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Strategy and Corporate Evolution PDF
Strategy and Corporate Evolution PDF
Kolhan University
Semiester - 4
Strategy and Corporate Evolution 2
Strategy: - The word Strategy is derived from the Greek word 'Strategos' which means a general. A strategy is a declaration of
intent, it defines what the organization wants to become in the longer term. The overall aim of strategy at corporate level will be to
match or fit the organization to its environment in the most advantageous way possible. It is an integrated set of action at securing a
sustainable competitive advantage.
Johnson and Scholes -"Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the
organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill
stakeholder expectations"
Elements –
• Where is the business trying to get to in the long-term (direction?)
• How can the business perform better than the competition in those markets? (Advantage)?
• What external, environmental factors affect the businesses' ability to compete? (Environment)?
• What are the values and expectations of those who have power in and around the business? (Stakeholders)
• What resources (skills, assets, finance) are required in order to be able to compete? (Resources)?
• It is derived from its policies, objectives and goals.
• It is related to per sue those activities which move an organization current position to a desired future state.
• It is concerned with the requisite resources to implement a plan.
Features/charactertics
• Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms must be ready to
deal with the uncertain events which constitute the business environment.
• Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of innovations or
new products, new methods of productions, or new markets to be developed in future.
• Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing with
employees will predict the employee behavior.
Functions
• It provides a dual approach to problem solving. Firstly, it exploits the most effective means to overcome difficulties and face
competition. Secondly, it assists in the deployment of scarce resources among critical activities.
• It focuses attention upon changes in the organizational set up, administration of organizational process affecting behavior
and the development of effective leadership.
• It offers a technique to manage changes. The management is totally prepared to anticipate, respond and influence to look at
changes. It also offers a different way of thinking.
• It furnishes the management with a perspective whereby, the latter gives equal importance to present and future
opportunities.
• It provides the management with a mechanism to cope with highly complex environment characterized by diversity of
cultural, social, political and competitive forces.
Kinds of corporate strategy-There are four grand strategic alternatives. They are stability, expansion, retrenchment and
any combination of these three. These strategic alternatives are also called as grand strategies.
• Stability Strategy- It is adopted by an organization when it attempts to improve functional performance. They are further
classified as follows: * No change strategy * Profit strategy * Pause/Proceed with caution strategy.
• Expansion Strategy: - It is followed when an organization aims at high growth. They operate through * Concentration*
Integration* Diversification* Cooperation* Internationalization. Mergers, takeovers, Joint ventures and strategic alliances
come under expansion through cooperation.
• Retrenchment Strategy: - It is followed when an organization aims at a contraction of its activities. It is done through
turnaround, divestment and liquidation in any of the following three modes:* Compulsory winding up* Voluntary winding
up* Winding up under supervision of the court.
• Combination Strategies:- They are followed when an organization adopts a combination of stability, expansion and
retrenchment either at the same time in different businesses or at different times in the same business.
Strategy and Corporate Evolution 3
Strategy at Different Levels of a Business - Strategies exist at several levels in any organization - ranging from the overall
business through to individuals working in it.
• Corporate Strategy –It is believed that strategic decision making is the responsibility of top management. It is concerned
with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily
influenced by investors in the business .At the corporate level, the board of directors and chief executive officers are
involved in strategy making. Corporate planners and consultants may also be involved. Mostly, corporate level strategies are
futuristic, innovative and pervasive in nature.
• Business Unit Strategy -It is concerned more with how a business competes successfully in a particular market. Managers
are involved at this level in taking strategic decisions. These strategies relate to a unit within an organization .It concerns
strategic decisions about choice of products, meeting needs of customers, creating new opportunities etc. It is more specific
and action oriented. It relates mainly with “how” aspect. The corporate level strategy is related to “what” aspect of
corporate strategy.
• Operational Strategy – This level of strategy is at the operating end of the organization. It is also known as functional level
strategy. It is concerned with how each part of the business is organized to deliver the corporate and business-unit level
strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc. These decisions
relate to training, investment in plant, advertising, sales promotion, total quality management, market segmentation etc.
They deal with a relatively restricted plan providing objectives for specific function, allocation of resources among different
operations within the functional area and coordination between them.
Strategy and Corporate Evolution 5
Organizational Capability: organizational capability factor are the strategic strengths and weakness existing in different
functional areas within the organization which are crucial importance to strategy formulation and implementation.
• Focuses on internal processes and systems for meeting customer needs
• Creates organization-specific competencies that provide competitive advantage since they are unique
• Ensures that employee skills and efforts are directed toward achieving organizational goals and strategies.
It enhances uniqueness because it is difficult to imitate:
• Imitation requires changing the way people think, act, and interact.
• Social engineering of complex social processes such as culture, teamwork, leadership is neither well-understood nor easily
replicated.
Strategy Formulation is an Entrepreneurial Activity based on Strategic Implementation is mainly an Administrative Task
strategic decision-making. based on strategic and operational decisions
Strategy Formulation emphasizes on effectiveness. Strategy Implementation emphasizes on efficiency.
Strategy Formulation is a rational process. Strategy Implementation is basically an operational process.
Strategy Formulation requires co-ordination among few Strategy Implementation requires co-ordination among many
individuals. individuals.
Strategy Formulation requires a great deal of initiative and Strategy Implementation requires specific motivational and
logical skills. leadership traits.
Strategic Formulation precedes Strategy Implementation Strategy Implementation follows Strategy Formulation.
Organizational values define the acceptable standards which govern the behavior of individuals within the organization.
Employees have certain value in a life. They view life from different angle which are reflected in their work performance. Values are a
combination of different attitude and attributes of individuals .they helps employee to decide what is right, good, desirable, favorable
and so on. Without such values, individuals will pursue behaviors that are in line with their own individual value systems, which may
lead to behaviors that the organization doesn't wish to encourage. Honesty, self respect, equality, sincerity, obedience, truthfulness are
various examples of values. In a smaller, co-located organization, the behavior of individuals is much more visible than in larger,
disparate ones. In these smaller groups, the need for articulated values is reduced, since unacceptable behaviors can be challenged
openly. However, for the larger organization, where desired behavior is being encouraged by different individuals in different places
with different sub-groups, an articulated statement of values can draw an organization together.
Why Identify And Establish on impacts Organizational Values?
Effective organizations identify and develop a clear, concise and shared meaning of values/beliefs, priorities, and direction so that
everyone understands and can contribute. Once defined, values impact every aspect of your organization. You must support and
nurture this impact or identifying values will have been a wasted exercise. People will feel fooled and misled unless they see the impact
of the exercise within your organization.
If you want the values you identify to have an impact, the following must occur.
• Organizational values help each person establish priorities in their daily work life.
• Organizational goals are grounded in the identified values.
• Adoption of the values and the behaviors that result is recognized in regular performance feedback.*People hire and promote
individuals whose outlook and actions are congruent with the values.
• Only the active participation of all members of the organization will ensure a truly organization-wide, value-based, shared
culture.
• Values guide every decision that is made once the organization has cooperatively created the values and the value statements.
• Rewards and recognition within the organization are structured to recognize those people whose work embodies the values
the organization embraced
• People demonstrate and model the values in action in their personal work behaviors, decision making, contribution, and
interpersonal interaction
Strategy and Corporate Evolution 10
Managing Turnaround - There are three ways in which turnaround can be handled
1. The existing chief executive and management tea handles the entire turnaround strategies with the advisory support of a
specialist external consultant
2. In another situation, the existing team withdraws temporarily and an executive consultant or turnaround specialist is employed
to do the job.
3. The last method involves the replacements of the existing team, specially the chief executive or merging the sick organization
with a healthy one.
Merger Strategies - It is a combination of two or more organization in which one acquires the assets and liabilities of the other
in exchange for shares or cash or both the organization are dissolved and the assets and liabilities are combined and new stock is
issued. For the organization which acquires another, it is an acquisition for the organization which is acquired, it is a merger. If both
organization dissolved their identify to create a new organization, it is consolidation. for examples – In Indian corporate world such as
polyolefin industries with NOCIL e.tc
Types of Mergers
1. Horizontal Merger- It takes place when there is a combination of two or more organization in the same business. For instance a
company making footwear combines with another footwear company.
2. Vertical Merger – It take place when there is a combination of two or more organization, not necessarily in the same business
which create complementarily either interims of supply of materials. For instance a footwear company combines with a leather
tannery.
3. Concentric mergers – It take place when there is a combination of two or more organization related to each other in terms of
customer functions, customer groups .Thus a footwear company combining with a hosiery form making socks .
4. Conglomerate Merger – It take place when there is a combination of two or more organization unrelated to each other either
in terms of customer functions or alternative technologies. For examples footwear company combining with a pharmaceutical
firm.
Reasons for Merger- For a merger to take place, two organizations have to act. One is the buyer organization and other is the seller.
Both these type of organization have a set of reasons on the basis of which they merge.
1. Why the buyer wishes to merge –
To increase the value of organizational stock
To improve stability of earning & sales.
To reduce competition.
To acquire needed resources quickly.
To take advantage of synergy.
2. Why the seller wishes to merge –
To increase the value of the owner's stock and investment.
To increase growth rate.
To acquire resources to stabilities operations.
To benefits from tax legislation.
To deal with top management succession problem.
Strategy and Corporate Evolution 12
Acquisition or Take Over - It is common way for acquisition and may be defined as -The attempt of one firm acquire
ownership or control over another against the wishes of the latter's management .many takeover may not have any elements of
surprise and may not necessarily be against the wishes of the acquired firm. It is a popular strategic alternative adopted by Indian
companies .the post liberalization period has been an increasing use of takeover strategies as a mean of rapid growth major companies
which have been taken over included Ashok Leyland, Dunlop, ACC e.tc
Types of Takeover –
• Hostile Takeover – It is resisted or expected to be opposed by the existing management or professional. Here the shares are
picked up from the open markets and controlling interest is obtained. Examples- NEPC bid for Modiluft.
• Friendly Takeover – it is done by mutual consent with the existing management or professionals. Tata tea takeover of
consolidated coffee & Asian coffee is an example of friendly takeovers.
Franchising - It is a term which can be applied to just about any area of Economic Endeavour. Franchising encompasses products
and services from the manufacture, supply for manufacture, processing, distribution and sale of goods, to the rendering of services, the
marketing of those services, their distribution and sale. It may be defined as a business arrangement which allows for the reputation,
(goodwill) innovation, technical know-how and expertise of the innovator (franchisor) to be combined with the energy, industry and
investment of another party (franchisee) to conduct the business of providing and selling of goods and services.
What Makes a Good Franchise? Franchising to the uninformed is often seen as easy money or a get rich quick scheme. These
perceptions are usually the result of looking from the outside and seeing a successful, flourishing business, being run efficiently, with
charm and grace - seemingly with a minimum of fuss. Successful franchises are the result of innovation, initiative, investment and
industry. A good franchise is always sparked by a good idea which fills a market need. The good idea, for example the “Hire-a-Hubby”,
“Mr. Green” or the “All Around” concepts happened along at the right time and at the right place – The good idea was reinforced by the
initiative and drive of their creator to make the idea work. A blueprint “system” for repeating success was established, developed,
updated and monitored requiring the investment of time, money and innovation. This innovation ensured that client expectations are
met, anticipated and managed and, of course – the innovation resulted in a unique, memorable and exclusive name being devised and
an unique brand established
Advantages of Owning a Franchise
• Freedom of employment
• Proven brand, trade mark, recognition
• Industry know-how
• Reduced risk of failure
• Access to proprietary products or services
• Bulk buying advantages
Things to be Aware of When Choosing a Franchise
• Franchising is business. It is the buying and selling of goods and services and, like every business transaction, requires careful
thought before the transaction action is completed.
• Buying a franchise is just the same as buying into any business. The purchase needs to be made in the cold light of day and not
on impulse.
• Balance sheets need to be looked at and bottom lines investigated. The franchise should also be compared with similar
franchises in similar areas so the at pears are compared with pears and realistic expectations and incomes ascertained.
• The most overlooked aspect of franchising and one that is invariably taken for granted is the Intellectual Property owned by the
franchisor – or in some cases not owned by him.
• A name-brand availability search is therefore essential and should be performed by a professional search service.
• Other aspects of Intellectual Property such as patent ownership, copyright and marketing wishes should also be investigated
and their ownership (right to use) determined.
Licensing - There is no such thing as a standard license. Every arrangement is unique and has its own special requirements, aims
and objectives. All licenses should be read and re-read and should be placed before a licensing professional or IP professional before
being signed. Needless to say, every license should be clear to all parties concerned. The individual parties should be aware of the
obligations that the contract places on them, the conditions that have to be met and the time lines by which specific functions are to be
performed. All of these features should be transparent and measurable. Each party should also be acutely aware of the other parties’
responsibilities. Territorial or geographical boundaries should be made clear, as should all payment obligations and the amounts that
are to be paid (and how they are calculated). All payment, dates should be clearly laid out, preferably in a schedule. Penalties, such as
default payments, breach of contract conditions, rights to assign, the term of the contract, and the right to renew is also important
considerations that are often overlooked or not fully understood. Bonus conditions might also be negotiated and should not be
dismissed in a licensing agreement There are, though certain features that should be considered in the development of every license.
The following is a list of some of the things that should be considered:
• Is the license exclusive, i.e. granted to only one person, or non-exclusive?
• Can the licensee sub-license?
• Who pays for prosecution and maintenance of any Intellectual properties
• Who is responsible for filing for further improvement patents in overseas?
• In whose name will the applications be made in?
• Who pays for any matters such as preparation of the license, record of licensee, etc?
• Is there a required commitment on the part of the licensee to fully exploit the invention?
• What is the term of license?
• Is there a right to renew?
Strategy and Corporate Evolution 14