CORPORATE ANALYSIS AND STRATEGIES

PRESENTED BYSIMRAN KAURMBA 2ND YEAR

FRAMEWORK OF CORPORATE ANALYSIS

COMPETITIVE ADVANTAGE

COMPETENCIES

SYNERGISTIC EFFECTS

ORGANIZATIONAL CAPABILITY

STRENGTHS & WEAKNESSES

ORGANIZATIONAL BEHAVIOUR

ORGANIZATIONAL RESOURCES

RESOURCE BASED APPROACH

• It suggests that HR systems can contribute to sustained competitive advantage through facilitating the development of competencies that are firm specific, produce complex social relationships, are embedded in a firm’s history and culture and generate tacit organizational knowledge

• Not all resources will be strategic resources

• Method of analyzing and identifying a firm’s strategic advantages based on examining its distinct combination of assets, skills, capabilities and intangibles as an organization

• Analyzes and interprets internal resources of the organizations and emphasizes resources and capabilities in formulating strategy to achieve sustainable competitive advantages

RESOURCES PROVIDING SUSTAINABLE COMPETITIVE ADVANTAGE

• Physical capital resources

• Human capital resources

• Organizational capital resources

USING RESOURCE-BASED APPROACH IN INTERNAL ANALYSIS

• Disaggregate resources

• Utilize a functional perspective

• Look at organizational processes

• Use Value Chain approach

VRIO FRAMEWORK

VRIO FRAMEWORK

• Tool used to analyze firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage

• Originally developed by J.B.Barney, where he identified four attributes that firm’s resources must possess in order to become a source of sustained competitive advantage

• The four resources must be Valuable, Rare, imperfectly Imitable and Non-substitutable

• 4 questions – Valuable? Rare? Costly to Imitate? And is a firm Organized to capture value of the resources

VALUE CHAIN APPROACH

• Resource analysis technique

• Devised by Porter

• Technique which helps organization to assess its resources and in so doing determine its strengths and possible weaknesses

• Value or margin of a product is calculated by the amount of revenue it earns, in this case total revenue, which is calculated by the price of the product (or service) multiplied by the quantity consumed

• Consists of identifying the series of activities, which are undertaken by the firm and are strategically relevant for meeting customer demand and in respect of which the firm may potentially have an edge over its competitors

IDENTIFYING VALUE CHAIN ACTIVITIES

PRIMARY ACTIVITIES

• Inbound logistics

• Operations

• Outbound logistics

• Marketing and sales

• Service

SUPPORT ACTIVITIES

• Procurement

• Technology development

• Human resource management

• Firm infrastructure

ADVANTAGES OF VALUE CHAIN ANALYSIS

• Creates profit

• Cooperation

• Return on investment

• Increases competitiveness

• Multiple benefits

• Improved customer service

• Cost savings and accelerated delivery times

DISADVANTAGES OF VALUE CHAIN ANALYSIS

• Strengths of flexibility

• Heavily oriented to a manufacturing business

• Scale and scope can be intimidating

• Few are experts in its use

• Its strategic impact for understanding, analyzing and creating competitive advantage

BASIC ORGANIZATIONAL STRUCTURES

• Simple structure

• Functional structure

• Divisional structure

• Strategic Business Units(SBUs)

• Organize conglomerate structures

CORPORATE CULTURE

• Provides a framework within, which the behavior of the members takes place

• Defined as asset of assumptions the members of an organization share in common

• According to O’Reilly,” Organizational culture is the set of assumptions, beliefs, values, and norms that are shared by an organization’s members.”

ELEMENTS OF CORPORATE CULTURE

• Artifacts

• Stories, histories, myths, legends, jokes

• Rituals, rites, ceremonies, celebrations

• Heroes

• Symbols and symbolic action

• Belief, assumptions and mental models

• Attitudes

• Rules, norms, ethical codes and values

STRATEGIC BUDGET

• Manifests the annual operating plan by displaying categories in quantities

• Newer concept as a tool of resource allocation among various SBUs and units of an organization

• Should be tied to an organization’s long-range plan

• Details the assignment of dollars to each programme area – including expenses for employee wages, overheads, equipments, etc

• Advantage is the budgetary control or performance monitoring in the implementation phase

PROCESS OF PREPARING STRATEGIC BUDGET

PREPARATION OF POSITION PAPERS

• Position paper on environment

• Position paper on organizational constraints and resources

• Position paper on fast performance

• Position paper on future direction of activities

PREPARATION OF BUDGET

• Prepared through interaction between corporate level and SBU level

• Communication about the likely course of future action in light of past performance

• Show allocation of various resources according to the needs and importance of various functions, products or businesses

ADVANTAGES OF STRATEGIC BUDGETARY CONTROL

• Future thinking

• Setting detailed plans

• Defines area of responsibility

• Basis for performance appraisal

• Promotes coordination and communication

• Economises management time

PROBLEMS IN STRATEGIC BUDGETARY CONTROL

• Over budgeting

• Overriding enterprise goals

• Hiding inefficiencies

• Causing inflexibility

STRATEGIC AUDIT

• Method of evaluating the performance of chosen strategy

• Examinations and evaluations of strategic management processes including measuring corporate performance against the corporate strategy

• Upon completion of the audit, a report will be created regarding the auditing firm or group’s findings and submit the report with recommended remedies to the management of the organization

CHECKLIST FOR CONDUCTING STRATEGIC AUDIT

• Current situation

• Record of performance

• Corporate and top management

• Evaluation of strategy

• External environment

• Internal environment

• Strategy implementation and control

PROCESS OF CONDUCTING STRATEGIC AUDIT

RESOURCE AUDIT

VALUE CHAIN ANALYSIS

CORE COMPETENCE ANALYSIS

PERFORMANCE ANALYSIS

PORTFOLIO ANALYSIS

SWOT ANALYSIS

IMPORTANCE OF STRATEGIC AUDIT

• Provides insight into efficacy and effectiveness of plan

• Help in attaining objectives

• Help to spot weakness

• Influences the behavior

• Helps in achieving stability and continuity

• Effective use of scarce and valuable resources

• Helps in addressing governance problems

SWOT ANALYSIS

• 2 most important parts of SWOT analysis are drawing conclusions about what story the compilation of strengths, weaknesses, opportunities and threats tells about the company’s overall situation, and acting on those conclusions to better match the company’s strategy, to its resource strengths and market opportunities, to correct the important weaknesses, and to defend against external threats

COMPONENTS OF SWOT ANALYSIS

S

Strengths

W

Weaknesses

O

Opportunities

T

Threats

Exte

rnal

fa

ctor

sIn

tern

al

fact

ors

Helpful Harmful

APPLICATIONS OF SWOT ANALYSIS

• Provides a logical framework

• Enables systematic comparison of internal and external factors

• Building on strengths

• Minimizing weaknesses

• Seizing opportunities

• Counteracting threats

TOWS MATRIX

SO Strategy: Maxi-Maxi WO Strategy: Mini-Maxi

ST Strategy: Maxi-Mini WT Strategy: Mini-Mini

Internal factors

Exte

rnal

fact

ors

CORPORATE STRATEGY

• Often called grand strategy or master strategy

• Falls into 4 categories: expansion, stability, retrenchment and combination

• Basis for achieving long term objective

• Broad decisions about the total organization’s scope and direction are main concern

• 4 kinds of initiatives

i. Making necessary moves to establish positions in different businesses

ii. Involve vigorously pursuing rapid-growth strategies in the most promising LOB’s(Line Of Balance)

iii. Pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantages

iv. Establishing investment priorties

IMPORTANCE OF CORPORATE STRATEGIES

• Focus

• Measurable progress

• Long-term success

• Rationalizes allocation of scarce resources

• Encourages management to choose the best course of action to realize the objectives

LIMITATIONS OF CORPORATE STRATEGIES

• Complex process

• Time consuming and complicated

• Uncertain estimates

• Difficulty in achieving desired results

• Suitable only for long range problems

GROWTH/EXPANSION STRATEGY

• Adopted to accelerate the rate of growth of sales, profits and market share faster by entering new markets, acquiring new resources, developing new technologies and creating new managerial capabilities

• Allows company to maintain their competitive advantage even in the advanced stages of product and market evolution

• Offers economies of scale and scope to an organization, which reduce operating costs and improve earnings

REASONS TO PURSUE GROWTH

• Creates strength

• Necessary for survival

• Employee satisfaction

• Increases productivity

ISSUES INVOLVED IN GROWTH STRATEGY

• Growing too fast

• Expansion capital

• Personnel issues

• Customer service

• Disagreements among ownership

TYPES OF GROWTH STRATEGY

• Concentration strategy

• Diversification strategy

• Integration strategy

• Internationalization strategy

• Cooperation strategy

CONCENTRATION STRATEGY

• Also known as “intensive” strategy

• Aim is to broaden the market share and to increase the profit by making the existing products more effective and by introducing new and various sets of products in order to increase the market share too.

• Marketers apply them to gain maximum outcomes

TYPES OF CONCENTRATION STRATEGY

• Market penetration

• Market development

• Product development

ADVANTAGES OF CONCENTRATION STRATEGY

• Involves fewer organizational changes

• Less threatening and more comfortable staying with present business

• Past experience is valuable as it is replicable

• Decision making has a high level of predictability

• Enables company to specialize by gaining an in-depth knowledge of this business

DISADVANTAGES OF CONCENTRATION STRATEGY

• Entail several risks when environments are unstable

• Product obsolescence and industry maturity create additional risks

• Limited ability to switch to other areas

• Lead to cashflow problems

• May not provide enough challenge or stimulation to managers

DIVERSIFICATION STRATEGY

• Used to expand firm’s operations by adding markets, products, services or stages of production to the existing business

• Allows the company to enter lines of business that are different from current operations

• Growth objective is ought to be achieved by adding new products or services to the existing product or service line

• Assumption is made that if sales increase, profits will eventually follow

REASONS FOR DIVERSIFICATION

• Value-creating diversification

• Value-neutral diversification

• Value-reducing diversification

TYPES OF DIVERSIFICATION STRATEGY

• Related/Concentric diversification

1. A company expands into a related industry, one having synergy with the company’s existing lines of business, creating a situation in which existing and new lines of business share and gain special advantages from commonalities

2. Focuses on creating a portfolio of related business

• Unrelated/Conglomerate diversification

1. Product of two companies that have little in common coming together, which presents a unique set of advantages and disadvantages

2. Occurs when a firm diversifies into areas that are unrelated to its current line of business

ADVANTAGES OF DIVERSIFICATION STRATEGY

• Limiting risk

• Maximizing returns

• Caveats

DISADVANTAGES OF DIVERSIFICATION STRATEGY

• Overextension

• Lack of expertise

• Cost

• Reduced innovation

INTEGRATION STRATEGIES

• Combining activities on the basis of value chain related to the present activity of a company

• Results in widening of scope of the business definition of company

• Part of diversification strategies

• 2 types: vertical integration and horizontal integration

TYPES OF INTEGRATION STRATEGIES

• Vertical integration

• Horizontal integration

VERTICAL INTEGRATION

• Type of growth strategy wherein new business units are added which are complementary to the existing business units

• Joining together of two or more firms which produce goods which are in successive stages of production

• Characterized by extension of firm’s business definition in two possible directions from the present - backward or forward.

HORIZONTAL INTEGRATION

• Staying inside a single industry

• Company “sticks to the knitting”

• Allows a company to focus its managerial, financial, technological, and functional resources and capabilities on competing successfully in one area

• Company doesn’t make the mistake of entering new industries where its existing resources and capabilities add little value and/or where a whole new set of competitive industry forces – new competitors, suppliers, and customers – present unanticipated threats

INTERNATIONALISATION STRATEGY

• Type of expansion strategy that require organizations to market their products and services beyond the domestic or national market

• Describe significant difference in the operating strategy, world view, orientation, and practice of companies operating in more than one country

• Include 4 basic strategies : international, multi-domestic, global and transnational strategies

COOPERATION STRATEGY

• Idea of simultaneous competition and cooperation among rival firms for mutual benefits

• Means by which firms work together to achieve a shared objective

• Used to create value for a customer at a lower cost

• Powerful mechanisms for aligning stakeholder interests and can help a firm reduce environmental uncertainty

• Types

i. Strategic alliances

ii. Merger and acquisition

iii. Joint ventures

STABILITY STRATEGY

• Basic approach is “maintain present course: steady as it goes”

• Companies will concentrate their resources where the company presently has or can rapidly develop a meaningful competitive advantage in the narrowest possible product-market scope consistent with the firm’s resources and market requirements

• Less risky

REASONS TO PURSUE STABILITY STRATEGY

• Satisfactory performance

• Minor environmental change

• Low risk

• Strategic advantage

TYPES OF STABILITY STRATEGY

• No-change strategy

• Profit strategy

• Paused/proceed with caution strategy

RETRENCHMENT STRATEGY

• Corporate level strategy that aims to reduce the size or diversity of an organization

• Reduction in expenditure to become financially stable

• Involves withdrawing from certain markets or the discontinuation of selling certain products or services in order to make a beneficial turnaround

• Denotes separation of employees mainly due to decreased amount of work owing to recession or re-organization of work

REASONS TO PURSUE RETRENCHMENT STRATEGY

• Poor performance

• Threat to survival

• Redeployment of resources

• Insufficiency of resources

• For securing better management and improved efficiency

FORMS OF RETRENCHMENT STRATEGY

• Turnaround strategy

• Divestment strategy

• Liquidation

• Captive company strategy

TURNAROUND STRATEGY

• Derive its name from the action involved, that is, reversing a negative trend

• Goal is to return an underperforming or distressed company to normal in terms of acceptable levels of profitability, solvency, liquidity, and cashflow

• Emphasizes improvement of operational efficiency

• Most appropriate when a corporation’s problems are pervasive but not yet critical

• Two basic phases of turnaround strategy are contraction and consolidation

DIVESTMENT STRATEGY

• Involves the sale of a firm or a major component of a firm

• Involves sale or liquidation of a portion of business, or a major division, profit centre or SBU

• Part of rehabilitation or restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful

• Also called divestiture or cutback

LIQUIDATION

• Termination of the firm

• Advantage of voluntary liquidation over bankruptcy is that board and top management make the decisions rather than turning them over to a court, which often ignores stockholders’ interests

• Least attractive of grand strategies

• Minimizes losses of all the firm’s stockholders

• Tries to develop a planned and orderly system that will result in the greatest possible return and cash conversion as the firm slowly relinquishes its market share

CAPTIVE COMPANY STRATEGY

• Involves giving up independence in exchange for security

• It is followed when

1. A firm sells more than 75% of its product or services to a single customer

2. The customer performs many of the functions normally performed by the independent firms

• Requires a management that is able to develop good long-term relationships with its major customers

• Can be risky

COMBINATION STRATEGIES

• Resource used by corporations or businesses to further their identified business goals at the same time

• Simultaneous pursuit of two or more growth strategies

• Usually followed by organizations having different business portfolios with each business facing different problems

REASONS TO PURSUE COMBINATION STRATEGY

• Different products in different product life cycle

• Business cycle

• Number of businesses

TYPES OF COMBINATION STRATEGY

• SIMULTANEOUS COMBINATION

1. divesting an SBU, product line, or division while adding other SBUs, product lines, or divisions

2. Using a turnaround strategy while pursuing growth strategy

• SEQUENTIAL COMBINATION

1. Employing a growth strategy for a specified time and then using stable growth for a specified time

2. Using a turnaround strategy and then employing growth strategy when conditions improve

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