Strategic
Management
1.
Diversification Method
Once an
organization has decided to pursue a diversification strategy, it can pursue
one of three basic approaches to carry it out: an internal venture to develop
the new business on its own, an acquisition, or a joint venture.
a. Internal
Ventures: In spite of the benefit of internal ventures, the risks of failure
are high, and even successful ventured takes many years to become profitable.
In fact, the slow speed of internal ventures often causes managers to think
seriously about acquisition when they want to diversify their firms. If a firm
acquires an existing business, it gains immediate entrance into the new
business area. Furthermore, if the acquired firm has been successful, the
acquiring firm managers may feel there is less risk of failure.
b. Merger and
Acquisitions: some organizations choose to buy diversification in the form of
acquisitions. They are often considered a “substitute for innovation”. Mergers
occur ant time two organizations combine into one. Acquisition, where one
organization buys a controlling interest in the stock of another organization
or buys it outright from its owners, are the most common type of merges.
Acquisitions are relatively quick way to:
i. Enter new
markets
ii. Acquire
new products or services
iii. Learn
new resource conversion process
iv. Acquire
needed knowledge and skills
v. Vertically
integrate
vi. Broaden
market geographically
vii. Fill
need in the corporate portfolio.
A Few of Many
Potential Problems with Mergers and Acquisitions
High
Financial Costs
I. High
premium typically paid by acquiring firms
II. Increased
interest costs. Borrowing money at high interest rate finances many
acquisitions.
III. High
advisory fees and other transaction costs. The fees charge by the brokers,
lawyers, financiers, consultants, and advisors who orchestrate the deal often
cost millions of dollars
IV. Poison
pills. These antitakeover devices make companies very unattractive to a
potential buyer. Top managers of target companies have been very creative in
designing a variety of poison pills.
Strategic
Problems
I. High
turnover among mangers of the acquired firm. The most valuable asset in most
organizations is its people, their knowledge, and their skills.
II.
Short-term managerial distraction. “Doing a deal” typically takes managers away
from the critical tasks of the core businesses for long duration.
III.
Long-term managerial distraction. Sometimes organizations lose sight of the
factors that lead to success in their core business because they are too
distracted running diversifies businesses.
IV. Less
innovation. Acquisitions have been shown to lead to reduced innovative
activity, which can hurt long-term performance.
V. No
organizational fit. If the cultures, dominant logics, systems, structures, and
processes, of the acquiring and target firm do not fit, synergy is unlikely.
VI. Increased
risk. Increased leverage often associated with mergers and acquisitions leads
to greater financial risk.
c. Strategic
Alliance and Joint Ventures
viii.
Strategic alliance: maybe found when two or more organizations join to develop
new products or services, enter new markets, or improve resource conversion
processes.
ix. Joint
ventures: when the arrangement is contractual and the alliance operates
independently of the organization that forms them, then the alliance typically.
Strategic
alliance and joint ventures can help organizations achieve many of the same
objectives sought through mergers and acquisitions. They can lead to improve
sales growth, increased earnings, or provide balance to a portfolio of business
which are some of the most commonly cited reason for acquisitions.
These are the
resource most likely to be transferred during a joint venture:
a) Marketing
b) Technology
c) Raw
materials and component
d) Financial
e) Political
2. Leadership
and Culture
d.
Leadership: the traditional view of leaders in organization is that they set
direction, make the important decisions, and rally the followers.
e.
Organizational Culture and Energy: the system of shared values that guide
employees is another important factors that influence the success of strategy
implementation. It reflect the values and leadership styles such as
recruitment, training, and performance evaluation that reinforce certain type
of behavior.it reflect the organization’s energy, hoe enthusiastic and focused
it is moving towards its goals.
Positive Energy-enthusiasm,
satisfaction
Negative
Energy-fear, frustration
f. Functional
Strategies: The collective patterns day-to-day decisions made and actions taken
by employees responsible for value activities create functional strategies that
implement the growth and competitive strategies of business.
x. Market
strategy
xi. Operation
strategy
xii. Research
and Development strategy
xiii.
Information systems strategy
xiv. Human
resource strategy
xv. Financial
strategy
xvi.
Integrating functional strategies
xvii.
Executive global strategies
g.
Organizational structure: specific number and types of department or groups and
provide the formal reporting relationships and lines of communication among
internal stakeholders.
xviii.
Structure is not an end, but a means to an end. The “end” is successful
organizational performance.
xix. No one
best structure exists. A change in organization may require a corresponding
change in structure to avoid administrative inefficiencies.
xx. Once in
place, the new structure becomes a characteristic of the organization that will
serve as a constraint on future strategic choice.
xxi.
Administrative inefficiencies, poor services to customers, communication,
communication problem, or employees frustrations may indicate a strategy-structure
mismatch.
External
environment
_ Broad
Environment: General environment: everything outside an organization’s
boundaries that affect everyone — economic, legal, political, socio-cultural,
and technical forces.
1.
Sociocultural Forces: this is related to both social and cultural matters.
There are 4 perspective important in analyzing sociocultural force:
* Firstly,
this is because most of the other stakeholder groups are also members of
society, some of their values and beliefs are derived from broader societal
influences, which can create opportunities and threats for organization.
* Secondly,
firm may reduce the risk of gaining a bad ethical reputation by anticipating
and adjusting for sociocultural trends.
* Thirdly,
correct assessment of sociocultural trends can help business avoid restrictive
legislation.
* Fourthly,
demographic and economic change in society can create opportunities for and
threats to the revenue growth and profit prospects of an organization.
2. Economic
Forces: can have a profound influence on organization behavior and performance.
It includes economic growth, interest rates, the availability of credit
inflation rates, foreign exchange rates, and foreign trade balance are among
the most critical economic factors.
3.
Technological Forces: Technological change creates new products, service, and,
in some cases, entire new industries. It changes the way society behaves and
what society expects. In addition, it also changes the way many people approach
work and leisure.
4.
Political/Legal Forces: Political forces, both at home and abroad, are
significant determinants of organization action. Governments and other
political bodies provide and enforce the rule by which organization operate.
_ Task
Environment: consist of stakeholders with whom organization interacts on a
fairly regular basis that affect the business directly. These stakeholders
include domestic and international customer, suppliers, competitors, government
agencies and administrators, local communities, activist group, union, and
financial intermediaries.
Customers:
* Buyers are
most powerful when:
* They are
few in number and purchase large quantities
* They can
choose between equivalent products from many different firms
* They can
switch easily between the offerings of different firms
* Buyers are
least powerful when:
* They are
plentiful and purchase in small quantities
* They have
little choice
* They cannot
switch easily between the offerings of different firms
* Switching
Costs
Supplier:
* Firm has
greater power over suppliers when:
* The firm
purchases in large quantities
* It can
choose between multiple suppliers
* The costs
of switching between suppliers is low
* The firm is
not dependant on any single supplier for important inputs
*
Potential
Entrants:
* Barriers to
entry – factors that might make it costly for potential competitors to enter an
industry and compete with firms already in the industry
* Economies
of scale – cost reduction associated with large output
* Brand
loyalty – the preference of consumers for the products of established companies
Substitutes:
* The goods
or services of different businesses or industries that can satisfy similar
customer needs
* The
existence of substitutes is a strong competitive threat because it limits the
price that companies in one store can change
* If there
are few substitutes, firms have the opportunity to raise prices
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