Module IV

Module IV
Managing Growing Venture & Innovation Management
10/24/2013
Asst. Prof. Bhumika Achhnani - TNRCMS
Objectives of Growth
Survival Economies of Scale Expansion of Market Owners Mandate Technology Prestige and Power Government Policy Self-Sufficiency
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Managing Growth
Pressures on Resources Pressures on Pressures on Employees Pressures on Time
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Existing Financial Human Resources the Management of the Entrepreneurs
The management of growth consists of the following:

Combining the critical success factors for growth Managing the different types of growth Managing the lifecycle of the firm.
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Critical Success Factor (CSF)/ Factors Influencing Growth:

Globalization Understanding Markets Questioning Nature Leadership, Vision, and Purpose Policies and Rules Adeptness to Technologies Building Teams Size is a Key Element Simpler, the Better
Creativity and Innovation Consumer Trends Self-Sufficiency Communications
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Types of Growth
Financial Growth
Income statement Balance sheet Cashflow statement
Strategic Growth Structural Growth

Size Operational Technology Strategy Environment
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Organizational Growth
Growth Strategy
Internal Growth Strategy (Ansoff Matrix)
Market Penetration Market Development Product Development Diversification Strategies
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Market Penetration
Product Development
Market Development
Diversification
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External Growth Strategies

Merger and Amalgamation Acquisition or Takeover Joint Venture Strategic Alliance or Collaboration Leveraged Buyouts Franchising
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Market Penetration
Increasing Sales to the Current Customer Attracting Competitors Customers Attracting Non-Users to Buy the Product
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Market Development Strategies

Entering New Geographical Markets Entering New Market Segements
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Product Development Strategies

Add New Features or Services by Extending the Current Products Develop Additional Models and Sizes of the Current Products Develop Totally New Products
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Diversification Strategies
Related Diversification
Vertical Diversification Horizontal Diversification Concentric Diversification
Unrelated Diversification
Merger or Acquisition over Internal Development Attempting to Beat the Market
Merger and Amalgamation

Reasons for Buyer: Why the Buyer Whishes to Merge
To increase the value of the organizations stock To increase the growth rate and make a good investment To improve stability of earning and sales To balance, complete, or diversify product line To reduce competition
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To acquire needed resources quickly To avail tax concessions and benefits To take advantages of synergy
Why the Seller Wishes to Merge

To increase the value of the owners stock and investment To increase the growth rate To acquire resources to stabilize operations To benefit from tax legislation To deal with top management succession problem.
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Types of Mergers:
Horizontal Mergers Vertical Mergers Concentric Mergers Conglomerate Mergers Reverse Mergers
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Merger Process:
Defining the Corporate Strategy Implementing the Corporate Strategy Target Identification Valuation of the Merger Merger Implementation Post-Merger Integration
Important Issues in Merger:

Strategic Issues Financial Issues Managerial Issues Legal Issues
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Advantages of Merger:
Economies of Scale
Technical Economies Bulk Buying Financial Organizational
International Competition Greater Investment in R&D Greater Efficiency
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Disadvantages of Merger:
Lower quantity and reduction in consumer surplus Monopolies are more likely to be productively inefficient and not produce on the lowest point on the average cost curve Easier to collude Fewer firms, therefore less choice for consumers Merger can lead to job losses If the firm becomes too big it may suffer from diseconomies of scale.
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Acquisition or Takeover
Reasons for Acquisition:
Increased Market Power Overcoming Entry Barriers Cost of New Product Development and Increased Speed to Market Adequate and Easy Terms Working capital Access to Resourceful Management Increased Diversification Reshaping the Firms Competitive Scope Learning and Developing New Capabilities
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Strategies of Acquisition or Takeover:

Friendly Takeovers Hostile Takeovers Reverse Takeovers Backflip Takeovers.
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How Acquisitions Take Place:

Spell out the objectives Indicate how the objective would be achieved Assess managerial quality Check the compatibility of business styles Anticipate and solve problems early Treat people with dignity and concern
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Instructions for Successful Acquisitions:

Acquirer must contribute something to the acquired company. A common core of unity is required. Acquirer must respect the business of the acquired company. Within a year or so, acquiring company must be able to provide top management to the acquired company. Within the first year of merger, management in both companies should receive promotions across the entities.
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Advantages of Acquisition or Takeover:

Increase in sales/revenue. Venture into new businesses and markets Profitability of target company Increase market share Decrease competition Reduction of overcapacity in the industry Increase in economies of scale Enlarge brand portfolio.
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Disadvantages of Acquisition:
Takeover reduce competition and choice for consumers in oligopoly market Likelihood of job cuts Cultural integration/ conflict with new management Hidden liabilities of the target entity
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Joint Ventures
Reasons for Joint Ventures:
Cost Savings Risk Sharing Access to Technology Expansion of Customer Base Entry into Emerging Economies Entry into New Technical Markets Pressures of Global Competition Leveraged Joint Ventures Creeping Sale or Acquisition Catalyst for Change
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Characteristics of Well-Structured Joint Ventures:

Strategic Synergy Great Chemistry Win-Win Operational Integration Growth Opportunity Sharp Focus Commitment and Support
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Types/ Strategies of Joint Ventures:

Between two firms in one industry. Between two firms across different industries. Between an Indian firm and foreign company in India. Between an Indian firm and a foreign company in that foreign country. Between an Indian firm and a foreign company in a third country.
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Strategic Issues in Joint Venture Decision:

Objective of Joint Venture Choice of a Partner Pattern of Shareholding Management Pattern
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Pre-requisites for Successful Joint Ventures:

Strategic vision of partners must match Finding right partner Comprehensive agreement Tenure of the champions of the alliance Consensus on management control Extent of linkage between value chain JVs fail unless both partners benefit
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Advantages of Joint Ventures:

Accessing additional financial resources Sharing the risks Widening economic scope fast Tapping newer methods, technology and approach Building relationships with vital contacts. Exploit synergies
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Disadvantages of Joint Ventures:

Sharing management Differences in culture Usurping of technology Different commercial objectives Who is incharge? Disagreements to resolve Extra management time Financing Lengthy and costly negotiations Poorly drafted contracts Exit
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Strategic Alliances/ Collaborations

Reasons for SA:
Entering new markets Reducing manufacturing costs Developing and diffusing technology Obtaining technology and/or manufacturing capabilities Reduce financial risks Achieve or ensure competitive advantage Vertical integration Rounding out the product line
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Types of Strategic Alliances:

Pro competitive Alliances (Low Interaction/ Low Conflict) Noncompetitive Alliances (High Interaction/ Low Conflict) Competitive Alliance (High Interaction/ High conflict) Pro competitive Alliance (Low Interaction/ High Conflict)
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Advantages of Strategic Alliances:

Gaining capabilities Easier access to target markets Sharing the financial risk Winning the political obstacle Achieving synergy and competitive advantage
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Disadvantages of Strategic Alliances:

Sharing of future profits Barriers to future financing opportunities distractions Foreclosure of other opportunities Creating a competitor or a potential competitor Unexpected disappointments and headaches
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Leveraged Buyouts (LBO)

A LBO involves the acquisition of a company, the assets and cash flow of which are used by an investor to obtain and service the financing required for making the acquisition. Leverage can be accomplished through the use of third party equity investments or loans.
Characteristics of LBO Candidate:

Stable cash flows Stable and experienced management Significant cost reductions Equity interest of owners Ability to cut costs Limited debt on the firms balance sheet Separable, non-core businesses
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Categories of LBO:
Premium companies Second tier companies Troubled companies
Stages of LBO Operations:

Arrangement of Finance Taking Private Restructuring Reverse LBO
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Accessing Resource From External Sources for Financing Growth
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Public Issue or Initial Public Offering or Going Public

Initial Public Offering (IPO) also referred to simply as a public offering, is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately owned companies looking to become publicly traded.
Expenses in IPO:
Underwriters Compensation Accounting and Legal Fees Directors and Officers Insurance Printing Costs and Filling Fees.
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Pricing of IPO: Pricing of the public issue has to be carried out according to the guidelines issued by SEBI. At Premium: Companies are permitted to price their issues at premium in the case of the following:
First issue of new companies set up by existing companies with the track record.
First issue of existing private/closely held or other existing unlisted companies with three year track record of consistent profitability. First public issue by existing private/closely held or other existing unlisted companies without three year track record but promoted by existing companies with five year track record of consistent profitability.
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Existing private/closely held or other existing unlisted company with three year track record of consistent profitability, seeking disinvestment by offers to public without issuing fresh capital Public issue by existing listed companies with the last three years of dividend paying track record.
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At Par Value: The price of the share would be at par for

First public issue by existing private/closely held or other existing unlisted companies without three year track record of consistent profitability Existing private/closely held and other unlisted companies without three-year track record of consistent profitability seeking disinvestment offer to public without issuing fresh capital
Procedure for IPO:

An audit of last three years financial statement is done if not already completed. Selection of an investment banker to guide in the IPO process An S-1 registration statement is filed with the SEC Management responds to comments by the SEC and issues a Red Herring/prospectus, describing the firm and the offering
Management spends the next 10 to 15 days on the road, explaining the firms attributes to potential investors. The actual offering price is decided a day before the offering is released to the public. Based on the demand for the offering, the shares will be priced to create active trading of the stock.
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Advantages of IPO:
Liquidity Valuation Access to Capital Compensation Prestige Image Publicity Mergers and Acquisitions
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Disadvantages of IPO:
Going public changes the entrepreneurs life forever Privacy Corporate Governance Accountability and Vulnerability Learning Time Demands Time Horizon
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Selling Business
Reasons for Selling the Business:
Knowing that the business has reached a peak Strong buyer interest Business is struggling Up Economy or market More financial independence Medical problems More emotional freedom
Personal exhaustion Ready for new challenges Ready for retirement
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Guidelines for Selling the Business:

Place a reasonable price for the business Carry-on Business as Usual Engage experts to ensure confidentiality Prepare for the sale well in advance Anticipating information the buyer may request Achieve leverage through buyer competition
Be flexible Negotiate, do not dominate Keep time from dragging down the deal Be willing to stay involved.
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Process of Selling the Business:

Self-Assessment Valuation Strengthen Financial Records and Audit the Books Get the Business Ready for Sale Consult with a Team of Professionals Screen Potential Buyers Examine Long-Term Contracts Finalize the Sale.
Business Valuation Method:

Asset-Based Approaches
Going Concern Asset-Based Approach Liquidation Asset-Based Approach
Earning Value Approaches Discounted Future Earnings.
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Innovation Management
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Meaning and Definition of Innovation: Incremental, radical, and revolutionary changes in thinking, products, processes, or organizations. Acc. To Drucker, Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service. It is capable of being presented as a discipline, capable of being learned, capable of being practiced
Meaning and Definition of Innovation Management: Innovation management can be defined as the attempt to systematically shape and influence innovation processes in the company in such a way that the company obtains an optimal return from the creation and marketing of new products, services, and processes.
Need for Innovation: o Technology o Expanding World o More Demanding Customers
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Conditions for Innovation:

Commitment of top management to encouraging bottom-up ideas and initiatives. Creativity is fostered. Assignment of jobs based on the cognitive skills and abilities of employee. Identification and recognition of innovative people. Recruitment of creative talent.
Flexibility with regard to the allocation of priorities, patterns of working, and normal control systems. Disincentives for innovation avoidance. Integration of function of innovation with the rest of the organization's activities. Proposals move quickly through the approval process.
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Seeds of Innovation: Seeds of Creative Thinking Seeds of Strategic Thinking Seeds of Transformational Thinking
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Unexpected Success, Unexpected Failure, or Unexpected Outside Event. Incongruity in Reality Innovation Based on Process Need Changes in Industry and Market Structure that Catch Everyone Unawares. Demographic Changes
Sources of Innovation
Changes in Perception, Mood, and Meaning New Knowledge
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Principle of Innovation
Be Action Oriented Make the Product, Process, or Service Simple and Understandable Make the Product, Process or Service Customer-based Start Small Aim High Try/Test/Revise
Learn from Failures Follow a Milestone Schedule Reward Heroic Activity Work, Work, Work
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Types of Innovation
Technological Innovation Product Innovation Process Innovation Paradigm Innovation Radical Innovation Systems Innovation Incremental Innovation Addictive Innovation Organizational Innovation Complementary Innovation
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Innovation Process
There are three phases with three steps in each phase which are as follows:
Understanding the Problem

Gathering Information Clarifying the Real Problem Setting Innovation Goalposts
Imagination
Seeking Stimuli Uncovering Insights Identifying Ideas
Actions and Implementation:

Developing the Innovation Roadmap Gaining Commitment Implementing the Innovation Roadmap
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Advantages of Innovation
Improved quality Creation of new markets Extension of the product range Reduced labor cost Improved production processes Reduced materials Reduced environmental damage Reduced energy consumption
Integrated Innovation Framework

An integrated approach means that someone should take responsibility for the innovation process within organization. CIOs (Chief Information Officer) are responsible for managing and controlling the multiplicity of systems and software that business use.
Innovation Innovation Innovation Innovation Innovation Innovation
and Planning Pipeline Process Platform and People and Performance
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1. Organizational Size 2. Strategy 3. Organizational Structure:

1. Employee Structure 2. Internal Structure 3. External Structure
Organizational Setup that Facilitate Innovation
4. Types of Organizational Structure:

1. From Vertical to Horizontal Structure 2. From Routine Tasks to Empowered Roles
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5. Slack Resources 6. Culture and Climate 7. Communication 8. Social Structures 9. People and HRM:
5. Teams 6. Incentives and Rewards
10.Management of Technology
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Measures of Innovation
Organizational Level Political Level
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Failure of Innovation
The main causes of failure are: Poor leadership Poor organization Poor communication Poor empowerment Poor knowledge management Poor goal definition Poor alignment of actions to goals
Poor participation in teams Poor monitor of results Poor communication and access to information
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Steps to Overcome Failure

Effective Goal Definition Effective alignment of Actions Participation in Teams Effective Monitoring of Results
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Module IV

Managing Growing Venture & Innovation Management

Asst. Prof. Bhumika Achhnani - TNRCMS

Existing Financial Human Resources the Management of the Entrepreneurs

Asst. Prof. Bhumika Achhnani - TNRCMS

The management of growth consists of the following:

Asst. Prof. Bhumika Achhnani - TNRCMS

Critical Success Factor (CSF)/ Factors Influencing Growth:

Creativity and Innovation Consumer Trends Self-Sufficiency Communications

Asst. Prof. Bhumika Achhnani - TNRCMS

Strategic Growth Structural Growth

Asst. Prof. Bhumika Achhnani - TNRCMS

Asst. Prof. Bhumika Achhnani - TNRCMS

Asst. Prof. Bhumika Achhnani - TNRCMS

External Growth Strategies

Asst. Prof. Bhumika Achhnani - TNRCMS

Asst. Prof. Bhumika Achhnani - TNRCMS

Market Development Strategies

Asst. Prof. Bhumika Achhnani - TNRCMS

Product Development Strategies

Asst. Prof. Bhumika Achhnani - TNRCMS

Merger and Amalgamation

Why the Seller Wishes to Merge

Asst. Prof. Bhumika Achhnani - TNRCMS

Important Issues in Merger:

Asst. Prof. Bhumika Achhnani - TNRCMS

International Competition Greater Investment in R&D Greater Efficiency

Asst. Prof. Bhumika Achhnani - TNRCMS

Strategies of Acquisition or Takeover:

Asst. Prof. Bhumika Achhnani - TNRCMS

How Acquisitions Take Place:

Asst. Prof. Bhumika Achhnani - TNRCMS

Instructions for Successful Acquisitions:

Advantages of Acquisition or Takeover:

Asst. Prof. Bhumika Achhnani - TNRCMS

Characteristics of Well-Structured Joint Ventures:

Asst. Prof. Bhumika Achhnani - TNRCMS

Types/ Strategies of Joint Ventures:

Asst. Prof. Bhumika Achhnani - TNRCMS

Strategic Issues in Joint Venture Decision:

Asst. Prof. Bhumika Achhnani - TNRCMS

Pre-requisites for Successful Joint Ventures:

Asst. Prof. Bhumika Achhnani - TNRCMS

Advantages of Joint Ventures:

Asst. Prof. Bhumika Achhnani - TNRCMS

Disadvantages of Joint Ventures:

Strategic Alliances/ Collaborations

Types of Strategic Alliances:

Asst. Prof. Bhumika Achhnani - TNRCMS

Advantages of Strategic Alliances:

Asst. Prof. Bhumika Achhnani - TNRCMS

Disadvantages of Strategic Alliances:

Asst. Prof. Bhumika Achhnani - TNRCMS

Leveraged Buyouts (LBO)

Characteristics of LBO Candidate:

Asst. Prof. Bhumika Achhnani - TNRCMS

Stages of LBO Operations:

Asst. Prof. Bhumika Achhnani - TNRCMS