Corporate Evaluation & Strategic Management

BY:Mohanad Ali KareemMBAIV semester2015

Department of Commerce and Business AdministrationAcharya Nagarjuna University

UNIT- I

STRATEGIC MANAGEMENT: In a hyper competitive marketplace, companies can operate successfully by creating and delivering superior value to target customers and also learning how to adopt to a continuously changing business environment. So to meet changing conditions in their industries, companies need to be farsighted and visionary, and must develop long-term strategies. Strategic planning, an important component of strategic management, involves developing a strategy to meet competition and ensure long-term survival and growth. The overall objective of strategic management is two fold:1-To create competitive advantage, so that the company can outperform the competitors in order to have dominance over the market.2-To guide the company successfully through all changes in the environment.Strategic management starts with developing a company mission (to give it direction), objectives and goals (to give it means and methods for accomplishing its mission), business portfolio (to allow management to utilize all facets of the organization), and functional plans (plans to carry out daily operations from the different functional disciplines). #Framework:

The basic framework of strategic process can be described in a sequence of five stages as shown in the figure - Framework of strategic management: The five stages are as follows:Stage one: This is the starting point of strategic planning and consists of doing a situational analysis of the firm in the environmental context. Here the firm must find out its relative market position, corporate image, its strength and weakness and also environmental threats and opportunities. This is also known as SWOT (Strength, Weakness, Opportunity, Threat) analysis. You may refer third chapter for a detailed discussion on SWOT analysis.Stage two: This is a process of goal setting for the organization after it has finalized its vision and mission. A strategic vision is a roadmap of the companys future providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company that management is trying to create.Stage three: Here the organization deals with the various strategic alternatives it has.Stage four: Out of all the alternatives generated in the earlier stage the organization selects the best suitable alternative in line with its SWOT analysis.Stage five: This is a implementation and control stage of a suitable strategy. Here again the organization continuously does situational analysis and repeats the stages again.

Strategic management model:The strategic management process can best be studied and applied using a model. Every model represents some kind of process. The model illustrated in the Figure: Strategic management model is a widely accepted, comprehensive. This model like any other modal of management does not guarantee sure-shot success, but it does represent a clear and practical approach for formulating, implementing, and evaluating strategies. Relationships among major components of the strategic management process are shown in the model.Identifying an organization's existing vision, mission, objectives, and strategies is the starting point for any strategic management process because an organization present situation and condition may preclude certain strategies and may even dictate a particular course of action. Every organization has a vision, mission, objectives, and strategy, even if these elements are not consciously designed, written, or communicated. The answer to where an organization is going can be determined largely by where the organization has been.

UNIT- I I

Strategic business unit (SBUs):Analysing portfolio may begin with identifying key businesses also termed as strategic business unit (SBU). SBU is a unit of the company that has a separate mission and objectives and which can be planned independently from other company businesses. The SBU can be a company division, a product line within a division, or even a single product or brand. SBUs are common in organisations that are located in multiple countries with independent manufacturing and marketing setups. An SBU has following characteristics:

Single business or collection of related businesses that can be planned for separately.

Has its own set of competitors.

Has a manager who is responsible for strategic planning and profit.

After identifying SBUs the businesses have to assess their respective attractiveness and decide how much support each deserves. There are a number of techniques that could be considered as corporate portfolio analysis techniques. The most popular is the Boston Consulting Group (BGC) matrix or product portfolio matrix. But there are several other techniques that should be understood in order to have a comprehensive view of how objective factors can help strategists in exercising strategic choice.

Boston consulting group (BCG) growth-share matrix:The BCG growth-share matrix is the simplest way to portray a corporations portfolio of investments. Growth share matrix also known for its cow and dog metaphors is popularly used for resource allocation in a diversified company. Using the BCG approach, a company classifies its different businesses on a two-dimensional growth-share matrix. In the matrix:

1. The vertical axis represents market growth rate and provides a measure of market attractiveness.

2. The horizontal axis represents relative market share and serves as a measure of company strength in the market. Using the matrix, organisations can identify four different types of products or SBU as follows:

Stars: are products or SBUs that are growing rapidly. They also need heavy investment to maintain their position and finance their rapid growth potential. They represent best opportunities for expansion.

Cash Cows: are low-growth, high market share businesses or products. They generate cash and have low costs. They are established, successful, and need less investment to maintain their market share. In long run when the growth rate slows down, stars become cash cows.

Question Marks:, sometimes called problem children or wildcats, are low market share business in high-growth markets. They require a lot of cash to hold their share. They need heavy investments with low potential to generate cash. Question marks if left unattended are capable of becoming cash traps. Since growth rate is high, increasing it should be relatively easier. It is for business organisations to turn them stars and then to cash cows when the growth rate reduces.

Dogs :are low-growth, low-share businesses and products. They may generate enough cash to maintain themselves, but do not have much future. Sometimes they may need cash to survive. Dogs should be minimised by means of divestment or liquidation. The General Electric Model:The General Electric Model (developed by GE with the assistance of the consulting firm McKinsey & Company) is similar to the BCG growth-share matrix. However, there are differences. Firstly, market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just the market growth rate. Secondly, competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. This also uses two factors in a matrix / grid situation as shown below:

.

The criteria used to rate market attractiveness and business position assigned different ways because some criteria are more important than others. Then each SBU is rated with respect to all criteria. Finally, overall rating for both factors are calculated for each SBU. Based on these ratings, each SBU is labeled as high, medium or low with respect to (a) market attractiveness, and (b) business position.Every organization has to make decisions about how to use its limited resources most effectively. Thats where this planning models can help determining which SBU should be stimulated for growth, which one maintained in their present market position and which one eliminated.

UNIT- I I I

Grand strategies/directional strategies:Grand strategies are the decisions or choices of long term plans from available alternatives. Grand strategies also called as master or corporate strategy. It is based on analysis of internal and external environment. This direct the organization towards achievement of overall long term objectives (strategic intent). They involve Expansion, Quality Improvement, Market Development, Innovation, Liquidation, etc. Usually they are selected by top level managers such as directors, executives etc.The corporate strategies a firm can adopt have been classified into four broad categories: stability, expansion, retrenchment and combination known as grand strategies. Grand strategies, which are often called master or business strategies, are intended to provide basic direction for strategic actions. They are seen as the basic of coordinated and sustained efforts directed toward achieving long-term business objectives. Stability Strategies: Are pursued by the firms who want to achieve a slow and steady improvement in their performance and are doing well in the industry which itself is a trouble free.#It is less risky, involves fewer changes #Environment is relatively stable #Example- Corporation Bank 1-No Change Strategy : It is a conscious decision to do nothing new Because no Major Strengths and weakness within the organization and no new competitors and external and internal environment Small Medium sized operating in a familiar market , more often a niche market that is limited in scope and product or services through a time tested technology rely on this strategy 2)Profit Strategy : Firm reduces investments, cut costs, raise prices, increase productivity because of the problems like recession, industry downturn, Competitive pressure It is a frequent method to get rid from the temporary difficulties 3)Pause/Proceed- with-caution Strategy: This is tactic in nature. It is employed by firms that wish to test the ground before moving ahead with the full fledged grand strategy It is a temporary strategy.

Expansion strategies : Here, the firm seeks significant growth-maybe within the current businesses; maybe by entering new business that are related to existing businesses; or by entering new businesses that are unrelated to existing businesses.Expansion strategy is adopted because:1- It may become imperative when environment demands increase in pace of activity. 2- Psychologically, strategists may feel more satisfied with the prospects of growth from expansion; chief executives may take pride in presiding over organizations perceived to be growth-oriented. 3-Increasing size may lead to more control over the market vis-a-vis competitors .4-Advantages from the experience curve and scale of operations may accrue.Types of Expansion strategies : Expansion through concentration Expansion through integration Expansion through diversification Expansion through cooperation Expansion through internationalization

Intensification strategies:

Intensification strategies, Focus or specialization strategy It involves investment of resources in a product line for an identified market with the help of proven technology. For expansion concentration is often the first preference strategy It requires minimal organizational changes so that is less threatening Fewer problems as dealing with known situation.Igor Ansoff gave a framework as shown which describe the intensification options available to a firm.

Diversification Strategies:

Diversification endeavors can be related or unrelated to existing businesses of the firm. Based on the nature and extent of their relationship to existing businesses, diversification endeavours have been classified into four broad categories:(i) Vertically integrated diversification (ii) Horizontally integrated diversification (iii) Concentric diversification (iv) Conglomerate diversification

Vertically integrated diversification:In vertically integrated diversification, firms opt to engage in businesses that are related to the existing business of the firm. The firm remains vertically within the same process. Sequence It moves forward or backward in the chain and enters specific product/process steps with the intention of making them into new businesses for the firm. The characteristic feature of vertically integrated diversification is that here, the firm does not jump outside the vertically linked product-process chain. The example of Reliance Industries provided at the close of this chapter illustrates this dimension of vertically integrated diversificationHorizontal integrated diversification:

Through the acquisition of one or more similar business operating at the same stage of the production-marketing chain that is going into complementary products, by-products or taking over competitors products.

Concentric diversification:

In concentric diversification, the new business is linked to the existing businesses through process, technology or marketing. The new product is a spin-off from the existing facilities and products/processes. This means that in concentric diversification too, there are benefits of synergy with the current operations. However, concentric diversification differs from vertically integrated diversification in the nature of the linkage the new product has with the existing ones. While in vertically integrated diversification, the new product falls within the firm's current process-product chain, in concentric diversification, there is a departure from this vertical linkage. The new product is only connected in a loop-like manner at one or more points in the firm's existing process/technology/product chain.

Conglomerate diversification:In conglomerate diversification, no such linkages exist; the new businesses/ products are disjointed from the existing businesses/products in every way; it is a totally unrelated diversification. In process/technology/function, there is no connection between the new products and the existing ones. Conglomerate diversification has no common thread at all with the firm's present position.

UNIT IV

Cooperative strategies: Mergers and acquisitions Joint ventures Strategic alliances

Mergers and acquisitions: Mergers- It takes place when the objectives of the buyer firm and the seller firms are matched. A merger is a combination of two or more organisations in which one acquires the assets and liabilities of the other in exchange for shares or cash or both the organisations are dissolved and assets and liabilities are combined and new stock is issued. Acquisition or takeover- These are based on the strong motivation of the buyer firm to acquire. Takeover can be in the form of hostile takeovers and friendly takeovers. Types of mergers and acquisitions: 1-Horizontal mergers- Mergers between two or more organisations in the same business 2-Concentric mergers- It take place when there is a combination of two or more organisations related to each other either in terms of customer functions, customer groups or alternative technologies. 3-Vertical mergers- Not necessary the same business 4-Conglomerate mergers- For e.g. footwear company combine with pharmaceutical firm.

Important issues in mergers and acquisitions:

Advantages of Mergers & Acquisitions:

Joint Venture strategies: A Joint venture could be considered as an entity resulting from a long term contractual agreement between two or more parties, to undertake mutually beneficial economic activities, exercise joint control. The JV parties can be individuals, partnerships or corporations that continue to operate independently from the other except for activities related to the Joint Venture. It is an Entity resulting from a long term contractual agreement between two or more parties, to undertake mutually beneficial economic activities, exercise joint control and contribute equity and share in the profit and losses of the entity. e.g.: Maruti Udyog Jt. venture between Govt of India & Suzuki TVS-Suzuki - joint venture between TVS and Suzuki Joint venture of Samsung & Texas Instruments to Samsung-HP joint venture to market HPs products in Korea Conditions for joint venture: 1-When an activity is uneconomical for an organisation to do alone. 2-When the risk of the business has to be shared. 3-When the distinctive competencies of two or more organisations can be brought together. Types of joint ventures:# Between two organisations in one industry. # Between two organisations across different industries. # Between an Indian organisation and a foreign organisation in India. # Between an Indian organisation and a foreign organisation in that foreign country. # Between an Indian organisation and a foreign organisation in third foreign country.

Rationale for Joint Ventures:1-To bring together complementary advantages2. Technology transfer3-To enlarge ones business by sharing investment & businessRisk.4-To gain endorsement from government authorities.5-To gain economies of scale/critical mass.6-Tax advantage.7-To obtain access to distribution channels or raw material supply.

Reasons for Failure of Joint Ventures:1-Rigid contract which does not provide flexibility to permit adjustments in tune with changing circumstances.2-Partners concerned with their respective businesses. Hence, inability to give sufficient time and management attention to the JV.3-Conflict of interest between partners, with both later on wanting to expand independently in the same business.4-Issues of leadership, cultural incompatibility and inability to deal with rapid changes in the environment.5-Opportunistic behavior: Lack of mutual trust and willingness to cooperate in achieving common goals.

STRATEGIC ALLIANCE:Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts .A strategic alliance may even be formed with potential or actual competitors (often in non-competing lines or markets), suppliers or customers; thereby creating horizontal, vertical or diagonal linkages.Types of Strategic Alliance (Based on its focus) Technology Development Alliance Operations and Logistics Alliance Marketing, Sales and Service Alliance Single Country or Multicountry Alliance X and Y AllianceFACTORS PROMOTING THE RISE OF STRATEGIC ALLIANCES: To gain access to foreign markets in the pharmaceutical industry, Pharmacia and Pfizer have formed an alliance for smooth market entry to accelerate the acceptance of a new drug. To reduce financial risks IBM, Toshiba and Siemens have entered into an alliance to share the fixed costs of developing new microprocessors. To bring complementary skills Intel formed and alliance with Hewlett- Packard (HP) to use HPs capability to develop Pentium microprocessors To reduce political risks Maytag, a U.S company entered into alliance with Chinese appliance maker RSD to gain access to China. To achieve competitive advantage GM and Toyota established joint venture by name Nummi Corporation. To set technological standards Philips entered into an alliance with Matsushita to manufacture and market the digital compact cassette.

Advantages Of Strategic Alliance:1. Strategic alliances facilitate entry into foreign markets2. Help in sharing costs & risks associated with development of new products or processes.3. Helps firms to establish technological standards for the industry.4. Helps firms to establish technological standards for the industry.

Disadvantages Of Strategic Alliance: Strategic alliances give competitors a low cost route to technology and markets.

UNIT V

Strategic evaluation and control:

Evaluation and control mechanisms are set in place to inform every stage of the strategic management process. They are a means of collecting whatever information we may need to compare plans against actual events, to ensure that things are working well, and to anticipate, or correct, any faults or weaknesses in the system. Effective evaluation and control can tell us what we are doing well and what we are not. This may sound good in theory, but it is not exactly pleasant when you are out there in the workplace and your CEO wants to know why you have fallen flat on your face! Here is how some witty minds explain the managers tendency to forget about evaluation and control:Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate the strategy as is being implemented and take the necessary steps to adjust the strategy to the new requirement.These relates to the environmental and organisational factors that are dynamic and eventfulStrategic controls are early warning system and differ from post-action controls that evaluate only after implementation had been completed.Purpose of Strategic Evaluation and control: The need for feedback Appraisal and reward Check on the validity of strategic choice Congruence between decisions and intended strategy Successful culmination of the strategic management process Creating inputs for new strategic planning Ability to coordinate the tasks performedFour Types of Strategic Controls: Premise Control Implementation Control Strategic Surveillance Special alert control

Strategic Control Process:

Although control systems must be tailored to specific situations, such systems generally follow the same basic process. Regardless of the type or levels of control systems an organization needs, control may be depicted as a six-step feedback model):1. Determine what to control.What are the objectives the organization hopes to accomplish?2. Set control standards.What are the targets and tolerances?3. Measure performance.What are the actual standards?4. Compare the performance the performance to the standards.How well does the actual match the plan?5. Determine the reasons for the deviations.Are the deviations due to internal shortcomings or due to external changes beyond the control of the organization?6. Take corrective action.Are corrections needed in internal activities to correct organizational shortcomings, or are changes needed in objectives due to external events?

Strategic Audit:A Strategic Audit takes a detailed look at the prevailing strategies in key areas of the organisation. Asking the right questions and identifying and implementing appropriate actions to enable the organisation to get on course and stay on course.The strategic audit is the ideal starting point for all new ventures and for any business or organisation wishing to develop and grow.Strategic Audits are conducted from a specially devised template based on the keyquestions listed above. These are adapted to suit the specific focus of the organisation. The template then provides the basis for investigation and discussion with key members of the management team.Whilst each organisation is likely to have unique strategic issues to explore, most audits are closely related to the following key questions: What business are we in? Do we have the team to deliver a winning strategy? What are the key external factors affecting the organisation? Are we doing the right things? Are we doing things right? Is our intended strategy sustainable, feasible and achievable (SFA)? How do we translate strategy into action? How will we know when weve been successful?As a result of the strategic audit, organisations gain and understanding of the nature and extent of existing strategies and the level of consistency and buy in across the management team A documentary output is provided which includes: An overview of existing strategies, including strengths and weaknesses A graphic analysis of the organisations strategic focus Assessment and outline recommendations for strategic development.

JV vs. Strategic AllianceContractualSeparate legal entitySignificant matters of operating and financial policy are predetermined and owned by the JV.Exist for a specific time

May or may not be contractualGenerally, not a separate legal entitySignificant matters of operating and financial policy may or may not be predetermined but are owned by the individual participantsIndefinite life or a specific time

Joint VentureStrategic Alliance

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