4) 5) 6) Integration strategies e.g. forward & backward integrities Intensive strategies (market Penetration) Integration (M&A) Diversification strategies Defensive strategies Michael porters' strategies Small business strategies

Intensive Strategies
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Market penetrations, market development & product development are sometimes referred to as intensive strategies, because they requires intensive efforts if a firm's competitive position with existing products is to improve. r

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Market Penetration It seeks to increase market share for present products or service in present market through greater market efforts. Market penetrations includes increasing the number of salespersons, increasing advertising expenditures, offering extensive sales promotions_ items on increasing publicity efforts. Japanies electronics giants Sony Corporation is spending over $140 million in a new advertising & promotion drive to market it high definition television sets in the U.S.A. Five guidelines for when market penetration may be effective strategy. 1. When current market are not started with a particular product or service. 2. When the usage rate of present customers could be increased significantly. 3. When the market share of major competitors have been declining while total industry sales have been increasing. 4. When the correlation between dollar sales & dollar marketing expenditure historically has been high. 5. When increased economics of scale provide major competitive advantages. Market Development It involves introducing present products or services into new geographic area eg. Adidas in May 2005, had 1,500 stores in China & Stated that it would open another 40 stores every months in china for the next 40 months. Already the . number 2 sportswear company in the would behind Nike, Adidas has been nominated as the official outfitter Of the National Olympic committee in china in 2008: ideline for. when market develo . ment ma be an es s eciall effective strate are : 1. When new channels of distribution are available that are reliable , inexpensive and of good quality. 2. When an organization is 'very successful at what it does. 3. When new untapped or unsaturated market s exists. 4. When an organization has the needed capital & HRS to manage expanded operations. 5. When an organization has excess production capacity. 6. When an organizations basic industry is becoming rapidly global in scope. Product Development:- is a strategy that seeks increased sales by improving or modifying present products or services. Product development usually entails large research & development expenditures. Fast - Food chains from Arbys' to McDonaldsare pursuing product development testing gourmet like sandwiches, because customers increasingly are willing to pay more for fast food crafted with quality ingredients . People more and more want food that not only tests good but.that they can feel good about eating. McDonald `s now has design your own deli sandwiches & Arby's sells chi-chi sandwiches, which is a chicken salad blended with pecans , apples 86 grapes subway is testing a healthy kids pak & Windy's is testing fruit cups & milk as options in its kid meals.
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Coca - Cola Co., based in Atlanta 86 Pepsi co based in purchase New York are introducing Coca-Cola zero 86 Pepsi co one, respectively which underscore the grooving popularity of diet soft drinks at the expenses of sugar drinks. Sales of sugary drinks such as Coca-Cola . classic & Pepsi, fell 3% & 2.5%. Last year diet drinks now have 29.1% market shares that is growing many teenagers young adults have ditched regular colas in favour of bottled water 86 diet drinks. 5 guideline for when product development may be an especially effective strategy to pursue are :1. When an organization has successful products that are in the maturity stage of the product life cycle the idea here is to attract satisfied customers to try new (improved) products as a result of their positive experience with the organizations present products or services. 2. When organizations completes in an industry that is characterized by rapid technological developments. 3. When major competitors offer better quality products at comparable prices. 4. When an organization competes in a high growth industry. 5. When an organization has especially strong research 86 development capabilities. Core Competencies:Prahlad and Hemal through a service of articles in the Harvard business review followed by a best selling book, competing for the future, developed in the concept of CoreCompetencies . Core competence can be seen as any combination of specific, inherent integrated and applied knowledge , skills and attitudes. Core competencies are not fixed . Competencies are developed internally by the firm in its day by day activity. and by the use of acquired resource. Therefore, competencies are accumulated following firm specific knowledge patterns. While the core competencies vary by industry and by company, following is a related list of skills, processes or systems that might be considered as core competencies. (a) Product development - Marketing (b) Supply chain- Speed to market (c) Sales force - Customer service (d) Technology - Strategic Alliances (e) Manufacturing practice - Engineering (f) Service levels - Design (g) Efficient Systems - Product innovation Core competency analysis creates a realistic view of the skill sets, processes and systems the company is uniquely good at performing e.g. reliance industries has grown to be the largest private enterprise in India in the last 25 years . The secret of its phenomenal success are its competencies. Its competencies are its project management skills, perhaps the best in the world, its competence to mobilize large quantities of low cost finance, manage the regularity environment and speed. These competencies allowed Strategic management 18

Reliance to set - up world scale plants at the lowest capital costs of any company in. India and extend its activities to span exploration and production (E 8v P) of oil & gas ,, refining & marketing, petrochemical (Polyester, polymers and intermediates) textiles financial services and insurance, power telecom and infocom initiative. In each industry there are different sets of core competencies that are important to the success of the business. In most instances the list of important competencies is relatively short. However this short list, when well selected and developed provides the opportunity to leverage the strategy of the company. Porter has identified some competencies that determine strategy . These are given in table below Table (Identification of Core Competencies)

Area Competent Requirements products from the users point of view, in each market segment breadth & depth of the product time. Channel coverage & quality strength of channel relationships ability to service the channels Skills in each aspects of the marketing more skills in market research & new product development training 85 skills of the sales force. d. Operations Manufacturing cost position economic of scales, learning curve, age of equipment etc. Technological sophistication of facilities and equipment, flexibility of facilities and equipment transportation cost, labor cost unionizations cost of raw material. e. Research & Patents, copyright in house capability in R&D etc. Engineering f. Overall cost Overall relative costs shared costs etc. Organizational Capabilities :- Competencies and capabilities result from the way the 'organization uses its resources to create knowledge and skills. When these competencies and capabilities are linked together effectively they sustain excellent performance & give the organization market position & market power. Traditionally the capabilities of the organization have been described under the following heads. Financial capabilities Market capabilities Technological capabilities Strategic Business alignment capability or nangst. Capability.
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Financial Capabilities The 'financial strength of an organization is determined by its ability to grow .its quick response ability, ability to respond to change 86 staying power. This is demonstrated by its cash flow, short 86 long sum barrowing sing capacity (debt equity ratio) 86 its capacity to attract new equity in the foreseeable future and financial management ability which includes negotiation, raising capital , credit, inventories and account receivable. An organization can effectively show financial capability of it can carry all its stakeholders with it investor will invest in the firm if the market has confidence in the stock, providers of funds will assess the risk attached to the barrowings 86 the competence with which the barrowings are managed , the competence with which the organization is governed and administered will determine the ability of the organization to match the funds brought in by the providers of funds. Marketing Capability Marketing is the foundations of a good business. It is the anticipation and fulfillment of customers needs taking account of an organizations core competencies. A customers because more demanding, their needs change, new technologies emerge 86 competition increases, many organizations find that they need to build or change every organizations needs to understand how changes will impact its business. It has to evolve strategies to deal with these changes to ensure continued survival. Marketing and sales provide the means whereby consumers 86 users are made aware of the product or service offered by the organization. Marketing sales also provide the customer the ability to procure the product or service in a manner that they perceive a fair exchange of value. The popular tools used by firms evolve 86 assess strategies are: 1) 2) 3) 4) Decision Trees SWOT analysis PESTLE Analyses Case Analysis

Decision Tree Decision Trees are most common tools used in business. A decision Tree takes as .impact on object or situation described by a set of properties, and outputs a yes / no decision.. Decision trees therefore represent Boolean functions. They can be extremely simple or highly complex, you start decision tree with a decision that you need to make. Draw a small square to represent this towards the left of a large piece of paper from this box draw but lines towards the right for each possible solution, 86 write that solution along the line, keep the lines apart as per as possible so that you can expand yours thoughts at the end of each line consider the results. .SWOT Analysis It is a popular tool for audit and analysis of the overall strategic position of a business and its environment. The acronym SWOT represent `Strengths' (S) ` Weakness' (W), `Opportunities ` (O) 86 'Threats' (T).

The SWOT analysis provides informations that is helpful in matching the firms resources & capabilities to the competitive environment in which is operates. As such, it i s instrumental in strategy formulation and selection. Successful business build on their strength, correct their weaknesses and protect against internal vulnerabilities and. external threats. They also keep on eye on their overall business environment & spot 8& exploits new opportunities faster than competitors. The technique is simple and effective. It requires an analytical frame of mind. Due to its simplicity all firms have the capacity to use this tool to advantage. The SWOT Matrix The. relationships in a SWOT analysis are generally represented by 2x2 matrix. The "Strengths & opportunities" are both positive considerations. Weakness & Threats are both negative considerations. [n General company should attempt to Build it's strengths Reverse in weaknesses Maximizing its response to opportunities. - Overcome its threats. SWOT MATRIX S Strengths Positive 0 Opportunities W - Weakness Negative T Threats

Strengths Could be :a) b) c) d) Marketing Expertise (Tata) Innovative product (Nono) Location of business (dis advantage) Quality processes & procedures (Tata has good)

Weakness could be:a) Lack of marketing expertise (Palio fiat)


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b) Location & business c) Poor quality goods or services d) Damaged reputations (Fiat)
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Opportunities and threats are external factors e.g. An opportunities Could be :a) b) c) d) e) A developing market e.g. internet. Mergers, It ventures or strategic alliances Moving into new market segments that offers improved profits. A new international market A market vacated by an ineffective competitor.

A threat could be:a) b) c) d) e) A new competitor in your home market. Price wars with competitors A competitor has a new innovative product or service Competitors have superior access to channels of distribution. Taxation is introduced on your product or service.

A word of caution, Swot analysis can be very subjective., Do not rely on it too much. Two. 'people rarely come up with the same final version of SWOT Tows analysis is extremely similar. It simply looks at the negative factors first in order to turn them into positive factors. So use it as guide and not as prescription. Simple Rules for successful SWOT Analysis Be realistic about strength & weaknesses. Analysis should differentiate where your organization is today 8s where it could be in the future. Be specific, avoid grey areas. Always analyze in contest to your competition Keep your SWOT short and simple avoid over analysis. SWOt Strategies S - 0 ---> Strategy --> pursue opportunities that are a good fit to the company's strengths W.0 - Strategies overcomes weaknesses to pursue opportunities . S-T. - strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. W - T --> Strategies establish a defensive plan to prevent the firms weaknesses from making it highly susceptible to externals threats.

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Fig. SWOT Strategies Strengths Opportunities Threats S. O. Strategies S. T. Strategies .Weaknesses W. O. Strategies W. T. Strategies

SWOT analysis, PEST OR PESTLE analysis can provide information that is helpful to the firm in strategy formulations and selection. PESTLE (Analysis) is an acronym for P - Political E - Economic S 4 Social Cultural T 4 Technological L -> Legal E - Environment Like Swot analysis the PESTLE analysis is simple, quick and use 4 key perspectives

The advantage of this tool is that it encourages management into proactive and structured thinking in its decision making. PESTLE analysis involves identifying the political economic, socio - cultural and technological influences -on an organization and providing a way of auditing the environmental influences that have impacted on an organization or policy in the past and how they might do so in future. Increasingly when carrying out anaysis of environmental or external influences, legal factors have been separated out from political factors. The increasing , acknowledgement of the significance of environmental factors has also led to environment becoming a further general category, hence PESTLE analysis becoming an increasingly used an recognized term, replacing the traditional `PEST' analysis. The PESTLE Matrix The first step is to identify the issue remember focus is very important. Make up your own PESTLE questions and prompts to suit the issue being analyzed and the situation . shortlist those that are important. Making it more scientific The PESTLE analysis can be converted into a more specific instrument by giving a weightage & a score to the items in each of the sections for each of the identified options that the firm has to consider For each of the items in each segment of the PESTLE chart, we can give a score on a
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scale of 1 to 100. Some factors will be more important than the others. Make sure the

total weights add up to 100. In case we are booking. at options, the next step is to list aril the options that we are considering. Give marks to each specific option. Political Ecological / environmental issues Future laws Current laws Govt polities Regulatory bodies Trading policies Social Life style trends Demographics Consumer attitudes 86 opinion Brand 86 co's technology Consumer buying pattern Ethinic religious factors Legal International law Employment law Competition law Health safety law Regional legislation Economic Economy situations trends Taxation specific to products Market 8s trade cycles Customer . end user drivers Interest 8; exchange rates

Technological Replacement technology or solution Maturity of technology Innovation potential Technology access licensing, patents.

Environmental Environmental impact Environmental legislation Energy consumption Waste disposal

[THE PESTLE MATRIX] Multiple the marks with the weight age factor and then add the total score for each option. "The higher the score is the more attractive the option". The PESTLE analysis is a useful business measurement tool for understanding the competitive environment of the firm.

On completion of PESTEL analysis, the short listed options can be examined using . SWOT analysis. "PESTLE is useful before SWOT - not generally the other way round". CASE ANALYSIS: Case analysis is not a management tool but a management learning tool. Case study has been used in management studies from 1908. When the Harvard Business school was set - up. Case analysis requires us to apply the concepts taught in different area of business study & use the concepts to analyze the organization on the problem. A case study presents an account of what happened to a business on industry over a number of years. It chronicles the events that managers had to deal with and provides a detailed insight into various aspects of business life, such as changes in the competitive environment, and charts the managers response, which usually involved changing the business on corporate level strategy. It is normally written from the point of view of the decision maker. Each case is different because each organization is different. The case writer reports the relevant facts of the situation and the student is expected to provide arguments and an independent opinion on the problem & present alternative on. possible solution. There is no right answer to a problem. The importance of this method is that it provides an opportunity to think & an ability to understand the complicities of the real world. The underlying thread in all cases, however is the use of strategic management techniques to solve business problems. Q. What is Restructuring, RE-engineering & E-Engineering _& change management or managing resistance to change? OR How to implement strategic change? Describe the steps in change Or Briefly discuss the organizational politics, power & conflict and its impact on change management.

Ans. To. change is to move from the present to the future, from known information to relatively unknown informations. Therefore change can be defined as "to make or become different give or begin to have a different form"
Change also refers to dissatisfaction with the old values, beliefs and systems and hence adopts to new values, beliefs and systems. The deficiency also reflects the inability of the system to respond to environmental changes. Changes signifies a qualitatively different .way of perceiving, thinking & behaving to make improvement over the past & present trends of the business management. Strategic change. in organizations can be termed as a process of bringing about relatively enduring alternation in the present status of an organization or its _ components or interrelationships among the components & their differentiated & integrated functions in totality or partially. Strategic management 30

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Implementing Strategic change: Steps in the Changing process The management of strategic change involves serious steps that managers must follow if the. Determine the need for change

Determine the obstacles

Implementing change

Evaluating change (Stages in the change process) Change process is to be succeeding. The major important steps are listed above :1) Determining the need for changes: By conducting SWOT analysis , finding strengths; weaknesses. 2) Determine the obstacles:- To change, by analyzing obstacles related to corporate, divisional or functional strategies preventing the company from reaching to ideal future state 3) Implementing. change:-. i.e. top down change or Bottom - up change 4) Evaluating Change:- Evaluate the effects of the changes in strategy 86 structure on organization performance. Defining. Politics, . Power & Conflict:Organizational politics defines as the tactics but interdependent individuals 86 groups seek to obtain and use power to influence the goals 86 objectives of the organization to further their own interests organizational politics process is listed as. a) b) c) Sources of organizational politics (Individuals) Source of power . Strategic change

These processes are used for decision making in the organization..


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Power: Power is defined as "the ability of one individual , functions, or division to cause another individual, function or division to do something that it would not otherwise have done" Power is different from authority, when stems from holding a formal position in the hierarchy. Effects of Power and Politics on Strategic Change: Politics & power can strongly influence a company's choice of strategy and structure.. Company has to maintain organizational structure & is responsible for the various divisions functions 8s managers need to change in the remote environment . Companies have to face power problems within the organizational structure. Therefore, changes of the environmental trends of the organization when environment changes, companies are not responding faster. In this circumstance excessive politicizing and power struggles to reduce a company's flexibility . It cause inertia & erode competitive advantage. Conflict can be defined as situation that arises when the goal directed behaviour of one organizational group blocks goal directed behaviour of another. Conflict can be good or bad, sources of conflicts are employees, task relationship, scarcity of resources. Good strategic planning can prevent conflicts. Restructuring is also referred to as downsizing, rightsizing, or delaying - involves reducing the size of the firm in terms of number of employees, no of divisions or units & no. of hierarchical levels in the firms structure. This reduction in size inintended to improve both efficiency & effectiveness. Restructuring is concerned primarily with share holder well being rather than employee .well.. - being recession in economies leads to retrenchment of employee and restricting of organization. In India Since 1990 a process of change is observed, due to Globalization, industrial sickness , outdated skills, technology, customer choice of behaviour is responsible for changes, resulting into VRS schemes b com.anies like PAL Carona shoes Blue star Cromton Greaves Godre" etc. Re-Engineering is concerned more with employees and customer well being. than share holder well being re-engineering also called process management, process innovation, or process re-design - involves reconfiguring or re-dressing work, jobs and processes for the purpose of improving cost, quality service & speed. Re-engineering does not usually affect the organizational structure or chart, nor does of imply job loss or employee pay offs. Whereas restructuring is concerned with eliminating or establishing, shrinking or enlarging & moving organizational departmental & divisions, the focus of re-engineering is changing the way of work actually carried out. Re-engineering is characterized by many tactical (short-term, business function specific) divisions whereas restructuring is characterized by strategic (long term, affecting all business functions) decisions e.g. of re-engineering are companies , Asian paints, Pepsico, Bajaj, examples of restructuring are Bombay Dyena, Fiat cars, Godrej, Pfizer India. In re-engineering a firm uses informations technology to break division functional barriers & create a work systems based on business processes, products, or outputs S t r a t e g i c m a n a g e m e n t 33

rather than on functions or inputs , cornerstones of re-engineering are decentralization:, reciprocal interdependence 8 5 information sharing. Resistance to change :- It is determined as single greatest threat to successful strategy. implementation , resistance regularly occurs in organization in the form of sabotage production machines, absenteeism, filing unfounded grievances and an unwillingness to cooperate. People after resist strategy implementation because they do not understand what is happening or why changes are taking place. In that case employees simply need accurate information. Successful strategy implementation hinges upon managers ability to develop an organizational climate conducive to change. Change must be viewed as an opportunity rather than as threat by managers & employees. Resistance to change can emerge at any stage or level of the strategy implementation process. Although there are various approaches for implementing changes, three commonly used strategies are a force change strategy an educative change strategy and a rational or self interest change strategy. Strategies in Action (Conti.. from earlier page ) Q. :- Explain : Integration Strategies, Diversification & Divestiture: Integration Strategies Forward integration, backward integration and horizontal integration are sometimes collectively referred to as vertical integration strategies. Vertical, integration strategies allow a firm to gain control over distributors, suppliers and an competitors. Forward Integration Forward integration involves gaining ownership or increased control over distributors or retailers, increasing numbers of manufacturers (suppliers) today are pursuing a forward integration strategy by establishing website to directly sell products to consumers. This strategy is causing turmoil in some industries e.g. Dell computer recently began pursuing forward integrations by establishing its own stores within a store in Sears, Roebuck. This strategy supplements Dells mall based kiosks. Which enable customers to see a try dell computers before they purchase one. Neither the Dell kiosks nor dell stores within a store will stock computers.. Customers still will order Dell exclusively by phone or over the internet, which historically differentiated Dell from other computer firms. Size guidelines for when forward integration may be an especially effective strategy are: a) When an organizations present distribution are especially expensive, or unreliable or un-capable of meeting the firms distribution needs. b) When the availability of quality distributors is so limited as to offer a competitive advantage to these firms that integrate forward. c) When an organization completes in an industry that is grooving & is expected to continue to grow markedly. d) When an organization has both the capital and human resources needed to manage the new business of distributing its own products. S t r a t e g i c m a n a g e m e n t 34

Backward Integration Both manufacturers and retailers purchase needed materials from suppliers. Backward integration is a strategy of seeking ownership or increased control of a firm's suppliers.. This strategy can be especially appropriate when a firms current suppliers are unreliable,, too costly or cannot meet the firms needs. e.g. when you buy a base of pampers diapers at wal - mart, a scanner at the stores checkout counter instantly zaps an order to Procter 86 gamble company. Horizontal integration It refers to strategy of seeking ownership of or increased control over a firms competitors. One of the most significant trends in strategic management today is the increased use of horizontal integration as a growth strategy. Mergers, acquisitions, and takeovers among competitors allow for increased economies of scales 86 enhanced transfer of resources 86 competencies. Kenneth Davidson makes the following observation about horizontal integration:"The trend towards horizontal integration seems to reflect strategists misgiving about their ability to operate many unrelated business. Merger between direct competitors are more likely to create efficiencies than mergers between unrelated businesses both because there is a greater potential for. eliminating duplicate facilities 86 because the management of the acquiring firm is more likely to understand'' the business of the target". Diversification Strategies:There are 2 general types of diversification strategies, related 86 unrelated.. Businesses are said to be related when their value chain posses competitively valuable cross business strategic fits, businesses are said to be unrelated when their value chains are so dissimitor that no competitively valuable cross business relation ships exists. Most companies favor related diversification strategies in order to capitalize on synergies as follows. Transferring competitively valuable expertise, technological know how or other capabilities from one business to another. Combining the related activities of separate business into a single operation to achieve lower costs. Exploiting common use of a well known brand name. Cross business collaboration to create competitively valuable resource strengths 86 capabilities. Diversification strategies are becoming less popular as organization are finding it more difficult to manage diverse business activities. In the 1960 86 1970s the trend was to diversity .so as not be dependent on any single industry, but in 1980s saw a general reversal of that thinking. Diversification is now on the retreat Michael porter of the Howard Business school, school, says "Manage ent found it could not manage the
Strategic management 29

beast", Hence, business are selling, or closing, less profitable diversions in order to focus on core business. A few companies today in India however, pride themselves on being conglomerates from small firms to big ones, e.g. Reliance Industry (Anil Ambani Group) from Reliance finance, to reliance constructions or projects to well established Reliance communications etc. Divestiture Selling a division, or part of an organization is called divestiture. Divestiture often is used. to raise capital for further strategic -acquisitions or investments. Divestiture can be part of an overall retrenchment strategy to rid an organization of business that are unprofitable, that require too much capital, as that do not fit well with the firms other activities .e.g. Morgan Stanley plans to divest its discover credit card division to be purchased. by a group of shareholders & former executives who have convinced CEO Philips Purewell & Morgan Stanley's board that the division should be divested Unliver recently sold its perfume division to including brands Calin Klein & Vora Wang to Coty Inc for $800 million. Q. Define Mergers & Acquisition._ _Why it is done? What are the benefits / limitations. Is any strategy required for M&A ? Ans. Merger and Acquisition are two commonly used ways to pursue strategies. A merger occurs when two organizations of about equal size unite to form one enterprise. An acquisition occurs when a large organization purchases (acquires) a smaller or vice - versa. When a merger or acquisition is not desired by both parties, it can be called a take over or hostile takeover. Mergers and acquisitions are also methods of diversification. Takeovers and mergers have sometimes been a dominant means of implementing strategies, there can be real advantages, particularly if there is a good fit between the organizations . Synergy can occur although less often then expected . the disadvantages of mergers are that they can result in operational & psychological issues which can distract the people. Who have to make them work. In 1998 merger of ICICI and ICICI BANK was one that is reshaping the definition of lending institutions in India. Another example of a merger is the case of Lockheed and martin - Marietta corp. They merged to form Lockheed - Martin.. In recent years we have seen many hostile acquisitions in which the organization buying acquired did not want to be bought . These are referred to as takeovers. It is natural for the target organizations management to try to resist the take over. Takeover or acquisition is popular strategic alternative. Ispat International N. V. is a company that started as small wire rod manufacturer in Indonesia 8s has grown. into the world's largest steel maker troughs an acquisition strategy. Where it focused on acquiring companies that use DRI process in the manufacture of steel. Many Indian companies have adopted this route to grow e.g. the R. P. Goenka group of companies have used this as a high . growth strategy. Their net worth of has gone upon from 70 crores in 1979 to Rs.5 500 Strategic management 30

Cr. In 1994. In short period of 15 years, he acquired CESC, Harrisons Malayalam, Wiltech, & HMV. Nicholas Piramal was formed when the Piramal group acquired Nicholas laboratories, a small formulations Co. in 1988 from Sara Lee. Since then it followed a strategy of planned acquisitions to develop & consolidate its strength in marketing to therapeutic niches. Ajay Piramal built Nicholas Piramal unto one of the fastest growing companies in India through a string of acquisitions that include Roche, Bochringer, Hochests' R & D facility, Lacto Calamines OTC products & bulk drugs of Sumitra Pharmaceuticals & Chemicals. Nicholas Piramals consolidated net sales turnover have gone upto Rs.19 crores in 1988 & Rs.1418 Cr. In 2004. While profits have grown from 80 Lacs to 200 crores, increasing about 220 times in a period of 16 years. Acquisition can either be for value creation or for value creation. Many of the acquisitions that took place in the 70's & 80's were based on the concept of value capture. The Chhabrias e.g. were attracted to acquisitions because either they were buying cheap, or they were getting tax incentives or credits from the Govt. or that they could sell the assets. On the other hand the sale of TOMCO to Hindustan lever was based on a value creation concept to support & Strengthen its core detergent business. The larger challenge of the acquisition lay in integrating the operations of the 2 companies for synergy. Why do Mergers and Acquisitions Happen? M &A are fast becoming one of the key drivers of growth in Indian Industry. The year 2004-2005 Saw M&A deals to the value of over Rs.2000 Cr. (20 bn.) an increase in activity from the previous years. Since M&A are voluntary decisions by management, one would expect them to represent positive net present value (NPV) strategies -towards the goal ofmaximizing shareholders wealth. Several principles form the basis for the value addition absorbed in 'M&A activity in some cases the underlying cause in clear, in others it may be impossible to distinguish between 2 or more possible sources. Trutwien summarizes the theories of merger motives into 5 major theories. 1. Efficiency Theory With the merger of 2 companies there is a possibility of lower unit costs, stronger, purchasing power or gaining of management efficiencies. The differential efficiency theory argues that there are differences in the efficiencies of management between companies. Hence when firms merge the less efficient firm will be brought to the level of the more efficient firm. Efficiency theories also provide the rationale for synergy in mergers. 2. Monopoly or Market Power Theory A significant motive for M&A as is that it helps increase the firms market power through increase in size (market share) --increase in Mai-kef shares leads to an increase in industry concentration, which provides firms with greater growth opportunities through access to better technology, control over demand & supply of intermediating products & services, or the power to set prices, establish industry norms (dominant designs) in technology, or (best practices) customer service. The acquiring firm can gain market power through collusive synergy or through competitor interrelationship. Shrategic management 31

3. Raider Theory Focus on how an acquirer with no strategic intent popularly known as private equity funds (whose motive is to earn financial returns from investments) acquires a concealing stake in a Target firm to transfer wealth from the target company stockholders to the acquirer stockholders. The primary value that raiders add would be to acquire distressed firms with inappropriate capital structures & restructure them to make them more efficient. 4. Information or Valuation Theory Sine there is an information asymmetry between financial statements and the public information incorporated in the stock price new information may be disclosed during a merger deal. Information theories refers to the revaluation of the firm through disclosure of new information during the merger negotiations, the tender offer process, or planning for a strategic alliance / joint venture. 5. Empire Building or Agency Theory Jerrson's and Mackling formulated the implications of agency problem , Agency problem occur when the separation of ownership & management leads the management to work towards their personal benefit rather than the benefit of' owners. Agency problem also give rise to merger motives of the empire building theory. Market Entry Strategy:MNC, use acquisition of domestic companies as an effective market entry strategy. Through M&A, MNCs not only get access to the domestic market, they also gain significant local capabilities to create and deliver their products & services. Commenting on the NatSted deal, B. Muthuraman, M. D. Tata Steel said, "The acquisition of the steel business of Nasteel is an important step in Tata Steel's' plans to build a global business. Natsteel's business provide Tata Steel access to key Asian steel markets including China". There are may reasons for M&A including the following:1. To provide improved capacity utilization. 2. To make better use of existing sales force. 3. To reduce Tax obligation 4. To gain new technology 5. To reduce managerial staff. 6. To gain access to new suppliers, distributors, custorners products 86 creditors. Q. A turnaround strategy is used for converting a failed company or a sick company into a successful company ? Discuss the action plan of a sick unit. Many companies restructure their operations divesting themselves_ of_.their. _diversified_ activities, because they wish to focus more on their core business area. An integral part of restructuring, therefore is the development of strategy for turning around the company's core or remaining business areas. Following are the steps taken by the organizations. Identifying the causes of the failure 2. Developing strategies for successfu* urn - around. Strategic management 32 1.

1. The cause of the failure can be identified either by evaluation 85 performance. i.e. evaluating the process, performance measurement or Auditing the firms objectives, goals, strategies the cause of failure could be. a. Poor management: It involves many sins, like, neglect of core businesses, in sufficient number of good manager, bad leadership. b. Over Expansion: Rapid expansions or diversification & poor controls on finances. c. Inadequate financial____controls: Employing excess staff, . spending beyond requirement. d. High Costs: Inadequate financial control can lead to high costs. Causes could be low labour productivity management's failure to introduce labour saving technology. High salaries of employees, failure to realize economy of scale, low market share. e. New Competition: Many companies have failure because of unable to face threats of competitors. Therefore, new competition kills, idle companies in the business word. f: Unforeseen Demand shifts: Environment threat like marketing, technology , political, social, legal cultural environment can change open market opportunities for new products. It consequence is the unforeseen demand shifts from old to new products. Therefore, customer has preference to buy new product at a low cost. When companies have failure to fulfillment of the above fact then have a failure in the business world. g. Organizational Inertia: The emergence of powerful new competition & unforeseen shifts in demand might not be enough to cause corporate decline. Organization is slow to respond to environmental changes. 1. Changing leadership Main Elements of Successful turn around Strategies Redefining strategic focus. Asset sales & closures. Acquisitions. Improving Probability

2. 3. 4. 5.

Improving probability involves number of steps to improve efficiency, quality, innovation & customer responsiveness. It involves. Lay - offs white & blue collar employee Investment in labour saving equipment Tightening financial control d. Assessment of profit responsibility to individuals & subunits within the company by a change of organizational structure of necessary. e. Cutting back on marginal products. f. Re-engineering business process to cut costs & boost productivity. g. Introducing total. quality management (TQM). Q. What is BCG Matrix ? Is it an Excellent tool for evaluation business? How this tool is utilized by the companies. a. b. c.

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Ans. During the 1960s, a number of management consulting companies developed :a serious of conceptual techniques whose stated purpose was to help the top officers of diversified better management portfolio of business.. These techniques are known a s Portfolio planning techniques Portfolio matrix first time developed by the Boston Consulting group (BCG) technique as it is called. The main objective of BCG matrix o r technique is to help senior manager to identify the cash flow requirements of the different business in their portfolio. The BCG approach involves three main processes. They are : 1. Dividing a company into strategic Business units (SBUs) & assessing the long term prospects of each 2. Comparing strategic business units 3. Strategic complications. According to the BCG Matrix (shown in the figure) a company can relate a SBUs for each economically distinct business area - top managers can define SBUs, top managers, then assess each, based on 2 criteria listed be below: 1. 2. The SBUs, relative Market The growth rate of SBUs industry / market growth

BCG Growth / Share Matrix Hig Cell -- 1 Cell. - 2

Stars

?
Cell-4

Cell-3

Cash Cows

Dogs
Low High Relative Market Strategic management 40 Low

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Limitations of the BCG Matrix 1. It is clearly defining a market is very difficult task as a result, accurately measuring share and growth rate can be a problem. This creates the potential manipulation or distortion. 2. Dividing the matrix into 4 cells is based on a high / low classification scheme . It does not recognize the markets with average growth rates of the business with average market share. 3. Strategic evaluation of a set of business requires examination of more than relative market shares and market growth. Q. Discuss Poter's Model on Strategy development & .Competitive Analysis. And. Poters five forces model of competitive analysis is a widely used approach for developing strategies in many industries. The intensity of competition among firms varies widely across industries. According to partner, the mature of competitiveness in a given industry can be viewed as a composite of 5 forces. 1. Rivalry among competing firms Rivalry among competing firms is usually the most powerful of the 5 competitive forces. The strategies pursued by one firm can be successful only to the extent that they period competitive advantage over the strategies pursued by rival firms changes in strategy by one firm may be met with retaliatory countermoves, such as lowering praise, enchanting quality, adding features, providing services, extending warranties 86 increasing advertisement. Free flowing information on the internet in driving down prices and inflation worldwide . The internet coupled with common currency. in_ Europe, enables consumers to

easily

make price comparisons across countries. In India also use of internet to check the features and car, prices are becoming common. The intensity of rivalry among competing firms tends to increase as the number of competitions increases, as competitors become more equal in size and capability, as . demand for the industry's products declines, & as price cutting becomes common rivalry also increases when consumers can switch brands easily, when barriers to leaving the market are high, when fixed cost are high when the product is perishable. 2. Potential entry of new competitors Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms increases. Barriers to entry, however can include the need to gain economies of scale quickly, the need to gain technology & specialized know-how, strong customer loyalty, strong brand preferences, tariffs, lack of access to raw materials possession of patents. Despite numerous barriers to entry, new firms sometimes enter business with higher quality products, lower prices, & substantial marketing resources. The strategists job therefore is to identify potential new firms entering the market, to monitor, the new rival firms strategies, to counterattack as needed & to capitalize on existing strengths and opportunities when the threat of new firms entering the market is strong, incumbent firms generally fortify their positions and take actions

Strategic management

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to deter new entrants, such as lower prices, extending warranties, adding features, or offering financing specials. 3. Potential Development of Substitute products In many industries , firms are

in close competition with producers of substitute products in other industries e.g. Plastic container producers competing with glass, paperboard 86 aluminum can producers and pain killers competing with each other. Competitive pressures arising from substitute products increase as the relative price of substitute products declines & as consumers susitehing costs decrease.

4.

Bargaining Power & Suppliers The bargaining power of suppliers affect the

intensity of competition in an industry, especially when there is a large numbers of suppliers, when there are only a few good substitute raw materials, or when the cost of switching raw materials is especially costly. It is often in the best interest of both suppliers & producers

to assist each reasonable prices, improved quality,

development of new services, just in-time deliveries & reduced inventory costs, thus enchaining long term profitability for all concerned few firms, pursue a backward integration strategy to gain control or ownership of suppliers; when supplier are not reliable, too costly, not meeting the firms need. In many industries it more economical to use outside supplier for small components than to self manufacturing the items.

5.

Bargaining Power of Consumers When customers are concentrated on large

or buy in volume, their bargaining power represents a major force affecting the intensity of competition in an industry. Consumers gain increasing bargaining power under the following circumstances.

a. If.they can inexpensively switch. to competing brands or substitutes -b. If


they are particularly important to the seller c. d. If sellers are struggling in the face of falling consumer demand. If, they are informed about the sellers, products; prices, & costs.

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Five - Forces Model of Competition

Potential development of substitute products

s s

Rivarly among competing firms

Potential entry of new competitors

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The above figure represent the BCG matrix for a company with nine businesses. Each circle represents the proportion of corporate revenue generated by that business unit. I t provides visualization of the current competence of each revenue generator. Comparing Strategic Business Units The next step of the BCG matrix approach is comparing SBU, against t each by means of a matrix based on 2 dimensional areas mentioned below: 1. Relative market share 2.. Industry / market of growth / rate Figure above provides the vertical dimension measures the industry . market growth rate. The horizontal dimension measures relative market share the matrix in divested in 4 cells they are Cell - 1 is star of high growth / high competitive position. Cell - 2 is question marks or high growth / Low competitive position. Cell..- 3 is cash cows or low growth / high competitive position Cell - 4 is dogs / low growth / low competitive position. Stars represents the high growth and low competitive position. Stars represent the best long run opportunities like growth and profitability in the company's portfolio. These business require huge investment to maintain 85 expand their market share. Dogs low growth / low competitive position These businesses are started , mature markets with intense competitions low profit margins, because of their weak position, these businesses are managed for short term cash flow to supplement corporate level resources needed or liquidated once the short term harvesting is maximized. Recent research suggests that well managed dogs turn out to be positive, highly reliable resources generators. Well managed dogs can be useful component of a businesses portfolio. Cash Cows Are high market share business in maturing, low growth markets or industries because of their strong position & minimum investment requirements for growths. These businesses often generate cash in excess of their needs. Cash cows are yesterdays star & their needs. Cash cows are yesterdays star & remain the current foundation of their corporate portfolios, They period the cash to pay corporate overhead 8s dividends & provide debt capacity. Question Marks Business has considerable appeal because of their high growth rate yet present questionable profit potential because of low market share. Question n rk businesses are known, as cash guzzlers because, their cash needs are high as a rapid growth, while their cash generation is low due to a small market share.

Strategic management

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Case No.1 Today Tata's major business is in seven core areas e.g. Engineering, Metals, Energy, Chemicals consumer products, communications & It & lasthy services. Total motors belong to Tata Engineering business, products are well known cars e.g. Sumo, Indigo, Indica, Public utility services, Trucks Vans etc. in the car segment Tata added a totally new segment of a economic small, fuel efficient car which is called as "Nano". This car was a mission of Ratan Tata that he wanted a common Indian to effort a car costing Rs. One Lakh. The other objective or goal was to cover the other marketing segment of youngsters those who use two wheelers, which is unsafe, carry only two persons, behind all these Tata definitely had worked on strategies related production, marketing, HR & Finance. The efforts of Tatas had sent a signal around the world to the manufacturer of two wheelers and small cars that this is possible as a manager of a competitors think about the strategies to counter this effects on the products of your company. Case No.2:_____Price Wars in Indian Detergent Market "Rash, thoughtless and desperate measures of price cuts, directly or through promotions, actually reduce and discount the perceived value of brand in the minds of the consumers", - Jagdeep Kapoor, Chairman & M. D. of Samrika Marketing consultant. When P&G slashed the prices of its 20 gms Ariel & Tide detergent sachets in September 2003m ut created a stir in the Indian detergent market, Hindustan Liver Ltd. (HLL) that dominated the detergent market with around 44% share reacted swiftly bring down the prices of the sachets of its premium detergent brand Surf Excel. HLL was caught unaware, while analyst fell that it was as attempt to wrest advantage from HLL, that was grapping with, decelerating growth. P & G maintained that the price cuts were possible because of efficiencies & projected it as "Value Correction". By March end all other players, like Henko started price slashing. As a Business Expert or consultant of companies like Nirma, Godrej Soaps, what strategies you will suggest to your clients.