Professional Documents
Culture Documents
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Strategic Intent
Formulation of Strategies
Implementation of Strategies
Strategic Control
Strategic Evaluation
1.Strategic Intent
Vision, Mission, Goal and Objective
2. Formulation of Strategies
1. 2. 3. 4. 5. 6. 7. 8. Environmental Appraisal Organisation Appraisal Corporate level strategies Business level strategies Strategic analysis Strategic choice Formulating strategies Preparing a strategic plan
1.Environmental Appraisal
External and Internal Environment Environment Sectors Macro and Micro General vs relevant environment Environment Scanning Identifying high priority factors-impactProbabality matrix
External = Macro and Micro Internal Factors inside the company leadership,climate, employees, systems and processes .. Environment factors are also called Sectors Give examples
Figure 4-1:
Figure 4-2:
Increases managerial awareness of environmental changes. Increases understanding of the context in which industries and markets functions. Increases understanding of multilateral settings; Improves resource allocation decisions; Facilitates risk management; Focuses attention on the primary influences on strategic changes; Acts as an early warning system to anticipate opportunities and threats and devise appropriate strategies. This analysis is a valuable mechanism for increasing strategic awareness of managers.
Strategic Position
Dynamic
To understand the future rather than simply relying on past experience
Complex
The reduction of complexity. Greater structural understanding
Methods
Analysis of past influences and their effect on organizational performance. Identification of key forces. Analysis of existing relationship
Dangers
The sudden emergency of unpredicted change. Mechanistic organizational structures. Lack of skills. Focus on existing relationship Lack of willingness to accept that conditions are changing. Stereotyped responses.
Management myopia. Organizational structures. Lack of skills. Inappropriate forecasting. Failure to recognize significant new players.
Unsuitable organizational structure of control systems. Inappropriate reactions. Inappropriate focuses. Overreaction
MACRO FACTORS
Technological environment
Ayurvedic solutions to common ailments Fuel efficient technology= honda city IPR in Pharma R & D spend
The Italian swim wear company Diana developed fabric which does not absorb water Database technology -personalised customer marketing offers.
Economic environment
High inflation CRR rate hike GDP growth Fiscal and monetary policy Middle class.. Brazildisparity between rich and poor
Government- regulatory/legal
Deregulation of telecom, insurance, petroleum, multi brand retailing Companies act FEMA Import and Export Control Act
examples
Change in minimum wages and labour laws Import duties Emission control and Effluent treatment plants tax on tobacco products Advertising regulations- alcohol,cigarette ads
Repatriation of Capital
Foreign capital invested in India is generally repatriable, along with capital appreciation, if any, after the payment of taxes due on them, provided the investment was on repatriation basis.
Laws Governing Business in India The Companies Act, 1956 Arbitration and Reconciliation Act, 1996 The Competition Act, 2002 The Foreign Exchange Management Act, 1999 Income Tax Act, 1961 Central Sales Tax, 1956 Central Excise Act, 1944 Information Technology Act, 2000 Copyright Act, 1957 Trademarks Act, 1999
Laws Contd Geographical Indications of Goods Act, 1999 Indian Patents Act, 1970 Designs Act, 2000 Industrial Disputes Act, 1947 Workmen Compensation Act, 1956 Employees Provident Fund Miscellaneous Provisions Act, 1952 Consumer Protection Act, 1956
Government Sector-Political
Coalition vs majority Ideologies- thrust areas in the plans and budgets Elections- rock the boat
Key changes that markets, and especially foreign businesses with an eye on expanding into India, are looking for include
Recasting the complex tax code to a more investor-friendly goods and services tax, Laws to liberalise the retail sector, keenly anticipated by firms such as Wal-Mart .
Prime Minister Manmohan Singh's credibility has taken a big blow from the allegations. In December he attacked corporate India for its "ethical deficit" and the worry is this could mark another step on a path towards confrontation between government and business.
India's environment ministry has already shown itself unafraid of clashing with corporate interests as it takes an increasingly aggressive stance in trying to enforce green laws.
Investments worth tens of billions of dollars, including a proposed $12 billion steel project by South Korea's POSCO , are up for review, and other firms who have either agreed deals to build factories and industrial plants, or are planning investments, will be wary of the ministry's scrutin
Government attempts at increasing FDI inflows have been hampered by several impediments including pervasive corruption, uncertain regulations, and a critical infrastructure deficit.
Several terrorist attacks in recent years in several major cities Tensions with Pakistan The ongoing Maoist (Naxalite) insurgency
Demographic factors
Demographic
India has more than 50% of its population below the age of 25 and more than 65% hovers below the age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 for Japan;
more than 11 million workers per year expected to come over the next two decades , the focus now is how India can reap a "demographic dividend" increased savings and capital creation from a rise in the number of workers relative to dependents.
Demographic trends could help tilt the Asian power balance more in Indias favour if New Delhi starts planning now for the challenges of educating and employing this rising tide of youth.
Socio cultural
Ethnic wear, westernisation Debt averse Food habits Music Values, rituals , practices..
Open society Disappearing lines of divide between religions&castes in typical networking among youngsters in society Fast food culture, speed of transportation and communication speed of action, thinking and unthinking action some confusion regarding 'values Lot of technological progress, spiritual progress health focus stress and tension somewhat neglected children, somewhat neglected old men&women! highly intelligent and efficient society with not-so-matching 'values'!
International Environment
Difficulties in international business: 1. political and legal differences 2. cultural differences 3. Economic differences- currency exchange rate fluctuation, convertibility, 4.language differences 5.Marketing infrastructure-media, bill boards, etc
6.Trade restrictions anti dumping, import duties, 7. Physical distance 8. Trade practices China unethical, market intermediaries in India - wrigleys
Ecological environment
Climate change :The potential solution to tackle climate change in form of legally binding international climate deal still looks highly unlikely because of the difference in opinion between the developed and the developing countries. Tipping point in greenhouse gases
Pollution
pollution, especially air and water pollution. Pollution has become particularly serious problem for fast developing economies such as China and India
Mass extinction
scientists claim that world is heading for yet another mass extinction event, last of which happened more than 600 million years ago.
PESTEL
Political Economic Socio cultural Technological Ecological Legal and regulatory International
SWOT analysis was developed by the middle of the 1960s for large organisations to determine the strategic fit between an organisation's internal, distinctive capabilities and external possibilities and to prioritise actions.
In 1960, a number of large American enterprises commissioned a long range study at Stanford Research Institute to investigate why their long range planning efforts where unsuccessful.
SRI's research team -- Marion Dosher, Otis Benepe, Albert Humphrey, Robert Stewart and Birger Lie -- interviewed 5,000 managers at 1,000 companies over nine years.
They found that the difference between what an organisation planned to do and what they actually accomplished was about 35%.
The SWOT framework was first described in detail in the late 1960's by Edmund P. Learned, C. Roland Christinsen, Kenneth Andrews, and William D. Guth in Business Policy, Text and Cases (Irwin, 1969).
1. Strengths those potential factors inside the firm that make a firm more competitive than its direct competitors; 2. Weaknesses both potential limitations and defects inside in an organisation and/or weak factors relative to direct competitors;
3. Opportunities future factors outside that allow the organisation to improve its relative competitive position;
4. Treats those future factors outside that reduce the firm's relative competitive position.
5. Identify firm's strategic fit given its internal capabilities and external environment. 6. Formulate alternative strategies to address key issues.
Strategies that combine: a. internal strengths with external opportunities are the most ideal mix, but require understanding how the internal strengths can support weaknesses in other areas;
b. internal weaknesses with opportunities must be judged on investment effectiveness to determine if the gain is worth the effort to buy or develop the internal capability,
c. internal strengths with external threats demand knowing the worth of adapting the organisation to change the threat into opportunity;
d. internal weaknesses with threats create an organisation's worst-case scenario. Radical changes such as divestment are required.
Pros of SWOT
SWOT analysis makes the solution space explicit it provides a tool to coordinate direction and action and external events that are related to internal capabilities.
The analysis can be executed as a quick scan and used as an early warning system. The model can be used for any complex situation that requires explicit decision making: on an individual, team, departmental or organisational level.
Cons of SWOT :
The model is process based. It provides no insight into what each of the SWOT categories should contain, or which alternative strategies are appropriate. An accurate analysis of the firm's weaknesses requires self-knowledge and discipline. External opinions may be required to provide input or to validate findings.
The model mixes qualitative and quantitative data. It can be dangerous to derive conclusions based on these two types of data. Using SWOT as a strategic planning tool often results in creating excessive lists of factors without prioritising issues.
The assignment of impact and likelihood is a difficult and time-consuming task. The analysis helps only when the key decision makers agree that activities need to be better coordinated and an explicit decision making process is required.
A strong brand name. Market share. Good reputation. Strength examples could include: Expertise and skill.
Which one of the following is the true distinction between aspects of SWOT?:
S and O are internal factors whereas W and T are external factors. S and T are internal factors whereas W and O are external factors. S and W are internal factors whereas O and T are external factors. S, W and O are internal factors, whereas O is an external factor.
1&5
3&7
1. 'ISO 9000 Quality' or 'Investors in People' accreditationAA 2. A big increase in labour costs 3. A poor reputation 4. A poor after sales service record 5. An unstable work force 6. The possiblity of purchasing an effective competitor 7. The relaxation or abolition of international tariffs
6&7
1. Competitors developing new products or services 2. A big increase in labour costs 3. New machinery or equipment. 4. Lack of computing expertise 5. An unstable work-force 6. The possibility of purchasing an effective competitor 7. A poor after sales service record
1&2
Which two of the following are an acceptable strategy to use after a SWOT analysis?
1. A focus on Opportunities to overcome Weaknesses 2. A Focus on Strengths to take advantage of Opportunities 3. A focus on Strengths be used to offset Threats that hinder achievement of objectives and pursuit of Opportunities 5. A focus on overcoming Weaknesses to take advantage of Opportunities 6. A Focus on overcoming Threats to offset the effects of Weaknesses 7. A focus on Weaknesses to offset threats that hinder achievement of objectives and
2&3
When can SWOT analysis be used in a complex Planning process? At the beginning and at the end At the beginning At the end At any time during the process
Suggested by Glueck
Environmental Sector Regulatory/Gov ernment
Bicycle company
Nature of Impact
2.Organisation Appraisal
Organisation resources + Organisation Behaviour S&W Synergistic Effects Core Competencies
Organisational Capability
Strategic Advantage
Organisational Resources
Tangible and Intangible Physical, Human and Organisational Physical- Technology, Plant, access to raw material Human Training, experience. Organisational- Systems and structures Mere resources dont make an organisation capable
Organisational Behaviour
Usage of the resources Leadership, culture and climate, power, values. Hardware- resources Software- Behaviour Yin and Yang S&W
S&W
Strength is an inherent capability which can be used to give Strategic Advantage Weakness is an inherent limitation which creates strategic disadvantage
Financial Strength low cost of capital and efficient use of funds Operational weakness poor logistics management and low productivity
Core Competencies
All S & W combine to give synergy and manifests as Competency Competing with rivals Also known as embedded knowledge Can do something which others cant Popularised by Prahlad and Hamel
Eg of Core Competencies
Canon- optics, imaging Sony miniaturisation 3M- Stick tape Honda engines Reliance project management
Organisation Capability
Capacity or potential of an organisation to use its strengths and overcome weaknesses in order to exploit opportunities and face threats
Strategic Advantage
Outcome of organisation capabilities. Measured by parameters like Profits , Market Share, Brand Image as compared to other companies
Financial Capability
Give examples
Financial Capability
Access Relationship with FI Credit worthiness Low cost of capital Bajaj High profits, good WC, good cash flows Murugappa group-conservative, ability to raise finances, reliable
Marketing Capability
LG Good market planning, good distribution, good USP Nestle strong brand like Maggie Philips- high prices and poor image Amway- unique distribution
Operations Capability
Bridgestone tyres- access to best technology Amara raja batteries- Valve regulated lead acid technology for industrial batteries McDonalds- quick delivery
HR Capability
HUL good training and development O & M nurtures creativity Metal Box huge wage bill lead to shut down
Wikepedia
Introduction
Wikipedia, a free online encyclopedia, was launched in January 2001 by Jimmy Wales and Larry Sanger On September 09, 2007, Wikipedia, the US-based online encyclopedia, posted its two millionth article in its English edition. By then, Wikipedia had published more than 8 million articles in around 253 different languages. Wikipedia hosted a total of 1.41 billion words with more than 609 million words in the English edition alone.
Wiki is a software using which one can create, and edit web page content. Wiki is generally used to create collaborative websites. The website was a wiki, to which anyone could contribute content and which anyone could edit. Hence, the name Wikipedia - a combination of Wiki and Encyclopedia.
Imagine a world in which every single person on the planet is given free access to the sum of all human knowledge. That's what we're doing." - Jimmy Wales, Founder, Wikipedia, in July 2004
Wikipedia was a result of an experiment to collect information for another project called Nupedia . Nupedia was also an open content, peer review encyclopedia to which highly qualified people contributed.
Wikipedia in itself became so popular that the parent project was soon abandoned and it was taken up as a full-time project. Founders gave many interviews which helped in marketing the new project... The concept became a huge success because anybody could contribute and edit the content without being bound by strict policies
It also created a robust community of content contributors. instilled in them a sense of belonging as far as the project was concerned. around 75% of the articles in Wikipedia were on the non-English sites of Wikipedia. This had steadily increased from 10% in January 2002, and about 50% in January 2004. Since the beginning, Wikipedia strove to be an international project...
The Criticism
"I only use Wikipedia for things I know cold, looking for a terse description to share with my daughter doing homework so I don't have to write it myself. But if I don't know the subject, I would never consider Wikipedia as a source of information. The biggest issue is that Wikipedia provides no information on who posted the story, the writer's credentials or the motives behind changes. - Eric Clemons, Professor of Operations and Information Management, Wharton University, in January 2006.
Many analysts questioned the credibility of something written by an anonymous writer. there were cases of vandalism, which were becoming more rampant by the day. you have no idea whether you are reading an established person in the field or somebody with an ax to grind
Wikipedia may contain articles of great scholarly value. The question is, how do you choose between those and the other kind? the credentials of the author of the article or its editor were not displayed on the website. Some articles which were written by people knowledgeable in the field were excellent, containing useful and relevant information, while others were very amateurish, unauthoritative, and even downright wrong.
it was very difficult to determine the credibility of the articles, especially for those who were new to the topic that they were researching on Wikipedia...
Vandalism means destruction of a monument, a structure, or a symbol which goes against the will of the owner. Vandalism on Wikipedia meant causing such edits to articles on the site which changed their meaning or neutrality.
Future ?
What can Wikipedia do to overcome these weaknesses ???
http://en.wikipedia.org/wiki/Category:Wikipedia_polic ies_and_guidelines
limiting page creation to logged-in users Full protection disables editing for everyone except administrators. Fully protected media files cannot be overwritten by new uploads. Semi-protection disables editing for anonymous users and registered accounts less than four days old. Move protection protects the page solely from moves. By default, fully protected pages are also move protected.
Wikipedia
ETOP and SAP ????
ETOP
Customers Reason for Success and Criticism- O and T Technology Wiki relatively new O Socio economic- Increasing literacy across the globe O Public Vandalism - T
Revenue and earnings analysis from 100 business launches demonstrated that the value innovators generated 38% of the cumulative revenues and 61% of the total profit. it seems that value innovation offers the potential for significant competitive advantage.
consider Bert Claeys, a Belgian company that owns and operates movie theaters. In the 1980s, the Belgian cinema market was rapidly shrinking due to competitive pressures from alternate sources of entertainment such as cable television and video.
Increasing real-estate costs and a generalized lack of affordable parking in the city centers, where most of the cinemas were located, compounded this general market decline.
Bert Claeys responded to these challenges by creating the worlds first megaplex, Kinepolis.
While the competition was building 100-seat multiplex theaters with small screens, Kinepolis offered customers large (700-seat) viewing rooms with comfortable seating, excess legroom, and large screens featuring 70-mm projection equipment and the latest high-quality audio..
Further, by placing these complexes outside the city center, Bert Claeys real-estate costs were reduced and the organization could offer patrons free parking in large, well-lit parking lots. Kinepolis radically altered the customers cinema experience while simultaneously reducing its cost of doing business
learn from the entrepreneurial innovations that have made companies like McDonalds successful. McDonalds first studied what value meant to the customer, defined it as quality and predictability of product, speed of service, absolute cleanliness, and friendliness, then set the standards for all of these
They essentially designed an end product that defined customer value Then created an efficient process to deliver this value, inexpensively to the customer and economically for the organization.
Successful execution of this strategy allows shareholders to extract an excess portion of this created value as earnings. Therefore, the organization gains advantage over competitors when it can create and deliver sufficient value to induce some customer to purchase its product or service, leaving residual margin for the organization.
Rather than blind acceptance of the status quo, the value innovator assumes a fresh-start mentality and attempts to shape the industrys environment. Value innovation also seeks the simultaneous reduction of costs to both the customer and the organization.
Creating Value
Blackberry I pod BMW Dell Facebook ebay
Porter 1985 introduced the value chain framework. Set of interlinked value creating activities performed Procurement of basic Raw material to ultimate consumer
Most organisations engage in hundreds, even thousands, of activities in the process of converting inputs to outputs. These activities can be classified generally as either primary or support activities that all businesses must undertake in some form.
Divided into primary and support activities. Primary- related to flow of the product :
Inbound Logistics
Operation s
Manufactu ring , Packaging Maintenan ce
After sales
Support Sustain the primary activities: 1. Firm infrastructure 2. HR Management, 3. TechnologyDevelopment 4. Procurement
The chain of activities gives the products more added value than the sum of added values of all activities.
It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product
The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains of an industry and distribution networks.
A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on).
By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. Give examples
Quantitative Analysis
1. 2. 3. 4. 5. 6. Ratio anlaysis EVA (profit-cost of capital) ABC( costs of activities in value chain) employee turnover Ad Recall No of patents registered..
Financial
Non- financial
Qualitative analysis
Temper quantitative with qualitative : 1. Corporate culture 2. Creativity 3. Morale
2. Comparative Analysis
Comparative- Historical, Industry norms,
Benchmarking
1.Historical Analysis Own Past Performance Dividends,Profits.
3. Bench Marking Find the best practices and best performers so that one could match ones own performance with them or surpass them
Process Benchmarking: Used by companies to improve specific key processes and operations with the help of best practice organizations involved in performing similar work or offering similar services.
Functional Benchmarking or Generic Benchmarking: Used by companies to improve their processes or activities by benchmarking with other companies from different business sectors or areas of activity but involved in similar functions or work processes.
Internal Benchmarking: This involves benchmarking against its own units or branches for instance, business units of the company situated at different locations. This allows easy access to information, even sensitive data, and also takes less time and resources than other types of benchmarking.
External Benchmarking: Used by companies to seek the help of organizations that succeeded on account of their practices. This kind of benchmarking provides an opportunity to learn from high-end performers.
International Benchmarking: Involves benchmarking against companies outside the country, as there are very few suitable benchmarking partners within the country.
Benchmarking at Xerox
Benchmarking against Japanese competitors Xerox found out that it took twice as long as its Japanese competitors to bring a product to market, five times the number of engineers four times the number of design changes, and three times the design costs.
also found that the Japanese could produce, ship, and sell units for about the same amount that it cost Xerox just to manufacture them. Xerox's products had over 30,000 defective parts per million - about 30 times more than its competitors. Benchmarking also revealed that Xerox would need an 18% annual productivity growth rate for five consecutive years to catch up with the Japanese.
Xerox began by implementing competitive benchmarking. However, the company found this type of benchmarking to be inadequate as the very best practices
some processes or operations were not being practiced by copier companies. The company then adopted functional
benchmarking, which involved a study of the best practices followed by a variety of companies regardless of the industry they belonged to. Xerox initiated functional benchmarking with the study of the warehousing and inventory management system of L.L. Bean (Bean), a mail-order supplier of sporting goods and outdoor clothing.
Similarly, Xerox zeroed in on various other best practice companies to benchmark its other processes. These included American Express (for billing and collection), Cummins Engines and Ford (for factory floor layout), Florida Power and Light (for quality improvement), Honda (for supplier development), Toyota (for quality management), Hewlett-Packard (for research and product development), Saturn (a division of General Motors) and Fuji Xerox (for manufacturing operations) and DuPont (for manufacturing safety).
Xerox found that all the Japanese copier companies put together had only 1,000 suppliers, while Xerox alone had 5,000. To keep the number of suppliers low, Japanese companies standardized many parts.
Xerox's efforts to improve inventory management practices drew inspiration from the innovative spare parts management practices of its own European operations. Actual usage, rather than mere withdrawal from the stocking point, was used to determine inventory levels. In the late 1980s, Xerox replicated the system in the US and saved tens of millions of dollars in the process.
benchmarked against those competitors that had scored high marks on specific measures of customer satisfaction. benchmarking was extended to over 240 key areas of product, service and business performance at Xerox adopted, at varying levels, at Xerox units across the world. The benchmarking process encouraged Xerox's employees to learn from every situation. This new philosophy was dubbed 'steal shamelessly,' though the company used only those ideas that the best practice companies willingly gave away.
Highly satisfied customers for its copier/duplicator and printing systems increased by 38% and 39% respectively. Customer complaints declined by more than 60%. Customer satisfaction with Xerox's sales processes improved by 40%, service processes by 18% and administrative processes by 21%. The financial performance of the company also improved considerably
Types of Benchmarking
1. Performance 2. Process 3. Strategic 1.Internal 2.Competitive 3.Functional 4.Generic What
1.Depts within Co 2. Other competing Cos
Whom
Where it started . . .
Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that agencies execute their strategies. Today, about 70% of the Fortune 1,000 companies utilize the Balanced Scorecard to help manage performance.
Balanced Scorecards are used as the roadmap for creating the Strategic Management System And this will drive overall organizational performance
1. Customer Perspective- How do customers see us 2. Internal Business Perspective- What must we excel in ? 3. Innovation and learning perspective-Can we continue to create value ? 4. Financial perspective How do we look at shareholders ?
72% of CEOs believe that executing their chosen strategy is more difficult than developing a good strategy
Malcolm Baldrige CEO Survey, 2002
#5
STRATEGY
85% of management teams spend less than one hour per month on strategy issues
BALANCED SCORECARD
BUDGET
78% of organizations lock budgets to an annual cycle 20% of organizations take more than 16 weeks to prepare a budget
funding
reporting
Output (Results)
Strategy Development or Strategy Execution? Strategic success requires going beyond successful strategy Organizations Need Both formulation to successful strategy execution
1
Strategy Formulation
Sound
Missed Opportunity
Strategic Success
Flawed
At Risk
Sound
Source:
1Execution:
One-to-One Marketing
The Balanced Scorecard is the vehicle that fills the Strategy Management Gap
Public Sector
Shareholder Value
Wendys International
Mkt. Cap $2.5 --> $4b Stock Price up 75%
Profitable Growth
City of Charlotte
Customer Satisfaction = 70% Public Official Award
Customer Satisfaction
UPS
Revenues Net Income 9% 33%
Hilton Hotels
Customer Loyalty 5% EDITDA margins 3% above average
STRATEGY
The Balanced Scorecard Is a Performance Management Program That Puts Strategy at the Center of the Process
Financial Results
Customer Benefits
Internal Capabilities
Flight Is on time
Lowest prices
Attract targeted customer segments who value price and on time arrivals What must the internal focus be? Fast turnaround Will our people do that?
Educate and compensate ground crew regarding how they contribute to the firms success Employee stockholder program
Statement of what strategy must achieve and whats critical to its success
How success The level of in achieving performance the strategy or rate of will be measured and improvement needed tracked
Objectives
Internal Fast ground turnaround
Measurement
Target
Initiative
Fast ground
turnaround
30 Minutes 90%
Cycle time
optimization
PHILIPS
WHICH IS THE COUNTRY OF ORIGIN OF THIS COMPANY ?
Philips was founded in 1891 by Gerard Philips who established a facility at Eindhoven, a small town in the Netherlands, to produce carbon filament lamps and electrical products. Gerard's younger brother, Anton, joined the business in 1895 as a salesperson.
By the early 1900s, Gerard's company had emerged as one of the largest producers and marketers of carbon-filament lamps.
In the 1920s, Philips began the mass production of consumer goods, and started to diversify its product range. X-ray radiation and radio reception were key focus areas for Philips and the company's innovations in these areas were protected through patents.
During the late 1990s the external environment was changing rapidly and Philips needed to respond quickly to these changes. However, the existing organization structure at Philips did not support this kind of change. The company's operations were spread across several countries, and the products were most often sold in the country in which they were manufactured.
Due to high manufacturing costs, the products could not be priced competitively. This led to the company initiating job cuts, selling unprofitable businesses and closing down several manufacturing facilities Rapid changes in the external business environment and growing competition due to Asian manufacturers
With growing wage levels, selling and manufacturing in the same country was not a lucrative value proposition. This was especially the case in some of Philips' major markets in Western Europe where the cost of manufacturing had increased significantly.
At the same time, the growing influence of Asian companies like LG and Samsung increased competition in the businesses in which Philips was operating. These changes made Philips realize that its operations needed to be more flexible, more innovative, and value adding. A silo mentality had developed in the organization due to years of bureaucracy...
Financial Results
Customer Benefits
Internal Capabilities
The balanced scorecard serves not only as the starting point for identifying those areas where breakthroughs in performance are most needed, but also as an instrument for tracking progress." - Annual Report, Philips Electronics NV, 2001
Philips realized the need to transform into a flexible organization and shift focus from highvolume business to high-value business. In order to bring in the desired change, Philips embarked on an improvement program, in all its divisions and departments across the world, encompassing all the employees The program, called Business Excellence through Speed and Teamwork (BEST), described a set of methods and tools through which Philips aimed to improve business and financial performance.
BEST was a company-wide initiative aimed at achieving excellence in every aspect of business at Philips. Philips used several tools and approaches as a part of BEST. One of them was Balanced Score Card
The top management, and all the divisions identified the factors that were important to create value and they were grouped under four perspectives -
competence, process, customers and financial. After establishing the 'Critical Success
Factors' (CSFs), key indicators to measure the CSFs were decided. Some of the indicators like achieving revenue growth, employee satisfaction, customer satisfaction were common for all the business units while other indicators differed.
During the periodical management reviews, the Balanced Scorecard was used as an instrument to evaluate actual performance against the targets and to monitor future plans.
Philips used the traffic light system with the green light indicating a target that had been met, amber indicating performance in line with the target, and red denoting a problem area, to measure the level of achievement of the key indicators.
The 117-year-old Dutch company was a lumbering conglomerate that made everything from semiconductors to light bulbs, without clear leadership in anything.
Today Philips is on its way to becoming a case study in European restructuring. While still a conglomerate, it has streamlined its business and revitalized its brand under the leadership of chief executive Gerard Kleisterlee. Its financial performance has also improved.
Philips is a leading maker of light-emitting diodes (LEDs), LEDs are brighter, cooler, and more-energy efficient than regular bulbs, and Philips is building a dominant position in this market.
Philips [also] is capitalizing on another important trend-the growth of home care and patient monitoring. Another growth opportunity: emerging markets. About a third of Philips' revenue comes from emerging markets, including Asia, Latin America, and Russia.
Balanced Score Card is a comprehensive Management System for --- STRATEGY PLANNING AND EVALUATION
Source of fund
The chart helps strategists to assess the S &W of the organisation in each functional area
Finance
HR
Comparable to competitors
2. Business-Level Strategy
(Competitive Strategy)
How to create competitive advantage in each business in which the company competes
Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts
1. Stability- Internal
2. Expansion - External 3. Retrenchment - Internal 4. Combination
1. Stability Strategy
1. Incremental Improvement 2. Marginal changecustomer group, customer functions, alternate technologies 1. Companies do not go beyond what they are doing now- same markets, same products.
Pharma company- special package for Hospitals Printer company- Better After sales service Steel Company- Modernises plant
STABILITY- No Change
Do nothing new, taking no decision is a decision too, S.T Continuing with present strategy Predictable external and stable internal No new O and T, no new S and W Inertia vs conscious decision Small and med sized, niche markets, familiar market, EG Bata, Canara Bank
STABILITY- Profit
Situation of lowering profits Reduce investment, cut costs, raise prices, increase productivity, sell assets,hive off brands , outsourcing In response to recession, industry downturn, competition. Used if problems are temporary To keep afloat Eg Ashok Leyland( lay off), IT Companies( wage cuts during recession ) , Maruti increased prices . Nokia huge losses due to competition cutting costs
1. Stability
2. Expansion
3. Retrenchment 4. Combination
Expansion Strategies
Most popular Growing economy,growing markets, new tastes, new technologies.
Concentration
Expansion
Diversification
Related
Integration
Cooperation
Related
Businesses Businesses
Businesses Businesses
Unrelated
Unrelated
Expansion - Types
1. Concentration
2. 3. 4. 5. Integration Diversification Cooperation Internationalisation
Concentration/Intensification/ focus/specialisation
Simple, first level, first preference Doing more of what it is already doing Investing more in known industry rather than unknown Converging resources Stick to the knitting(Peters and Waterman- In Search of Excellence) Rely on doing what you are best at Industry should possess high growth potential/attractive Firm should have adequate funds
Concentration
Organization concentrates on its primary lines of business and looks for ways to meet its growth objectives through increasing its level of capability in this primary business
Concentration/Intensification/ focus/specialisation
Eg, Mc Donald, Maruthi Udyog, Colgate High growth industry. Advantages- Minimal changes, less threatening, more comfortable staying in same business., indepth knowledge of business,Intense focus, competitive advantage, known situations, fewer problems,higher predictability,replicable past experience,
Limitations ???
All eggs in one basket Dependent on industry Recession in industry- reduce growth prospects Crowded with competitors reduces attractiveness Mature- less chance for expansion
Product obsolesence(pagers),fickle markets( fashion clothes),newer technologies ( PCs) Organisation inertia, less interest Cash surplus in maturity stage..
Expansion - Types
1. Concentration
2. Integration
3. Diversification 4. Cooperation 5. Internationalisation
Integration
Combining activities related to the present activity Committing to adjacent businesses Extending value chain from the basic raw materials to ultimate consumer Two types- Vertical and Horizontal
Make or Buy Cost of manufacturing vs cost of procuring from suppliers Cost of selling vs price paid to sellers
Vertical Integration
New products/services to serve own needs Supplying inputs or serving as a customer for outputs Backward Upstream-Going back to source of raw material Forward Downstream- Moving closer to consumer
best examples of vertically integrated companies is the oil industry. Oil companies, ExxonMobil, Royal Dutch Shell, or BP often adopt a vertically integrated structure. This means that they are active all the way along the supply chain from locating crude oil deposits, drilling and extracting crude, transporting it around the world, refining it into petroleum products such as Petrol/Gasoline, to distributing the fuel to company-owned retail stations, where it is sold to consumers.
Apple - VI
Apple Inc. have been listed as an example of vertical integration, specifically with many elements of the ecosystem for the iPhone and iPad, where they control the processor, the hardware and the software.
Horizontal Integration
The acquisition of additional business activities ( same type of products)at the same level of the value chain is referred to as horizontal integration. Eg suitcase company takes over its rival suitcase company Buying competitors business to expand geographically,
examples
The Standard Oil Company's acquisition of 40 refineries. An automobile manufacturer's acquisition of a sport utility vehicle manufacturer. A media company's ownership of radio, television, newspapers, books, and magazines. Rupert Murdoch purchase of medianewspaper, tv channels, FM radio channels
Limitations
Commitment to businesses serving the same customers Main product failing /becoming obsolete More resources put in same market
Expansion types
1. Concentration 2. Integration
3. Diversification
4. Cooperation 5. Internationalisation
Diversification
Much used, Most important type Involves all strategic alternatives: Internal/external, related/unrelated, horizontal/vertical, active/passive New markets, technologies, products. Two types concentric and conglomerate
Concentric Diversification
Related to existing business in some way- market, technology . 3 types Marketing related to same customer group printers and stationary Technology related-Workstations to large Cos and PCs to small customers; gaming software and business software Marketing and technology related- Books, maps, calendars sold in same shops
1.
2. 3.
Conglomerate Diversification
conglomerate
Unrelated to existing business definition
ITC Businesses FMCGCigarettes & Cigars Foods Lifestyle Retailing Personal Care Education and Stationery Safety Matches Agarbattis Hotels Paperboards and Packaging Paperboards and Specialty Papers Packaging Agri Business Agri Commodities & Rural Services e-Choupal Leaf Tobacco, Spices & Agri Inputs Information Technology
The Tata Group has operations in more than 80 countries across six continents and its companies export products and services to 80 nations. The Tata Group comprises 114 companies and subsidiaries in eight business sectors,[4] 27 of which are publicly listed. 65.8% of the ownership of Tata Group is held in charitable trusts.[5] Companies which form a major part of the group include Tata Steel (including Tata Steel Europe), Tata Motors (including Jaguar and Land Rover), Tata Consultancy Services, Tata Technologies, Tata Tea (including Tetley), Tata Chemicals, Titan Industries, Tata Power, Tata Communications, Tata Sons, Tata Teleservices and the Taj Hotels.
Minimise risks Exploit strengths or minimise weakness Slow growth in existing business due to Govt, customer,
Limitations ???
Expansion types
1. Concentration 2. Integration 3. Diversification
4. Cooperation
5. Internationalisation
Cooperation
Principle- Competition could exist with cooperation( Moore, Noorda, )
Mergers mutual need of buyer and seller Takeover- Strong motivation of the buyer Joint Venture- Independent firm is created by at least two other firms. Strategic Alliance- Partnership firms resources, capabilities are combined
1. Mergers
Voluntary Combination of two or more organisations Exchange of cash or shares of one for the assets and liabilities of another( merger) Or each dissolves to create a new entitiy..( consolidation)
In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for shares in the merged entity.
They have become popular because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalisation of businesses. increasing exposure to competition both domestically and internationally.
Merger through Consolidation:- A consolidation is a combination of two or more companies into a 'new company'. In this form of merger, all companies are legally dissolved and a new entity is created. For example, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and Indian Reprographics Ltd into an entirely new company called HCL Ltd.
Types of Mergers
Horizontal Mergers- Pharma company with another pharma company Vertical- footwear company + shoe retail stores Concentric- Related in terms of customer or technology or .eg footwear + socks, . Conglomerate footwear + Pharma
Horizontal merger Two companies that are in direct competition and share the same product lines and markets i.e. it results in the consolidation of firms that are direct rivals. E.g. Exxon and Mobil, Ford and Volvo, Volkswagen and Rolls Royce and Lamborghini , Daimler-Benz and Chrysler ,Lipton and Brooke bond, ICICI bank and bank of madura,centurion bank and HDFC,ACC and Damodar cement
Vertical mergerA customer and company or a supplier and company i.e. merger of firms that have actual or potential buyer-seller relationship Daimler chrysler bidding for Tognum (manufactures diesel engines)
Concentric mergers
E.g. Phillip Morris-Kraft Tobacco and food Pepsico- Pizza Hut Pizza and softdrinks Proctor and Gamble and Clorox Personal care and cleaning products
Conglomerate merger two companies which merge have no obvious relationship of any kind. BankCorp of America- Hughes Electronics.
De mergers
Opposite of mergers Eg Clariant from sandoz, Ciba speciality from Ciba Geigy Aptech from Apple Dabur Pharma from Dabur ADAG from the Ambani group
1. Accessing new markets # maintaining growth momentum # acquiring visibility and international brands # buying cutting edge technology rather than importing it # taking on global competition # improving operating margins and efficiencies # developing new product mixes
1. 2. 3. 4. 5. 6. 7. 8.
Increase stock value Increase growth Diversify To reduce competition Tax concessions Acquire resources quickly Synergy Succession problems
Issues in Mergers
1. Strategic Issues Match in objectives of firms Should increase strength 2. Financial Issues Valuation of firm DCF, CAPM(Capital Asset Pricing Method). EPS of merged entity should be higher or neutral
Ranbaxy and Crosslands = positive Punjab National Bank and New bank of India= negative Source of funds- Increasing Debt, Equity;NRIs, surplus, .
3. Managerial Issues- Change in structure, leadership, Authority, style 4. Legal Issues Companies Act, Income Tax Act ,
Cooperation- 2. Takeovers
Post liberalisation- popular strategy SEBI introduced Takeover code in 1994 Bhagwati code in 1996 SEBI 1997 modified takeover code To ensure transparency, fair
companies to combine and become one entity; it can be seen as a decision made by two "equals",
smaller company by a much larger one. This combination of "unequals" can produce the same benefits as a merger, but it does not necessarily have to be a mutual decision
In a Takeover, the acquiring firm usually offers a cash price per share to the target firms shareholders or the acquiring firm's share's to the shareholders of the target firm according to a specified conversion ratio.
Issues in takeovers
1. Check Compatability of business styles 2. Treat people with dignity and concern 3. Trusted intermediary Accountant, Merchant bankers 4. Negotiations
Asset valuation using due diligence Goodwill Market opportunities Growth potential
In an LBO, there is most often a ratio of 70% debt to 30% equity, although debt can reach as high as 90% to 95% of the target company's total capitalization. The equity component of the purchase price is typically provided by a pool of Private Equity capital.
Often, the debt will appear on the acquired company's balance sheet and the acquired company's free cash flow will be used to repay the debt. the assets of the target company are used as collateral for the debt
Country UK
Indian acquirer
Value 271 million pound 550 million pound 11.3 billion $ 2 billion dollars 465 million euro
Type LBO
LBO
Country UK
271 million pound Whyte and UK UB group 550 Mackay million pound Corus UK Tata 11.3 Steel billion $ American USA Tata 2 billion axle motors dollars Hansen Netherla Suzlon 465 transmissi nds million on euro
Value
Type LBO
LBO
Pros:
INORGANIC GROWTH Easy growth Avoid gestation period No hurdles as in new projects Chance to sick units Selective divestment
Cons
Do not create any real value for society Bad for the economy Stress to minority management Use of Money power
Cross selling:
For example, a bank buying a stock broker could then sell its banking products to the stock brokers customers, while the broker can sign up the bank customers for brokerage account. Or, a manufacturer can acquire and sell complimentary products.
# Corporate Synergy:
Better use of complimentary resources. It may take the form of revenue enhancement (to generate more revenue than its two predecessor standalone companies would be able to generate) and cost savings (to reduce or eliminate expenses associated with running a business).
Taxes :
A profitable company can buy a loss maker to use the targets tax right off i.e. wherein a sick company is bought by giants.
# Geographical or other diversification: this is designed to smooth the earning results of a company, which over the long term smoothens the stock price of the company giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders.
# Resource transfer:
Resources are unevenly distributed across firms and interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources. Eg: transfer of employees, reducing taxes etc.
# Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.
Caselet
William Durant founded GM. Lost control of GM because of unconsolidated expansion Started Chevrolet with a swiss Racer Louis Chevrolet Durant brought out Louis Chevrolet became a popular brand Used the money to buyout GM with a 5:1 swap of shares Merger of GM with Chevrolet
Act regulates the various forms of business combinations throughCompetition Commission of India. Under the Act, no person or enterprise shall enter into a combination, in the form of an acquisition, merger or amalgamation, which causes or is likely to cause an appreciable adverse effect on competition in the relevant market and such a combination shall be void. The Commission while regulating a 'combination' shall consider the following factors :Actual and potential competition through imports; Extent of entry barriers into the market; Level of combination in the market; Degree of countervailing power in the market; Possibility of the combination to significantly and substantially increase prices or profits; Extent of effective competition likely to sustain in a market; Availability of substitutes before and after the combination; Market share of the parties to the combination individually and as a combination; Possibility of the combination to remove the vigorous and effective competitor or competition in the market; Nature and extent of vertical integration in the market; Nature and extent of innovation; Whether the benefits of the combinations outweigh the adverse impact of the combination.
Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate their harmful effects.
The other regulations are provided in the:- The Foreign Exchange Management Act, 1999 the Income Tax Act,1961. the Securities and Exchange Board of India (SEBI) has issued guidelines to regulate mergers and acquisitions. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,1997 and its subsequent amendments aim at making the take-over process transparent, and also protect the interests of minority shareholders.
Cooperation
1. Mergers 2. Takeovers 3. Joint Ventures 4. Strategic Alliances
Joint Venture
Two or more businesses joining together under a contractual agreement to conduct a specific business enterprise with both parties sharing profits and losses. The venture is for one specific project only,
Easier to achieve objectives because of partnership Reduce competition Diversification- different industries Need for technology Circumvent legal and regulatory hurdlesinternational Threats and opportunities
Types of JVS
Same industry, different industry, international, national In one of their countries or third country
JV must for entry into India as 100%FDI not permitted in some sectors
100% FDI permitted in Power,BPO, Pharma, Pollution control,roads,highways( infrastructure), hotel and tourism Telecom(49%), insurance(26%), NBFC(49%)
Examples of JVs
1. Cummins and TELCO Manufacture Telco engines 2. Ashok leyland and Singapore telecom- - AL plans to enter telecom and handset manufacture
Benefits : Minimise risk, less investment, access to foreign technology, access to new markets, synergies, larger equity base Disadvantage : Problems in partnership, cultural,behavioural Time in negotiating the JV Aligning thinking Longer DM Less freedom and flexibility IPR concerns
Broken JV Indian partner has to issue NOC for the foreign partner to pursue other entry avenues Indian partners try to ruin the chances Wadia-Danone, Modi-dysney, TVS-suzuki
Strategic Alliance:
A partnership with another business in which you combine efforts in a business effort involving anything from getting a better price for goods by buying in bulk together to seeking business together with each of you providing part of the product. The basic idea behind alliances is to minimize risk while maximizing your leverage.
Strategic alliances
Unite to pursue common goals Companies otherwise are independent Partner firms contribute in a key strategic area : technology, product, marketing Pooling of resources for mutual gain all JVs are strategic alliances also. But all SAs need not be JVs because SAs can happen without equity participation
Liberalisation has spurred the growth of SA Access to technology, markets, funds, quality standards Funding, New Products, Risk sharing, higher ROI,Validation, market access
Pyramid of alliances
Merger
JV
R&D/technology transfer Licensing /private label
Vendor
Supplier
Partner A
Partner B
Contribution
Benefit
Issues in SA
Get experienced expert to negotiate the deal Upfront and milestone payments/invesments/royalty/loan R&D funds Control of IPR Dispute resolution
Types of SA
Procompetitive alliances value chain related supplier-buyer-intermediary Noncompetitve same industry, different product range, territory Competitive Rival firms Precompetitive firms from unrelated industries =biotech + pharma
Nortel and Microsoft form SA shared vision of unified communication Nortel world class network quality and reliability Microsoft ease of use Takes silos email, instant messaging, telephony, e-conferencing and uses advanced technology to make it more efficient and easy
Symantec and microsoft SA Symantec has apps that run on windows platform Use each others technology Symantec reduces the cost of windows management Channel partners who sell both symantec and microsoft..have more benefits
Facebook and microsoft Microsoft will sell advertising for facebook globally Fb uses microsoft digital advertising solution
Examples of SA
Network 18 and Sun Wipro and IBM TCS and Cisco ETS and NIIT Air India and Lufthansa
entered into a strategic alliance to form a distribution venture called Sun18. The alliance marks the entry of Network18 Group into the Indian television distribution space. As part of the agreement Sun18 will distribute a total of 33 channels across all platforms in India via all networks including cable, DTH, . The bouquet of channels include Network18s CNN-IBN, CNBC-TV18, CNBC-Awaaz, IBN-7
and IBN-Lokmat, Viacom18s Colors, MTV, Nick and Vh1. From Sun Networks will be SUN TV, KTV, Sun News, Sun Music, Chutti TV, Adithya, Gemini TV, Teja TV, Gemini News, Gemini Music, Navvulu TV, Kushi TV, Surya TV, Kiran TV, Udaya TV, Udaya Movies, U2, Udaya Varthegalu, Ushe TV and Chintu TV. Disney India Networks Disney Channel, Disney XD and Hungama TV will also be part of the bouquet.
While Sun18 South will manage the South India market (non Hindispeaking-markets) and will be operated by the Sun Network,
Sun18 North will manage the rest of India markets and will be operated
by the Network18 Group.
Stability
Expansion
RetrenchmentCombination
Concentration Diversification
Integration
Concentric
Vertical
Mergers
Conglomerate
Horizontal
Takeovers
Joint Ventures
Strategic alliances
Internationalisation
Type of expansion strategy where firms market their products or services beyond their domestic market
International International company offers standardised product to different countries without any differentiation Eg Coca cola, P & G
Global Low cost approach standard undifferentiated product across all countries Economies of scale , production in favourable locations
Forced Standardization
Coca-Cola in Chinese: bite the wax tadpole Coca-Cola 30 liter bottle?? U.S. carmakers lefthand drive cars
Effective Standardization
Coca-Colas transnational polar bears McDonalds Big Mac
Effective Adaptation
McMutton Pie in Australia Wendys shrimp sandwich in Japan Campbells noncondensed soups in the UK Coca-Colas 175 ml containers in Japan
International Strategy:
Pressures for Global Efficiency
Low
Low High
International Strategy:
Pressures for Global Efficiency
Low
Export Strategy ??
Low High
Export Strategy
(same as Export entry mode)
Germany
U.S. Mexico
Malaysia
International Strategy:
Managing Dual Pressures
Pressures for Global Efficiency
High
Low
Multidomestic Strategy
High
Multidomestic Strategy
Germany
U.S. Mexico
Malaysia
International Strategy:
Managing Dual Pressures
Pressures for Global Efficiency
High
Global Strategy
Low
Global Strategy
(Textbook Variety)
Germany
U.S. Mexico
Malaysia
Entry?
International Strategy:
Pressures for Global Efficiency
Global Strategy
Transnational Strategy
Low
Mexico
Final Assembly
Malaysia
Entry?
Mexico WOS-G
Malaysia Export
Examples
AV Birla manufactures carbon black in Thailand and exports it to 30 other countries Blue Dart with Fedex S.A Archies Franchising
68 % of Coca Colas revenues are generated outside north America. Failure of Parker Pen in the 1980s standardised, high quality product, std Advertising, pricing and distribution For low priced products like cigarettes, soft drinks, etc population more important than income China and India attractive markets
Coke waited for 15 years to make its entry in russia, Pepsi had a 100% russian market share Coke entered Russia in 1987 and has a 50% market share by 1996 Upscale prestigious segment- loreal, oriflame( narrow global market) Swiss watch Co. watches from 50$ to 1 lakh $
Electral from FDC sold in many countries Coca cola strong brand name McDonald restaurant system that can be set up anywhere in the world. Orchid hotels, Hubli now in Singapore, UK, USA,Belgium, Dubai
Global Marketing:
What It Is Not ?
Global marketing does not mean to develop standardized, high-quality world products and market them using standardized advertising, pricing and distribution.
Parker Pens failure in the world market is one such example.
Global marketing does not mean entering every country in the world. The decision to enter outside markets depends on the companys resources, managerial mind-set and the nature of opportunity and threat.
eg.
Japan and Vietnam are both in East Asia but Japan is a high-income, postindustrial society and the other is an emerging, less developed preindustrial society.
Annual per capita income varies widely from a low 81$ in Congo 38587 $ in Luxembourg.
For low price products like cigarettes, soft drinks etc, population is more important than income. China & India with a population of 1.3 & 1.0 billion are attractive target markets.
Unilever (Great Britain) Gillette (U.S) Benetton (Italy) Caterpillar (U.S) Toyota, Honda (Japan)
Stability
Expansion
RetrenchmentCombination
Concentration Diversification
Integration
Concentric
Vertical
Mergers
Conglomerate
Horizontal
Takeovers
Joint Ventures
Strategic alliances
Retrenchment Strategy
Management may pursue retrenchment strategies when the company has a weak competitive position in some or all of its product line resulting in poor performance. i. Turnaround
downsizing existing company/divisions ii. Divestiture selling off existing divisions/subdivisions iii. Liquidation company closes down
Turnaround
Firms pursue a turnaround strategy by undertaking a temporary reduction in operations in an effort to make the business stronger and more viable in the future. These moves are popularly called downsizing or rightsizing. The hope is that going through a temporary belttightening will allow the firm to pursue a growth strategy at some future point. Eg Xerox, Sony, Dell, Chrysler, Starbucks
Divestment
A divestment decision occurs when a firm elects to sell one or more of the businesses in its corporate portfolio. Typically, a poorly performing unit is sold to another company and the money is reinvested in another business within the portfolio that has greater potential.
After trying for a number of years( after M&A) to integrate the new activities into the existing organization, many firms have elected to divest themselves of portions of the business in order to concentrate on those activities in which they had a competitive advantage. REASONS TO DIVEST In most cases it is not immediately obvious that a unit should be divested. Many times management will attempt to increase investment as a means of giving the unit an opportunity to turn its performance around.
Legal reasons
Examples of Divesment
the tobacco side of RJR Nabisco was dragging the food business down, the decision was made to sell the overseas tobacco business to Japan Tobacco.
Tata divested Tomco which was aquired by HUL Hutch divested to Vodafone
Bankruptcy
Bankruptcy involves legal protection against creditors or others allowing the firm to restructure its debt obligations or other payments, typically in a way that temporarily increases cash flow. Such restructuring allows the firm time to attempt a turnaround strategy. For example, since the airline hijackings and the subsequent tragic events of September 11, 2001, many of the airlines based in the U.S. have filed for bankruptcy to avoid liquidation as a result of stymied demand for air travel and rising fuel prices. At least one airline has asked the courts to allow it to permanently suspend payments to its employee pension plan to free up positive cash flow. USA: Chapter 7- liquidation Chapter 11- Company functions and repays the loan after restructuring
Washington Mutual September 26, 2008 Lehman Brothers Holdings Inc. September 15, 2008 Delta Airlines Inc. September 14, 2005 WorldCom Inc. July 21, 2002 Enron Corp. February 12, 2001 Satyam almost went bankrupt
Liquidation
Liquidation is the most extreme form of retrenchment. Liquidation involves the selling or closing of the entire operation. There is no future for the firm; employees are released, buildings and equipment are sold, and customers no longer have access to the product or service. This is a strategy of last resort and one that most managers work hard to avoid.
Company liquidations usually signal the end of a company. A true company liquidation involves closing the business or company, ending the business itself, and the sale of all its assets. You can do it as part of a bankruptcy proceeding or simply as a way to close the business and wrap up all business dealings.
India
Sick Industrial Companies Act SICA 1985- declares company sick Board of Industrial and Financial Reconstruction(BIFR) 1987- revive, rehabilitate Industrial Reconstruction Bank of India ( IRBI)
Liquidation
Most extreme Closing down Swadeshi mills of Tata , Binny, Empress Mills Companies Act, 1956- deals with all legal aspects of liquidation
Mc Donalds
Why did the company fall sick in the 1990s ?
Mc Donald
McDonald's had promoted itself as the provider of the 'Great American Meal'. However, by the 1990s, it was clear that the company had lost its claim to that title Changing customer eating habits, increased competition and complacence on the part of the company and its franchisees, were the main reasons for the difficulties experienced by McDonald's
After McDonald's announced its first quarterly loss in 38 years in 2003, the board realized that big changes were required in the company's strategy and direction.
The board ousted Greenberg and installed Cantalupo as the CEO. Cantalupo had led McDonald's international expansion through the 1980s and 1990s In 2003, he was brought back from retirement to lead the company's turnaround.
Soon after taking over, Cantalupo prepared the 'Plan to Win', which outlined McDonald's strategy for the next three years. aimed to create a McDonald's that was more geared to the new conditions in the fast food industry...
the fast food industry was undergoing a transformation in the early 2000s. Hamburgers, fries and soda, which epitomized fast food, were being replaced by sandwiches and salads.
. They changed the mission ever so slightly. It had been: "being the world's best quick-service restaurant." Now it's being "our customer's favorite place and way to eat.
was less emphasis on growth in number of stores and more on improving the customer experience. There was also a return to basics, especially QSCV. That stands for Quality, Service, Cleanliness and Value.
McDonald's has modified operations with longer hours and better drivethrough service. quality coffee that bring people in and add to profit. By mid-2004, it was generally acknowledged that McDonald's had turned around
Successful turnarounds seem to start by simplifying and putting an emphasis on the basics. Successful turnarounds seem to be created from a mix of existing strengths and new opportunities. They keep the bits of tradition and history that made the company successful and find ways to apply them in today's world. Successful turnarounds don't spend a lot of time starting to prepare to begin to get ready to draw up a plan. Instead, they're action oriented.
Dells turnaround
Michael Dell, the founder of Dell returned as the CEO in January 2007, and the company has a turnaround plan which it promises will yield $3 billion in annual savings over the next three or four years.
Cutting costs: Cutting costs is very important because competitors like HP use the money from profitable printers operations and take more market risk with designing innovative products. Moreover the prices of computers keep going down. One can buy a Dell laptop now for less than $500.
Moving away from computers internally and outsourcing more of its manufacturing operations:
Carolina, Tennessee, and in Malaysia, Penang, China and Poland.
Also HP, IBM and Sun Microsystems already have long-standing partnerships with outside manufacturing partners. These partners offer customers bundles of computer hardware, software and services. Dell on the other hand is relatively a new player in this field and has traditionally depended on its own businesses to design and make computers.
Moving into indirect sales channels like computer resellers and retailers. Introducing more products: New product introduction is vital since major PC manufacturers realistically only make money in the first three months (or six in some cases) of a new product.
Carrefour divestment
On October 15, 2009, just four months after opening its first store in Russia, France-based Carrefour SA (Carrefour), the second largest retailer in the world, announced that it planned to exit the Russian market.
The company announced, "Carrefour has decided to sell its activities in Russia and pull out of the market, given the absence of sufficient organicgrowth prospects and acquisition opportunities in the short- and medium-term that would have allowed Carrefour to attain a position of leadership. This decision is consistent with the Group's strategy which aims at building leadership positions that will ensure strong and lasting profitable growth."4
Combination
Mixture of stability, expansion, retrenchment Simultaneous or sequential Ford= turnaround- Divestment-Stable Growth ITC divested financial ; turnaround of agri, stable growth-hotels Restructuring is a combination strategy
Restructuring
L & T, HUL, SAIL, SBI. TATA
Strategic Management
http://www.presentationmagazine.com/
Strategic Intent
Formulation of Strategies
Implementation of Strategies
Strategic Control
Strategic Evaluation
1.Strategic Intent
Vision, Mission, Goal and Objective
2. Formulation of Strategies
1. 2. 3. Environmental Appraisal Organisation Appraisal Corporate level strategies
Business-Level Strategy:
How do we compete?
Business Strategy
Cost Leadership Differentiation Focus
Cost leadership
When used ??
Cost based competition Standard product Low loyalty Moser Baer- Noida, UP lower raw material , labour costs - data storage market
Differentiation
When used ??
Differentiation
Frooti-tetra pack; Daiken- noiseless; Maggie, Tanishq Large market requiring differentiated product resulting in increased sales Diversified need Customer will pay premium for a valued differentiation Brand loyalty
Focus
Niche strategies Either lower cost or differentiation CDs- low and high cost ( times) V.Balu- low cost guides for MBA Dezire sweets
Cost Leadership
Cost Leadership
Differentiation
Focused Differentiation
Strategic
Strategic Intent Formulation of Strategies
Implementation of Strategies
Strategic Control
Strategic Evaluation
2. Formulation of Strategies
1. 2. 3. 4. Environmental Appraisal Organisation Appraisal Corporate level strategies Business level strategies
level
Gap analysis:
Desired performance Present Performance Performance Gap in Performance
Time
INTRODUCTION
BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970s.
According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share.
MARKET SHARE
Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms.
STARS
High growth, High market share Stars are leaders in business. They also require heavy investment, to maintain its large market share. It leads to large amount of cash consumption and cash generation. Attempts should be made to hold the market growth otherwise the star will become a CASH COW.
DOGS
Low growth, Low market share
Dogs are the cash traps. Dogs do not have potential to bring in much cash. Number of dogs in the company should be minimized. Business is situated at a declining stage.
QUESTION MARKS
High growth , Low market share
Most businesses start of as question marks. They will absorb great amounts of cash if the market share remains unchanged, (low). Why question marks? Question marks have potential to become star and eventually cash cow but can also become a dog. Investments should be high for question marks.
BENEFITS
BCG MATRIX is simple and easy to understand. It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them. It is used to identify how corporate cash resources can best be used to maximize a companys future growth and profitability.
Limitations of BCG ??
LIMITATIONS
BCG MATRIX uses only two dimensions, Relative market share and market growth rate. Problems of getting data on market share and market growth. High market share does not mean profits all the time. Business with low market share can be profitable too.
PRACTICAL USE
MAHINDRA & MAHINDRA HUL ITC
Stationery
Hotels
Agribusiness Paper & pkg. Net revenue
124.1
4.2 24.9 12.99
577.25
1780.07 1565.31
257.53
1708.77 1253.29
13349.58 11815.04
Cigarettes 10.9 % Pricing power Hotels Paper Agri business FMCGOthers 22.7% Inward traffic, occupancy
17.2 % Capacity utilization, value added products 34.3 % E-choupal, choupal sagar,
Stars- Expansion Question marks- Expansion, Retrenchment Cash cows stable growth Dogs- Retrenchment
CONCLUSION
Though BCG MATRIX has its limitations it is one of the most FAMOUS AND SIMPLE portfolio planning matrix ,used by large companies having multi-products.
GE Nine-Cell Matrix-McKinsey
IndustryAttractiveness Market Size Growth Rate Profit Margin Intensity of Competition Seasonality Cyclicality Resource Requirements Social Impact Regulation Environment Opportunities & Threats Business Strength
10.0
Strong
6.7
Average
3.3
Weak
1.0
High
6.7
Relative Market Share Reputation/ Image 3.3 Bargaining Leverage Ability to Match Low Quality/Service 1.0 Relative Costs Profit Margins Rating Scale: 1 = Weak ; 10 = Strong Fit with KSFs
Medium
EXPAND STABILITY
EXPAND
MEDIUM
LOW
STABILITY
Industry attractiveness
RETRENCH MENT
STRONG
AVERAGE
WEAK
Allows for intermediate rankings between high and low and between strong and weak Incorporates a wide variety of strategically relevant variables Stresses allocating corporate resources to businesses with greatest potential for
23
6 5
------------------------------
EVOLUTION
-----------------------------MATURITY / SATURATION -----------------------------DECLINE / STAGNATION -----------------------------ONLY ONE DIMENSION IS DIFFERENT FROM THE GE BUSINESS SCREEN Except for the Stage of Market Evolution, this model is identical to the GE Business Screen
Hofer
1. 2. 3. 4. 5. 6. 7. 8.
DOES THE PORTFOLIO HAVE ENOUGH BUSINESSES IN ATTRACTIVE INDUSTRIES? DOES THE PORTFOLIO CONTAIN TOO MANY MARGINAL BUSINESSES OR QUESTION MARKS? DOES THE CORPORATION HAVE ENOUGH CASH COWS TO FINANCE THE STARS AND EMERGING WINNERS? DO THE CORE BUSINESSES GENERATE DEPENDABLE PROFITS OR CASH FLOWS? IS THE PORTFOLIO VULNERABLE TO SEASONAL OR RECESSIONARY INFLUENCES? DOES THE PORTFOLIO CONTAIN BUSINESSES THAT THE CORPORATION DOESNT NEED TO BE IN? IS THE CORPORATION BURDENED WITH TOO MANY BUSINESSES IN AVERAGETO-WEAK COMPETITIVE POSITIONS? DOES THE MAKEUP OF THE PORTFOLIO PUT THE CORPORATION IN A GOOD POSITION FOR THE FUTURE?
1. 2. 3. 4.
IDENTIFY THE PRESENT CORPORATE STRATEGY CONSTRUCT BUSINESS PORTFOLIO MATRICES PROFILE THE INDUSTRY AND COMPETITIVE ENVIRONMENT OF EACH BUSINESS UNIT EVALUATE THE COMPETITIVE STRENGTH OF EACH INDIVIDUAL BUSINESS
5.
6. 7. 8.
Occurs due to : learning effects, economies of scale, product redesign, production process redesign, Technology improvements
$0.80
Year 1
Year 3
Year 5
Year 6
The Law of Experience 1994 1995 The unit cost value added to a standard product declines by a constant % (typically 20-30%) each time cumulative output doubles. 1996 1997 1998 1999 2000
Cumulative Output
2. Lifecycle analysis
3. Industry analysis 4. Strategic group analysis