UNIT-4 CORPORATE LEVEL STRATEGY

STRATEGY IN THE GLOBAL

ENVIRONMENT

Globalization was the buzzword of the 1990s, and in the twenty first century,
there is no evidence that globalization will diminish. Essentially, globalization
refers to growth of trade and investment, accompanied by the growth in
international businesses, and the integration of economies around the world.
According to Punnett (2004) the globalization concept is based on a number of
relatively simple premises:

Technological developments have increased the ease and speed of international

communication and travel.

Increased communication and travel have made the world smaller.

A smaller world means that people are more aware of events outside of their
home country, and are more likely to travel to other countries.

Increased awareness and travel result in a better understanding of foreign

opportunities.

A better understanding of opportunities leads to increases in international trade

and investment, and the number of businesses operating across national borders.

These increases mean that the economies around the world are more closely
integrated.

Managers must be conscious that markets, supplies, investors, locations,

partners, and competitors can be anywhere in the world. Successful businesses
will take advantage of opportunities wherever they are and will be prepared for
downfalls. Successful managers, in this environment, need to understand the
similarities and differences across national boundaries, in order to utilize the
opportunities and deal with the potential downfalls.

CORPORATE STRATEGY:

Corporate Strategy
Corporate strategy is the highest strategic plan of the organization, which
defines the company goals and defines ways of the achievement Corporate
strategy is hierarchically the highest strategic plan of the organization, which
defines the corporate overall goals and directions and the way in which will be
achieved within strategic management activities.
It is a long-term, clearly defined vision of the direction of a company or
organization. It helps determine the overall value of the organization,
sets strategic goals and motivates workers to achieve them. It sets out a basic
plan for what is to be achieved and when. This is done by using strategic goals
and basic milestones. However, corporate strategy is also a continuous
process that must be able to respond appropriately to changing conditions
and surroundings - the market situation.
Corporate strategy must include and influence all aspects of the organization
and its entire product portfolio.
What should a corporate strategy include and cover?
Clearly named vision and mission should be part of the strategy. Numerous
analytical techniques are used to develop the strategy
(see PESTLE, SWOT, VRIO). When implementing the strategy, for example
the BSC is used in for the implementation.
Corporate strategy influences how a company creates value. This means that it
must cover both the product portfolio and the assumptions - resources and
organizational aspects.
 The product portfoliois the basis for the whole company and therefore
the strategy. The company needs to be clear about what it wants to
deliver, who it wants to deliver, what are the key competitive advantages,
pricing strategies and many other things. They are either part of a
corporate strategy or are elaborated in detail in separate but subordinate
strategic documents such as business strategies, marketing strategy and
the like.
 Company resources are necessary to deliver products and to
propel processes. The corporate strategy must include at least a basic
assessment of existing resources (eg using VRIO) and a plan of how new
resources will be acquired so that the strategic goals can be achieved.
Again, this description is either part of the corporate strategy as such or it
is elaborated in detail in partial strategic documents (human resources
 strategy, financial strategy, IT strategy, etc.). Resources are a key
limitation of the operation of companies. Most often lacking human
resources. Sometimes companies face a lack of financial resources,
sometimes they do not have sufficient technology, sometimes they miss a
building permit to build a production hall. The most limiting resource is
people - the lack of suitably qualified workers is the most common reason
for not achieving the company’s business goals.
 The organizational model then tells how to set up processes,
organizational structure and overall operating principles to achieve
strategic goals. It is necessary to set rules of operation, the policies,
guidelines, organizational structure, management system and powers and
responsibilities of people so that they effectively support to achieve
strategic goals. In this respect, there is no optimal model - it is always
necessary to use a management system, set processes and organization
appropriately to the resources, culture and overall situation in the
organization and the market. What works great in one company can cause
problems for another company.
Thus, corporate strategy must not only define the product and business direction
(business, market and financial goals) but also what a firm has to do to achieve
these goals. What resources must invest to and how to organize them. What
people’s skill profiles need, which competencies must be developed and how
they must be used to develop the business
Corporate strategy identifies barriers to achieving company objectives and
develops an approach that allows you to overcome the obstacles. When several
individual departments implement strategies, corporate actions lack
coordination and may act at cross-purposes. A corporate strategy department
functions as a coordinating body, developing and implementing strategies that
satisfy the objectives of individual departments as well as promoting overall
corporate goals.
Development
A corporate strategy department surveys those responsible for company
operations to gather information on challenges and objectives. It consolidates
individual strategic aims into an overall approach and invites feedback from the
departments concerned. If you are developing a corporate strategy, you have to
achieve consensus on what obstacles the company faces and what strategic
activities will be successful. Once there is broad agreement, you can
communicate the final version of the corporate strategy and assign tasks
required for carrying it out to the departments involved.
Implementation
To implement a strategy, the corporate strategy department has to first
communicate the details of the work it expects each department to carry out.
While the corporate strategy department is the overall leader, it has to rely on a
department such as marketing to implement the strategic components that fall
within its area of responsibility. For example, if the overall strategy includes the
development of new products, marketing has to carry out a market survey to
find out what features are needed, the design department has to create the
product and production has to build it.
Coordination
A key function of the corporate strategy department is to coordinate the
different initiatives that the strategy requires. The department has to schedule
the work in the proper sequence and ensure that the required resources are
available at the level of the department that is executing its particular strategic
component. For example, for the development of new products, the responsible
departments have to execute the marketing survey, design, production, product
launch and promotion according to a schedule put in place by the corporate
strategy department. The department then has to monitor progress and take
corrective action if a department falls behind schedule.
Evaluation
During implementation of the corporate strategy and after its execution is
complete, the corporate strategy department has to evaluate whether the strategy
is achieving the projected results. Part of the work assigned to participating
departments is to report back with key performance indicators to give feedback
on progress toward overall goals. If performance is not in line with projections,
the corporate strategy department has to plan for additional initiatives and direct
the responsible departments to carry out the extra work. Having the evaluation
centralized in one department gives you much better control of progress and a
more effective way of ensuring you meet overall targets.

What is vertical integration?

Vertical integration (VI) is a strategy that many companies use to gain control
over their industry’s value chain. This strategy is one of the major
considerations when developing corporate level strategy. The important
question in corporate strategy is, whether the company should participate in one
activity (one industry) or many activities (many industries) along the industry
value chain. For example, the company has to decide if it only manufactures its
products or would engage in retailing and after-sales services as well. Two
issues have to be considered before integration:

 Costs. An organization should vertically integrate when costs of making

the product inside the company are lower than the costs of buying that
product in the market.
 Scope of the firm. A firm should consider whether moving into new
industries would not dilute its current competencies. New activities in a
company are also harder to manage and control. The answers to previous
questions determine if a company will pursue none, partial or full VI.

The example below illustrates a general industry value chain and none, partial
or full VI of a corporate operating in that industry.

ypes of Vertical Integration

There are usually two types of VI −

Forward Integration
Engaging in sales or after-sales industries for a manufacturing company, it is a
forward integration strategy. This strategy is used to achieve higher economies
of scale and larger market share. Forward integration strategy is boosted by
internet. Many companies have built their online stores and started selling their
products directly to consumers, bypassing retailers.
Forward integration strategy is effective when −

 Few quality distributors exist in the industry.

 Profit is high for distributors or retailers.
 Distributors are very expensive, unreliable or unable to offer quality
service.
 The industry is going to grow significantly.
  Stable production and distribution is possible.
 The company has vast resources and capabilities to manage the new
business.

Backward Integration
If a manufacturing company starts creating intermediate goods for itself or
buys its previous suppliers, it is a backward integration strategy. It is used to
secure stable input of resources and become more efficient.
Backward integration strategy is most beneficial when −

 Existing suppliers are unreliable, expensive or unable to provide the

required inputs.
 Only a few small suppliers but several competitors exist in the industry.
 Industry is in rapid expansion mode.
 Price and inputs become unstable.
 Suppliers earn very high profit margins.
A company has the needed resources and capabilities to maintain the new
business.

Advantages of VI Strategy

 Lower costs as market transaction costs are diminished.

 Greater quality of supplies.
 VI can make critical resources available.
 Better coordination in supply chain becomes possible.
 Provides a bigger market share.
 Secured distribution channels.
 It enhances investment in specialized assets (site, physical-assets and
human-assets).
 New competencies.

Disadvantages of VI Strategy

 Higher costs, in case, the company cannot manage new activities

efficiently.
 May lead to lower quality products and reduced efficiency as competition
recedes.
 Reduced flexibility due to increased bureaucracy and higher investments.
 Higher potential for legal repercussion due to size.
 New competencies and old ones may collide and lead to competitive
disadvantage.
 Diversification strategies are used to extend the company’s product lines
and operate in several different markets. The general strategies include
concentric, horizontal and conglomerate diversification.
 Each strategy focuses on a specific method of diversification. The
concentric strategy is used when a firm wants to increase its products
portfolio to include like products produced within the same company, the
horizontal strategy is used when the company wants to produce new
products in a similar market, and the conglomerate diversification
strategy is used when a company starts operating in two or more
unrelated industries.
 Diversification strategies help to increase flexibility and maintain profit
during sluggish economic periods.
 Warren Buffet on Diversification
 “Diversification is protection against ignorance, it makes little sense
for those who know what they’re doing.”

 Concentric Diversification
 A concentric diversification strategy lets a firm to add similar products to
an already established business. For example, when a computer company
producing personal computers using towers starts to produce laptops, it
uses concentric strategies. The technical knowledge for new venture
comes from its current field of skilled employees.
 Concentric diversification strategies are rampant in the food production
industry. For example, a ketchup manufacturer starts producing salsa,
using its current production facilities.

 Horizontal Diversification
 Horizontal diversification allow a firm to start exploring other zones in
terms of product manufacturing. Companies depend on current market
share of loyal customers in this strategy. When a television manufacturer
 starts producing refrigerators, freezers and washers or dryers, it uses
horizontal diversification.
 A downside is the company’s dependence on one group of consumers.
The company has to leverage on the brand loyalty associated with current
products. This is dangerous since new products may not garner the same
favor as the company’s other products.

 Conglomerate Diversification
 In conglomerate diversification strategies, companies will look to enter a
previously untapped market. This is often done using mergers and
acquisitions.
 Moving into a new industry is highly dangerous, due to unfamiliarity
with the new industry. Brand loyalty may also be reduced when quality is
not managed. However, this strategy offers increasing flexibility in
reaching new economic markets.
 For example, a company into automotive repair parts may enter the toy
production industry. Each company allows for a broader base of
customers. There is an opportunity of income when one industry's sales
falter.
7 reasons diversification strategy is better in the long run

April 17, 2019 By Hitesh Bhasin Tagged With: Marketing strategy articles

Diversification strategy is observed when new products are introduced in a

completely new market by the company. The strategy is loaded with hurdles
because it requires a lot of investment and a lot of man power as well as focus
of the top management. But still, in the long run, diversification strategy is one
of the best growth strategy in the long run. Here are seven reasons for the
support of diversification strategy.

Page Contents
1) You get more product variety 

When diversifying your products, you are bound to do good research

and development which results in introducing more variety and options of
products in hand to capture the new market. With more product variety, you
capture more customer attention and your brand receives a tremendous boost as
well as the profitability of the company rises. Thus having more products is
good for your business.

2) More markets are tapped 

Your reach increases when you have more products and you need
more markets to sell them. New products plus new markets is what defines the
diversification strategy. More markets means your distribution increases and
overall turnover increases. Although penetrating the markets involve a lot of
cost and expenditure, once penetrated, the new market will bring regular profits,
which is the goal of any business oriented company. Thus, the diversification
strategy is a good market penetration strategy as well.

3) Companies gain more technological capability 

With more R&D expenditure, it is likely that the company will develop
technological capabilities. The goal of R&D is mostly technological
advancement – bringing new and better products in the market. Thus, once you
implement diversification strategy, you are bound to gain more technological
capability for your company.

4) Economies of scale 

Economies of scale comes in the picture when you are using same fixed Cost
for more output. Whenever you are using the same factory to manufacture more
number of products, naturally with advantage of economies of scale, your cost
comes down and margins goes up. This is another advantage of diversification
strategy.

5) Cross selling

Cross selling becomes more possible with the diversification strategy. You can
introduce older products in the new market or introduce the new products in
older and more mature market. An example in this case is LG which gives a
large variety of products to end consumers and hence cross sells its own
products.

6) Brand Equity 

Because brand equity receives a substantial boost with more products and more
presence in the market, your brand surges in brand recall as well as brand reach.
This results in long term benefits for your brand. Perfect example in this case
is Samsung. Samsung smart phones have created a tremendous boost for the
Samsung brand, which has resulted in all of its products receiving a positive
vibe because its Samsung.

7) Risk factor is reduced 

Due to diversification strategy, and introduction of new products in new

markets, your reliance on one single product or one single market is reduced
and you begin to have advantage of more products and more markets to rely on.
Thus, overall risk of the company is reduced.

All marketing experts say, that a business which does not keep adding new
customers is bound to fail in the long run. At the same time, a company which
does not expand at the right time is bound to lose a lot of its customers and
market share. The diversification growth strategy helps the company expand in
the right direction and manages risk for the company at the same time
contributing to the bottom line. Thus, Diversification strategy is very beneficial
for the company in the long run.

STRATEGIC ALLIANCE:

A Strategic Alliance is a 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, or intellectual
property. The alliance is a co-operation or colloboration which aims for a
synergy where each partner hopes that the benefits from the alliance will be
greater than those from individual efforts. The alliance often involves
technology transfer (access to knowledge and expertise),economic
specialisation,shared expenses and shared risk.
Types of strategic alliances
Various terms have been used to describe forms of strategic partnering. These
include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’
(Jarillo, 1988) and, most commonly,‘strategic alliances’
. Definitions are equally varied. An alliance may be seen as the ‘joining of
forces and resources, for a specified or indefinite period, to achieve a common
objective’. There are seven general areas in which profit can be made from
building alliances. Stages of Alliance Formation
A typical strategic alliance formation process involves these steps:
Strategy Development: Strategy development involves studying the alliance’s
feasibility, objectives and rationale, focusing on the major issues and challenges
and development of resource strategies for production, technology, and people.
It requires aligning alliance objectives with the overall corporate strategy.
Partner Assessment: Partner assessment involves analyzing a potential
partner’s strengths and weaknesses, creating strategies for accommodating all
partners’ management styles, preparing appropriate partner selection criteria,
understanding a partner’s motives for joining the alliance and addressing
resource capability gaps that may exist for a partner.
Contract Negotiation: Contract negotiations involves determining whether all
parties have realistic objectives, forming high calibre negotiating teams,
defining each partner’s contributions and rewards as well as protect any
proprietary information, addressing termination clauses, penalties for poor
performance, and highlighting the degree to which arbitration procedures are
clearly stated and understood.
Alliance Operation: Alliance operations involves addressing senior
management’s commitment, finding the calibre of resources devoted to the
alliance, linking of budgets and resources with strategic priorities, measuring
and rewarding alliance performance, and assessing the performance and results
of the alliance.
 Alliance Termination: Alliance termination involves winding down the
alliance, for instance when its objectives have been met or cannot be met, or
when a partner adjusts priorities or re-allocates resources elsewhere. There are
four types of strategic alliances: joint venture, equity strategic alliance, non-
equity strategic alliance, and global strategic alliances.
1. Joint venture
is a strategic alliance in which two or more firms create a legally independent
company to share some of their resources and capabilities to develop a
competitive advantage.
2. Equity strategic alliance
is an alliance in which two or more firms own different percentages of the
company they have formed by combining some of their resources and
capabilities to create a competitive advantage.
3. Non-equity strategic alliance
is an alliance in which two or more firms develop a contractual-relationship
to share some of their unique resources and capabilities to create a
competitive advantage.
4. Global Strategic Alliances
working partnerships between companies (often more than two) across
national boundaries and increasingly across industries, sometimes formed
between company and a foreign government, or among companies and
governments.

STRATEGIC MANAGEMENT: MANAGING MERGERS &

ACQUISITIONS:

Mergers and Acquisitions

June 16 2015 Written By: EduPristine

What is Mergers & Acquisitions?

Mergers and acquisitions (M&A) are defined as consolidation of companies.
Differentiating the two terms, Mergers is the combination of two companies to
form one, while Acquisitions is one company taken over by the other. M&A is
one of the major aspects of corporate finance world. The reasoning behind
M&A generally given is that two separate companies together create more value
compared to being on an individual stand. With the objective of wealth
maximization, companies keep evaluating different opportunities through the
route of merger or acquisition.
 Mergers & Acquisitions can take place:
• by purchasing assets
• by purchasing common shares
• by exchange of shares for assets
• by exchanging shares for shares

Types of Mergers and Acquisitions:

Merger or amalgamation may take two forms: merger through absorption or
merger through consolidation. Mergers can also be classified into three types
from an economic perspective depending on the business combinations, whether
in the same industry or not, into horizontal ( two firms are in the same industry),
vertical (at different production stages or value chain) and conglomerate
(unrelated industries). From a legal perspective, there are different types of
mergers like short form merger, statutory merger, subsidiary merger and merger
of equals.
Reasons for Mergers and Acquisitions:

• Financial synergy for lower cost of capital

• Improving company’s performance and accelerate growth
• Economies of scale
• Diversification for higher growth products or markets
• To increase market share and positioning giving broader market access
• Strategic realignment and technological change
• Tax considerations
• Under valued target
• Diversification of risk

Principle behind any M&A is 2+2=5

There is always synergy value created by the joining or merger of two
companies. The synergy value can be seen either through the Revenues (higher
revenues), Expenses (lowering of expenses) or the cost of capital (lowering of
overall cost of capital).

Three important considerations should be taken into account:

• The company must be willing to take the risk and vigilantly make investments
to benefit fully from the merger as the competitors and the industry take heed
quickly
• To reduce and diversify risk, multiple bets must be made, in order to narrow
down to the one that will prove fruitful
• The management of the acquiring firm must learn to be resilient, patient and
be able to adopt to the change owing to ever-changing business dynamics in the
industry

Stages involved in any M&A:

Phase 1: Pre-acquisition review: this would include self assessment of the
acquiring company with regards to the need for M&A, ascertain the valuation
(undervalued is the key) and chalk out the growth plan through the target.
Phase 2: Search and screen targets: This would include searching for the
possible apt takeover candidates. This process is mainly to scan for a good
strategic fit for the acquiring company.
Phase 3: Investigate and valuation of the target: Once the appropriate
company is shortlisted through primary screening, detailed analysis of the target
company has to be done. This is also referred to as due diligence.
Phase 4: Acquire the target through negotiations: Once the target company
is selected, the next step is to start negotiations to come to consensus for a
negotiated merger or a bear hug. This brings both the companies to agree
mutually to the deal for the long term working of the M&A.
Phase 5:Post merger integration: If all the above steps fall in place, there is a
formal announcement of the agreement of merger by both the participating
companies.

Problems– Analyzed during the stages of M&A:

Poor strategic fit: Wide difference in objectives and strategies of the company
Poorly managed Integration: Integration is often poorly managed without
planning and design. This leads to failure of implementation
Incomplete due diligence: Inadequate due diligence can lead to failure of
M&A as it is the crux of the entire strategy
Overly optimistic: Too optimistic projections about the target company leads
to bad decisions and failure of the M&A
Example: Breakdown in merger discussions between IBM and Sun
Microsystems happened due to disagreement over price and other terms 
online courses on Corporate Strategies - Diversification Using Mergers and
Acquisitions - Problems in Achieving Acquisition Success
 

1)       Integration Difficulties

Integration problems or difficulties that companies often encounter can take

many forms.  Major amongst them are linking different financial and control
systems, building effective working relationships (especially when management
styles differ), problems related to differing status of acquired and acquiring
companies' executives and melding disparate corporate cultures.

The importance of integration success should not be underestimated. Without

successful integration, a company achieves financial diversification, but little
else. The post-acquisition integration phase may be the single most important
determinant of shareholder value creation (or value destruction) in mergers and
acquisitions. Managers should understand the large number of activities
associated with integration processes.  For example, Intel acquired Digital
Equipment Corporation's semiconductors division. On the day Intel began to
integrate the acquired division into its operations, six thousand deliverables
were to be completed by hundreds of employees working in dozens of different
countries.

Research shows a positive relationship between rapid integration of the

acquiring and acquired companies and overall acquisition success.  Rapid
integration is one of the guidelines that DaimlerChrysler CEO Juergen
Schrempp recommends to companies for successful company integration in a
global merger or acquisition.  He also suggests that managers deal with
unpopular issues immediately and honestly so employees will be able to
anticipate the effects the integration is likely to have on them. M&A king, Cisco
Systems, is quick to integrate acquisitions with its existing operations. Focusing
on small companies with products and services related closely to its own, some
believe that the day after Cisco acquires a company, employees in that company
feel as though they have been working for Cisco for decades.
 

2)       Inadequate Valuation of Target

Another potential problem is that acquiring companies may pay too much for
acquired businesses. This can occur for a number of reasons:

Acquiring companies may not thoroughly analyze the target company, failing to
develop adequate knowledge of its true market value. 

Managerial hubris--overconfidence in one's own ability--may cloud the

judgement of acquiring company managers.

Shareholders (owners) of the target must be enticed to sell their stock, and this
usually requires that acquiring companies pay a premium over the current stock
price.

In some instances, two or more companies may be interested in acquiring the

same target company.  When this happens, a bidding war often ensues and
extraordinarily high premiums may be required to purchase the target company.

An example of effective due diligence was DaimlerChrysler's 1999 decision not

to acquire Nissan Motor Company. DaimlerChrysler was interested in Nissan as
a means to expand its access to global auto markets, especially those in
Southeast Asia, but the target had $22 billion debt, which caused concern
among DaimlerChrysler executives and derailed the acquisition.

3)       Large or Extraordinary Debt

Many acquirers, in addition to overpaying for targets, may be forced, due to

market conditions, to finance acquisitions with relatively high-cost debt.  Top-
level managers were encouraged to finance acquisitions with high-cost debt
because of the managerial discipline that accompanied such use.  A number of
well-known and well-respected finance scholars argue in favor of companies
utilizing significantly high levels of leverage because debt discourages
managers from misusing funds (for example, by making bad investments)
because debt (and interest) repayment eliminates the company's "free cash
flow."
 

But the use of debt has both positive and negative effects.  On the one hand,
leverage can be a positive force by allowing the company to take advantage of
expansion opportunities; however, excessive leverage can lead to negative
outcomes such as postponing or eliminating the investments that are necessary
to maintain strategic competitiveness over the long term.

4)                Inability to Achieve Synergy

Acquiring companies also face the challenge of correctly identifying and

valuing any synergies that are expected to be realized from the acquisition.  This
is a significant problem because, to justify the premium price paid for target
companies, managers may overestimate both the benefits and value of
synergy.  And, to achieve a sustained competitive advantage through an
acquisition, acquirers must realize private synergies and core competencies that
cannot easily be imitated by competitors.

Private synergy refers to the benefit from merging the acquiring and target
companies that is due to a unique resource or set of resources that are
complimentary between the two companies and not available among other
potential bidders for that target company. However, private synergies are
rare.  In fact, misinterpreting common synergies as private may explain why
acquiring company shareholders rarely receive significant positive returns.

What Is a Strategic Joint Venture?

A strategic joint venture is a business agreement between two companies who
make the active decision to work together, with a collective aim of achieving a
specific set of goals and increase their respective bottom lines.

Through this arrangement, the companies effectively complement one another’s

strengths, while compensating for one another’s weaknesses. Both companies
share in the returns of the joint venture, while equally absorbing the potential
risks involved. Strategic joint ventures may be seen as strategic alliances,
though the latter may or may not entail a binding legal agreement, while the
former does.
Unlike mergers and acquisitions, strategic joint ventures do not necessarily have
to be permanent partnerships. Furthermore, both companies maintain their
independence and retain their identities as individual companies, thus allowing
each one to pursue business models outside the partnership mandate.

Understanding Strategic Joint Ventures

There is a multitude of reasons why two companies might choose to enter into a
strategic joint venture. For one, strategic joint ventures let companies pursue
larger opportunities than they could attempt autonomously. For example, such
partnerships let companies establish a presence in a foreign country or
gain competitive advantages in a particular market.

To cite a more specific example, strategic joint ventures have helped many
companies enter emerging markets that would be otherwise difficult to break
into, without the benefit of local intelligence and connections to on-the-ground
operatives in the region.

In such arrangements, one company typically contributes more to the

operational costs, while the other company contributes know-how and
operational experience. The share of the venture owned by each company
largely depends on their individual contributions. But the most successful
strategic joint ventures are those where each founding member firm winds up
with an equal stake.

[Important: According to a survey, the value of joint ventures climbed 20%

annually, from 1995 to 2015. This represents twice the growth rate of
Merger and Acquisition deals, during the same time period.]

Strategic joint ventures may also help companies achieve greater efficiencies of

scale by combining assets and operations. They also may help companies access
unique skills and capabilities that they would otherwise be unable to develop
themselves. Joint ventures also let the companies involved mitigate the risks for
investments or projects, while helping each one gain access to the other’s
technology, increase revenues, expand their customer bases, and widening
product distribution channels.
Strategic Joint Venture Structure
While strategic joint ventures can take a variety of structures, most are formally
incorporated. Such partnerships exist as their own legal entities, in that they
operate independently of the founding member companies.

KEY TAKEAWAYS

 A strategic joint venture is a business agreement that is actively engaged

by two companies who make a concerted decision to work together to
achieve a specific set of goals.
 Joint ventures are instrumental in helping companies establish a presence
in a foreign country or gain a competitive advantage in a particular
market,
 Joint ventures have helped numerous companies achieve access to
emerging markets that they would otherwise have difficulty breaking
into.

Corporate Restructuring Strategies Business

Corporate restructuring is the process of redesigning one or more aspects of a
company. The process of reorganizing a company may be implemented due to a
number of different factors, such as positioning the company to be more
competitive, survive a currently adverse economic climate, or poise the
corporation to move in an entirely new direction. Here are some examples of
why corporate restructuring may take place and what it can mean for the
company.

In general, the idea of corporate restructuring is to allow the company to

continue functioning in some manner. Even when corporate raiders break up the
company and leave behind a shell of the original structure, there is still usually a
hope, what remains can function well enough for a new buyer to purchase the
diminished corporation and return it to profitability.

Purpose of Corporate Restructuring –

To enhance the share holder value, The company should continuously evaluate
its:

Portfolio of businesses,
Capital mix,

Ownership &

Asset arrangements to find opportunities to increase the share holder’s value.

To focus on asset utilization and profitable investment opportunities.

To reorganize or divest less profitable or loss making businesses/products.

The company can also enhance value through capital Restructuring, it can
innovate securities that help to reduce cost of capital.

Corporate Restructuring entails a range of activities including financial

restructuring and organization restructuring.

1. Financial Restructuring

Financial restructuring is the reorganization of the financial assets and liabilities

of a corporation in order to create the most beneficial financial environment for
the company. The process of financial restructuring is often associated with
corporate restructuring, in that restructuring the general function and
composition of the company is likely to impact the financial health of the
corporation. When completed, this reordering of corporate assets and liabilities
can help the company to remain competitive, even in a depressed economy. Just
about every business goes through a phase of financial restructuring at one time
or another. In some cases, the process of restructuring takes place as a means of
allocating resources for a new marketing campaign or the launch of a new
product line. When this happens, the restructure is often viewed as a sign that
the company is financially stable and has set goals for future growth and
expansion.

Need For Financial Restructuring

The process of financial restructuring may be undertaken as a means of

eliminating waste from the operations of the company.

For example, the restructuring effort may find that two divisions or departments
of the company perform related functions and in some cases duplicate efforts.
Rather than continue to use financial resources to fund the operation of both
departments, their efforts are combined. This helps to reduce costs without
impairing the ability of the company to still achieve the same ends in a timely
manner

In some cases, financial restructuring is a strategy that must take place in order
for the company to continue operations. This is especially true when sales
decline and the corporation no longer generates a consistent net profit. A
financial restructuring may include a review of the costs associated with each
sector of the business and identify ways to cut costs and increase the net profit.
The restructuring may also call for the reduction or suspension of production
facilities that are obsolete or currently produce goods that are not selling well
and are scheduled to be phased out.

Financial restructuring also take place in response to a drop in sales, due to a

sluggish economy or temporary concerns about the economy in general. When
this happens, the corporation may need to reorder finances as a means of
keeping the company operational through this rough time. Costs may be cut by
combining divisions or departments, reassigning responsibilities and eliminating
personnel, or scaling back production at various facilities owned by the
company. With this type of corporate restructuring, the focus is on survival in a
difficult market rather than on expanding the company to meet growing
consumer demand.

All businesses must pay attention to matters of finance in order to remain

operational and to also hopefully grow over time. From this perspective,
financial restructuring can be seen as a tool that can ensure the corporation is
making the most efficient use of available resources and thus generating the
highest amount of net profit possible within the current set economic
environment.

2. Organizational Restructuring

In organizational restructuring, the focus is on management and internal

corporate governance structures. Organizational restructuring has become a
very common practice amongst the firms in order to match the growing
competition of the market. This makes the firms to change the organizational
structure of the company for the betterment of the business.

Need For Organization Restructuring

  New skills and capabilities are needed to meet current or expected
operational requirements.
 Accountability for results are not clearly communicated and measurable
resulting in subjective and biased performance appraisals.
 Parts of the organization are significantly over or under staffed.
 Organizational communications are inconsistent, fragmented, and
inefficient.
 Technology and/or innovation are creating changes in workflow and
production processes.
 Significant staffing increases or decreases are contemplated.
 Personnel retention and turnover is a significant problem.
 Workforce productivity is stagnant or deteriorating.
 Morale is deteriorating.

Types of Corporate Restructuring Strategies

1. Merger:
This is the concept where two or more business entities are merged
together either by way of absorption or amalgamation or by forming of a
new company. The merger of two or more business entities is generally
done by exchange of securities between the acquiring and the target
company.
2. Demerger:
Under this corporate restructuring strategy, two or more companies are
combined into a single company to get the benefit of synergy arising out
of such a merger.
3. Reverse Merger:
In this strategy, the unlisted public companies have the opportunity to
convert into a listed public company, without opting for IPO (Initial
Public offer). In this strategy, the private company acquires a majority
shareholding in the public company with its own name.
4. Disinvestment:
When a corporate entity sells out or liquidates an asset or subsidiary, it is
known as “divestiture”.
5. Takeover/Acquisition:
Under this strategy, the acquiring company takes overall control of the
target company. It is also known as the Acquisition.
 6. Joint Venture (JV):
Under this strategy, an entity is formed by two or more companies to
undertake financial act together. The entity created is called the Joint
Venture. Both the parties agree to contribute in proportion as agreed to
form a new entity and also share the expenses, revenues and control of
the company.
7. Strategic Alliance:
Under this strategy, two or more entities enter into an agreement to
collaborate with each other, in order to achieve certain objectives while
still acting as independent organisations.
8. Slump Sale:
Under this strategy, an entity transfers its one or more undertaking for
lump sum consideration. Under Slump Sale, an undertaking is sold for a
consideration irrespective of the individual values of the assets or
liabilities of the undertaking.

Strategic Analysis, Choice:

As environment changes, companies need to change their strategies to adapt to

the environment not only to prosper but also to survive. Based on the multiple
strategic choices, each choice is analyze and the best one is selected and
implemented.

Strategic analysis and choice are two important components of the

implementation stage of the strategic management plan. These two components
are crucial links in the strategic management implementation procedure.

The strategic management process has three main components as shown below
Strategic analysis is all about analyzing the strength of businesses’ position
and understanding the important external factors that may influence that
position. Factors Taken into Consideration for Strategic Analysis and Choice

Key Internal Factors

 Marketing
 Management
 Operations/Production
 Accounting/Finance
 Computer Information Systems
 Research and Development

Key External Factors

 Political/Governmental/Legal
 Economy
 Technological
 Social/Demographic/Cultural/Environmental
 Competitive
 Techniques Used in Strategic Analysis

The following devices or techniques are used in the procedure of strategic

analysis:

 Five Forces Analysis

  PEST Analysis (Political, Economic, Social and Technological Analysis)
 Market segmentation
 Scenario planning
 Competitor analysis
 Directional policy matrix
 SWOT Analysis (Strength, Weaknesses, Opportunities, and Threats
Analysis)
 Critical Success Factor Analysis

Strategic choice involves understanding the nature of stakeholders

expectations, identifying the strategic option and evaluating and selecting the
best/optimal choice amongst all.

Strategic implementation is the penultimate stage of strategic management

and strategic analysis and choice are two significant constituents of that process.

Characteristics of Strategic Analysis and Choice

Following are the features of strategic analysis and choice:

 Establishment of long term goals

 Producing strategy options
 Choosing strategies to act on
 Selecting the best option and accomplishing mission and g

At the time of performing strategic analysis and arriving at strategic choices,

long term goals are fixed and different types of strategies are chosen that are
most appropriate for the mission of the company and the variable conditions.

Strategic analysis and choice of strategies are done with the help of a number of
techniques. If the appropriate strategy is chosen, a company would become
more efficient to establish sustainability in competitive advantage and maximize
firm valuation.

Strategy analysis and choice focuses on generating and evaluating alternative

strategies, as well as on selecting strategies to pursue. Strategy analysis and
choice seeks to determine alternative courses of action that could best enable the
firm to achieve its mission and objectives.
The firm’s present strategies, objectives, and mission together with the external
and internal audit information, provide a basis for generating and evaluating
feasible alternative strategies. The alternative strategies represent incremental
steps that move the firm from its current position to a desired future state.

Alternative strategies are derived from the firm’s vision, mission, objectives,
external audit, and internal audit and are consistent with past strategies that have
worked well. The strategic analysis discusses the analytical techniques in two
stages i.e. techniques applicable at corporate level and then techniques used for
business-level strategies.

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The techniques that have been discussed for the corporate level include BCG
matrix, GE nine-cell planning grid, Hofer’s matrix and Shell Directional Policy
Matrix and the techniques for business- level include SWOT analysis,
experience curve analysis, grand strategy selection matrix, grand strategy
clusters.

The judgmental factors constitute the other aspect on the basis of which
strategic choice is made. We discuss the several factors that guide the strategists
in strategic choice. The selection of strategies in three ways i.e. selection against
objectives, referral to a higher authority and by partial implementation has been
discussed.

Contingency strategies in order to face various situations that may arise in the
course of strategy implementation have been discussed. Finally, we discuss the
nature and contents of a strategic plan document.

Environmental Threat and Opportunity Profile (ЕТОР)

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Environmental Threat and Opportunity Profile (ЕТОР)!

The Environmental factors are quite complex and it may be difficult for strategy
managers to classify them into neat categories to interpret them as opportunities
and threats. A matrix of comparison is drawn where one item or factor is
compared with other items after which the scores arrived at are added and
ranked for each factor and total weight age score calculated for prioritizing each
of the factors.
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This is achieved by brainstorming. And finally the strategy manger uses his
judgment to place various environmental issues in clear perspective to create the
environmental threat and opportunity profile.

Although the technique of dividing various environmental factors into specific

sectors and evaluating them as opportunities and threats is suggested by some
authors, it must be carefully noted that each sector is not exclusive of the other.

Each of the major factors pertaining to a particular sector of environment may

be divided into sub-sectors and their effects studied. The field force analysis
goes hand in glove with ETOP, as here also the contribution with regard to
opportunities and threats posed by the environment is also a necessary part of
study.

ETOP Preparation:
The preparation of ETOP involves dividing the environment into different
sectors and then analyzing the impact of each sector on the organization. A
comprehensive ETOP requires subdividing each environmental sector into sub
factors and then the impact of each sub factor on the organization is described in
the form of a statement.

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A summary ETOP may only show the major factors for the sake of simplicity.
The table 1 provides an example of an ETOP prepared for an established
company, which is in the Two Wheeler industry.

The main business of the company is in Motor Bike manufacturing for the
domestic and exports markets. This example relates to a hypothetical company
but the illustration is realistic based n the current Indian business environment.
Table 1: Environmental Threat and Opportunity Profile (ETOP) for a
Motor Bike company:
As shown in the table motorbike manufacturing is an attractive proposition due
to the many opportunities operating in the environment. The company-can
capitalize on the burgeoning demand by taking advantage of the various
government policies and concessions. It can also take advantage of the high
exports potential that already exists.

Since the company is an established manufacturer of motorbike, it has a

favorable supplier as well as technological environment. But contrast the
implications of this ETOP for a new manufacturer who is planning to enter this
industry.

Though the market environment would still be favorable, much would depend
on the extent to which the company is able to ensure the supply of raw materials
and components, and have access to the latest technology and have the facilities
to use it. The preparation of an ETOP provides a clear picture for organization
to formulate strategies to take advantage of the opportunities and counter the
threats in its environment.
The strategic managers should keep focus on the following dimensions,

1. Issue Selection:
Focus on issues, which have been selected, should not be missed since there is a
likelihood of arriving at incorrect priorities. Some of the impotent issues may be
those related to market share, competitive pricing, customer preferences,
technological changes, economic policies, competitive trends, etc.

2. Accuracy of Data:
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Data should be collected from good sources otherwise the entire process of
environmental scanning may go waste. The relevance, importance,
manageability, variability and low cost of data are some of the important
factors, Which must be kept in focus.

3. Impact Studies:
Impact studies should be conducted focusing on the various opportunities and
threats and the critical issues selected. It may include study of probable effects
on the company’s strengths and weaknesses, operating and remote environment,
competitive position, accomplishment of mission and vision etc. Efforts should
be taken to make assessments more objective wherever possible.

4. Flexibility in Operations:
There are number of uncertainties exist in a business situation and so a company
can be greatly benefited buy devising proactive and flexible strategies in their
plans, structures, strategy etc. The optimum level of flexibility should be
maintained.

Corporate Portfolio Analysis

When the company is in more than one business, it can select more than one
strategic alternative depending upon demand of the situation prevailing in the
different portfolios. It is necessary to analyze the position of different business
of the business house which is done by corporate portfolio analysis.

Portfolio analysis is an analytical tool which views a corporation as a basket or

portfolio of products or business units to be managed for thebest possible
returns.
When an organization has a number of products in its portfolio, it is quite likely
that they will be in different stages of development. Some will be relatively new
and some much older. Many organizations will not wish to risk having all their
products at the same stage of development. It is useful to have some products
with limited growth but producing profits steadily, and some products with real
growth potential but may still be in the introductory stage. Indeed, the products
that are earning steadily may be used to fund the development of those that will
provide the growth and profits in the future.

So the key strategy is to produce a balanced portfolio of products, some with

low risk but dull growth and some with high risk but great potential for growth
and profits. This is what we call as portfolio analysis.

The aim of portfolio analysis is

1)   to analyze its current business portfolio and decide which businesses should
receive more or less investment

2)   to develop growth strategies, for adding new businesses to the portfolio

3)   to decide which business should not longer be retained

Balancing the portfolio –

Balancing the portfolio means that the different products or businesses in the
portfolio have to be balanced with respect to four basic aspects –

 Profitability
 Cash flow
 Growth
 Risk

This analysis can be done by any of the following technologies –

BCG matix

GE nine cell matrix

 gap analysis

A gap analysis is a method of assessing the differences in performance between

a business' information systems or software applications to determine whether
business requirements are being met and, if not, what steps should be taken to
ensure they are met successfully. Gap refers to the space between "where we
are" (the present state) and "where we want to be" (the target state). A gap
analysis may also be referred to as a needs analysis, needs assessment or need-
gap analysis. 

In information technology, gap analysis reports are often used by project

managers and process improvement teams. Small businesses, in particular, can
also benefit from performing gap analyses when they're in the process of
figuring out how to allocate resources.  In software development, gap analysis
tools can document which services and/or functions have been accidentally left
out, which have been deliberately eliminated, and which still need to be
developed. In compliance, a gap analysis can compare what is required by
certain regulations to what is currently being done to abide by them.

How to conduct a gap analysis

The first step in conducting a gap analysis is to establish specific target

objectives by looking at the company's mission statement, strategic goals and
improvement objectives. The next step is to analyze current business processes
by collecting relevant data on performance levels and how resources are
presently allocated to these processes. This data can be collected from a variety
of sources depending on what's being analyzed, such as by looking at
documentation, conducting interviews, brainstorming and observing project
activities. Lastly, after a company compares its target goals against its current
state, it can then draw up a comprehensive plan that outlines specific steps to
take to fill the gap between its current and future states, and reach its target
objectives.
What's in a gap analysis template?

While a gap analysis can be either concrete or conceptual, gap analysis

templates often have in common the following fundamental components:

Identifying the current and future states

Current state: A gap analysis template starts off with a column that might be
labeled "Current State," which lists the processes and characteristics an
organization seeks to improve, using factual and specific terms. Areas of focus
can be broad, targeting the entire business; the focus instead may be narrow,
concentrating on a specific business process, depending on the company's
outlined target objectives. The analysis of these focus areas can be either
quantitative, such as looking at the number of customer calls answered within a
certain time period; or qualitative, such as examining the state of diversity in the
workplace.

Future state: The gap analysis report should also include a column labeled
"Future State," which outlines the target condition the company wants to
achieve. Like the current state, this section can be drafted in concrete,
quantifiable terms, such as aiming to increase the number of fielded customer
calls by a certain percentage within a specific time period; or in general terms,
such as working toward a more inclusive office culture.

Describing the gap

Gap description: This column should first identify whether a gap exists
between a company's current and future state. If so, the gap description should
then outline what constitutes the gap and the factors that contribute to it. This
column lists those reasons in objective, clear and specific terms. Like the state
descriptions, these components can either be quantifiable, such as a lack of
workplace diversity programs; or qualitative, such as the difference between the
number of currently fielded calls and the target number of fielded calls.

Bridging the gap

Next steps and proposals: This final column of a gap analysis report should
list all the possible solutions that can be implemented to fill the gap between the
current and future states. These objectives must be specific, directly speak to the
factors listed in the gap description above, and be put in active and compelling
terms. Some examples of next steps include hiring a certain number of
additional employees to field customer calls; instituting a call volume reporting
system to guarantee that there are enough employees to field calls; and
launching specific office diversity programs and resources.

gap analysis

A gap analysis is a method of assessing the differences in performance between

a business' information systems or software applications to determine whether
business requirements are being met and, if not, what steps should be taken to
ensure they are met successfully. Gap refers to the space between "where we
are" (the present state) and "where we want to be" (the target state). A gap
analysis may also be referred to as a needs analysis, needs assessment or need-
gap analysis. 

In information technology, gap analysis reports are often used by project

managers and process improvement teams. Small businesses, in particular, can
also benefit from performing gap analyses when they're in the process of
figuring out how to allocate resources.  In software development, gap analysis
tools can document which services and/or functions have been accidentally left
out, which have been deliberately eliminated, and which still need to be
developed. In compliance, a gap analysis can compare what is required by
certain regulations to what is currently being done to abide by them.

How to conduct a gap analysis

The first step in conducting a gap analysis is to establish specific target

objectives by looking at the company's mission statement, strategic goals and
improvement objectives. The next step is to analyze current business processes
by collecting relevant data on performance levels and how resources are
presently allocated to these processes. This data can be collected from a variety
of sources depending on what's being analyzed, such as by looking at
documentation, conducting interviews, brainstorming and observing project
activities. Lastly, after a company compares its target goals against its current
state, it can then draw up a comprehensive plan that outlines specific steps to
take to fill the gap between its current and future states, and reach its target
objectives.

What's in a gap analysis template?

While a gap analysis can be either concrete or conceptual, gap analysis

templates often have in common the following fundamental components:

Identifying the current and future states

Current state: A gap analysis template starts off with a column that might be
labeled "Current State," which lists the processes and characteristics an
organization seeks to improve, using factual and specific terms. Areas of focus
can be broad, targeting the entire business; the focus instead may be narrow,
concentrating on a specific business process, depending on the company's
outlined target objectives. The analysis of these focus areas can be either
quantitative, such as looking at the number of customer calls answered within a
certain time period; or qualitative, such as examining the state of diversity in the
workplace.

Future state: The gap analysis report should also include a column labeled
"Future State," which outlines the target condition the company wants to
achieve. Like the current state, this section can be drafted in concrete,
quantifiable terms, such as aiming to increase the number of fielded customer
calls by a certain percentage within a specific time period; or in general terms,
such as working toward a more inclusive office culture.

Describing the gap

Gap description: This column should first identify whether a gap exists
between a company's current and future state. If so, the gap description should
then outline what constitutes the gap and the factors that contribute to it. This
column lists those reasons in objective, clear and specific terms. Like the state
descriptions, these components can either be quantifiable, such as a lack of
workplace diversity programs; or qualitative, such as the difference between the
number of currently fielded calls and the target number of fielded calls.

Bridging the gap

Next steps and proposals: This final column of a gap analysis report should
list all the possible solutions that can be implemented to fill the gap between the
current and future states. These objectives must be specific, directly speak to the
factors listed in the gap description above, and be put in active and compelling
terms. Some examples of next steps include hiring a certain number of
additional employees to field customer calls; instituting a call volume reporting
system to guarantee that there are enough employees to field calls; and
launching specific office diversity programs and resources.

Strategic Gap Analysis

By WILL KENTON

 Updated Jun 25, 2019

What Is Strategic Gap Analysis?

Strategic gap analysis is a business management technique that requires an
evaluation of the difference between a business endeavor's best possible
outcome and the actual outcome. It includes recommendations on steps that can
be taken to close the gap.

Strategic gap analysis aims to determine what specific steps a company can take

to achieve a particular goal. A range of factors including the time frame,
management performance, and budget constraints are looked at critically in
order to identify shortcomings.

The analysis should be followed by an implementation plan.

Understanding Strategic Gap Analysis

A strategic gap analysis is one method that is used to help a company or any
other organization to determine whether it is getting the best return from its
resources. It identifies the gap between the status quo and the best possible
result. Performing a strategic gap analysis can point to potential areas for
improvement and identify the resources that are required for an organization to
achieve its strategic goals.

Strategic gap analysis emerges from a variety of performance assessments, most

notably benchmarking. When the performance level of an industry or a project
is known, that benchmark can be used to measure whether a company's
performance is acceptable or if it needs improvement. Such a comparison
informs a strategic gap analysis.
From that point, the organization can determine what combination of resources
such as money, time, and personnel are needed for a better outcome.

Example of Strategic Gap Analysis

A small mom-and-pop restaurant in a seaside town has a loyal clientele of locals
but its owners yearn to serve the summer vacation crowd as well. A strategic
gap analysis identifies the changes required for the restaurant to meet its goals.

These changes might include relocating to a busier street, staying open later to
appeal to vacationers, and updating the menu. The restaurant owners don't have
to take any of these recommendations. But it might do so if it wants to reach
that higher level of business success.

DECISION MATRIX/SELECTION MATRIX

What it is:

A decision matrix is a chart that allows a team or individual to systematically

identify, analyze, and

rate the strength of relationships between sets of information. The matrix is

especially useful for

looking at large numbers of decision factors and assessing each factor’s relative
importance.

When to use it:

A decision matrix is frequently used during quality planning activities to select

product/service

features and goals and to develop process steps and weigh alternatives. For
quality improvementactivities, a decision matrix can be useful in selecting a
project, in evaluating alternative solutions toproblems, and in designing
remedies.

How to use it:

Identify alternatives. Depending upon the team’s needs, these can be
product/service features,process steps, projects, or potential solutions. List these
across the top of the matrix.

Identify decision/selection criteria. These key criteria may come from a

previouslyprepared affinity diagram or from a brainstorming activity. Make sure
that everyone has a clearand common understanding of what the criteria mean.
Also ensure that the criteria are written sothat a high score for each criterion
represents a favorable result and a low score represents anunfavorable result.
List the criteria down the left side of the matrix.

Assign weights. If some decision criteria are more important than others, review
and agree onappropriate weights to assign (e.g., 1, 2, 3).

Design scoring system. Before rating the alternatives, the team must agree on a
scoringsystem. Determine the scoring range (e.g., 1 to 5 or 1, 3, 5) and ensure
that all team membershave a common understanding of what high, medium, and
low scores represent.Rate the alternatives. For each alternative, assign a
consensus rating for each decisioncriterion. The team may average the scores
from individual team members or may develop scoresthrough a consensus-
building activity.

Total the scores. Multiply the score for each decision criterion by its weighting
factor. Then total the scores for each alternative being considered and analyze
the . results.