MERGERS, MANAGEMENT BUYOUTS AND CORPORA TE REORGANISATIONS

LESSON 9:
RESTRUCTURING AS A CORPORATE STRATEGY

Corporate Strategy In a world, where prediction is becoming less reliable, decision-

making and management models are perennially evolving,
Objective
successful companies are organizing to become progressively
The objective of this lesson is to give you insight in to :
“ready for anything”.
• Strategy
They are equipping themselves to be able to seize unexpected
• Levels of strategies opportunities and retreat rapidly from bad risks. This evolution
• Strategic planning & its importance is centered on,
• Features of strategic planning • Improvement of strategic analysis and thinking in terms
• Restructuring as a strategic plan of scenarios
Towards reorganizing themselves companies need to develop a • The anticipated development of additional capabilities in
strategy. key resources
The conditions companies must satisfy if they are to conserve • Increased speed of action and reaction through efficient
their essential characteristics over time may be summed up as – process of learning and change.
• Consistency between their strategy, and Precisely organizations are restructuring themselves to meet
• The characteristics of the external environment in which changing environment.
they operate. For three decades after world war two most economies around
Owing to technological change and evolution as well as owing the world witnessed historically unparalleled progress. However
to heightened competitive pressures following, after the early 1970s growth in most of industrialized econo-
mies began to slow down, affecting much of the developing
• Market globalization and, world particularly adversely during the 1980’s and 1990’s. There
• Deregulation were a variety of causes of this change in the trajectory of
Companies increasingly have to cope with altered conditions of growth some of a macro economic nature and others rooted in
competition. In response they are forced to change their strategic the structure of corporate organization and in inter-firm
framework. linkages.
Companies also need to change the way they compete and also The response to these pressures has been a significant change in
the basic assumptions underlying the planning criteria that they macroeconomic policies amongst countries. Throughout the
adopt for their more general strategic design/architecture and world there has been a surge toward deregulation and a feeling
those that govern the ways in which they interact with the of barriers to the global flow of many resources. For some
external environment. countries this has resulted in significant enhancement to
These changes have a bearing on, economic growth but for others globalization has done little to
enhance living standards and security. Thus the gains from
• The companies ability to control environment variables
globalization is not automatic they depend on response of
• The degree of company dependence on the external producers to the changing competitive environment.
environment
One critical area of change is to be found in organization of
• The very nature of the variability to be controlled. production. To cope with new competitive pressures firms have
Uncertainty has become the central element of competitiveness to deliver not just low-priced goods and services but also
and business environment. In a world defined by turbulence products of greater quality and diversity. This requires in the
surprise and a lack of continuity predictions are increasingly first instance that they reorient their internal organization,
erroneous and therefore dangerous. This turbulence is being changing production layout, introducing new methods of
caused by, quality assurance and instituting processes to ensure continuous
• Acceleration of technological process improvement.
• The globalization of competition But these changes in themselves are not sufficient. They need to
be complemented by alterations in the relationship amongst
• The restructuring of capitalism on a global scale.
firms particularly with firms.
• The slowing down of growth in some key sectors
What We Mean by Strategies
• The political changes
Introduction
• The high growth rates of Asian countries
The term ‘strategies’ has been defined by J.L.Thompson as
• The large imbalance in global economy. “means to an end. The end concerns the purpose and objec-
tives of the organization. There is a broad strategy for the

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 whole organization and a competitive strategy for each activity. Strategies at divisional or business level are directly concerned
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Functional strategies contribute directly to the competitive with the future plans of the profit centers which are
strategy”. The word ‘strategy’ is used to describe the direction divisionalized in large enterprises. These are the sub-strategies
that the organization chooses to follow in order to fulfill its as they devolve from the grand strategies and have market
mission. Another famous strategy thinker, Henry Mintzberg orientation because these deal with the current and future
has enunciated 5 Ps of strategy viz.- product lines and current and future markets including overseas
i. A Plan i.e. strategy is a consciously intended course of businesses.
action which a firm chooses to follow after careful Strategies at operational or functional level target the depart-
deliberations on the various options available to it. It is mental or functional aspects of operations and look at the
not the first alternative that came to the chief executive’s functional strategies of marketing, finance, human resources,
mind like a flash or a dream. manufacturing, information systems etc. and devise ways and
ii. A Ploy i.e. it is a specific manoeuvre which is intended to means of increasing their contribution to the other levels of
outwit an opponent or a competition. It is a trick, a device, strategies. It must be noted that success of strategies at
a scheme or a deception to gain advantageous position business or corporate level is largely dependent upon the
before engaging into the combat of marketing warfare. strategic decisions regarding activities at the operation level.
iii. A Pattern i.e. it is not one decision and one solitary action; A good strategy results in effective aligning of the organization
it stands for a stream of decisions and actions to guide and with its environment. A company needs to tune its vision
tend the future course of the enterprise until it reaches its continually to the requirements of a constantly changing
predetermined corporate objectives. business environment. Every company, influenced by the cause
and effect of its environment, draws resources from the
iv. A Position i.e. it is a means of locating the firm in an
environment and provides value-added resources back to the
environment full of external factors pulls and pushes. On
environment. The effectiveness of the manner in which a
most of those factors, enterprise has little control and
company draws resources and delivers back to the environment
whatever influence it can exercise is constrained by its
depends on its strengths and weaknesses. Strategy is a major
organizational capabilities.
focus in the quest for higher revenues and profits, with
v. A Perspective i.e. it is an ingrained way of perceiving the companies pursuing novel ways to ‘hatch’ new products,
world around the organization and its business operations. expand existing businesses and create the markets of tomor-
It is greatly influenced by the mindset of people who form row.
the dominant interest group and are involved in taking
The global economic environment has been posing both
decisions affecting the future course that the firm takes.
threats and opportunities to companies. If a company’s
The above may also be visualized as five uses of strategy. response is weak to the environment, the latter posses a threat
However, they are all linked together and each organization to the former. On the other hand, if a company’s response is
must explore its own uses with respect to its business, internal strong to the environment, the latter unfolds numerous
competencies and external environments. With competition opportunities. As such, strategic management is the continuous
for markets and market share becoming more intense, managers process of coordinating the goals of a company with the
responsibilities are increasing. They must devise suitable economic environment at a macro level, in an effective manner,
strategies to gain an edge over its competitors at a cost which it to reap the opportunities and overcome the threats, considering
deems reasonable, strategy is a game plan of the company to its strengths and weaknesses.
outwit and outmanoeuvre its competitors.
Strategic Planning
Levels of Strategies The environment in which business organizations operate
Strategies can be visualized to operate at three different levels today is becoming uncertain. In the emerging fast-changing
viz. Corporate level, divisional or business level and operational competitive global environment, a company can neither save its
or functional level. Strategies at corporate level focus on the way to prosperity nor afford to remain at a standstill if it to
scope of business activities i.e. what product portfolios to avoid stagnation; it must grow on its own, or be absorbed into
build, to expand and to consolidate. The growth and diversifi- a growing entity. Profitable growth constitutes one of the
cation strategy has to be spelt out in terms of functions and prime objectives of most of the business organizations.
structures- should it be in the form of multi divisions of the
Different organizations may have to use different growth
same corporation or should it be a holding group having a
strategies depending on the nature of complexity and quantum
number of legally independent companies and how resources
of work involved. The top management of the organization
have to be allocated to various alternative and competing
ordinarily provides the direction as to which of the strategies
options. Such strategies are known as grand, overall or root
would be the most appropriate for a particular company. This
strategies. If these are to succeed, they have to take into account
will depend upon several factors, including the corporate
political, economical technological environments and in
objectives of the organization. The strategic alternative, which
accordance with the societal and national priorities without
an organization pursues, s crucial to the success of the organiza-
ignoring the organizational paradigm and dominant stakehold-
tion and achievement of established goals. However, many
ers’ expectations. Their time frame is usually the longest usually
times these are influenced by factors externals to the organiza-
five years or more.
tion over which the management has limited control.

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Strategic planning is a management tool, used to help an 6. It accepts accountability to the community

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organization do a better job to assess and adjust the 7. It builds a shared vision that is value-based.
organisation’s direction in response to a changing environment.
8. It helps to avoid haphazard response to environment.
Strategic planning is a disciplined effort to produce fundamental
decisions and actions that shape and guide what an organiza- 9. It ensures best utilization of firm’s resources among the
tion is, what it does, and why it does it, with a focus on the product-market opportunities.
future at the same time. A strategic plan is visionary, conceptual Strategic planning is not a substitute for the exercise of
and directional in nature. judgment by leadership. So the date analysis and decision-
Though there is no prescribed single ‘silver bullet’ for corporate making tools of strategic planning do not make the
success, there is a continuous need for strategic planning. organization work – they can only support the intuition,
However, management must understand the holistic nature of reasoning skills, and judgment that the personnel contribute to
strategy, and have the determination to adhere to it steadily and their organization.
steadfastly by using strategic planning as a guide in times of Strategic Planning and Long-Range Planning
uncertainty. In order to derive the maximum benefit of Although these terms are frequently used interchangeably
strategic planning, the companies must recognize that the strategic planning and long-range planning differ in their
methodology requires sustained commitment, an understand- emphasis on the concept of “assumed” environment. Long-
ing of its complexity and the ability to harness its strategic range planning is generally considered to mean the development
opposites. of a plan for accomplishing a goal or set of goals over a period
Importance of Strategic Planning of several years, with the assumption that current knowledge
Strategic planning encourages, managers to take a holistic view about future conditions is sufficiency reliable to ensure the
of both the business and its environment. The strength of plan’s reliability over the duration of its implementation.
strategic planning is its ability to harness a series of objectives, On the other hand, strategic planning assumes that an organiza-
strategies, policies and actions than can work together. Manag- tion must be responsive to a dynamic, changing environment
ing a company strategically means thinking and accordingly (as against the stable environment assumed for long-range
taking suitable action on multiple fronts. Due to involvement planning). Strategic planning, also emphasizes on the impor-
of multiple operations objectives, strategies, policies or actions tance of making decisions that will ensure the organization’s
may, on the surface, appear contradictory and mutually exclusive, ability to successfully respond to changes in the environment.
but in reality they can work together. Strategic planning Once an organization’s mission has been affirmed and its critical
provides the framework for all the major business decisions of issues identified, it is necessary to figure out the board
an enterprise-decisions on business, products and markets, approaches to be taken (strategies), and the general and specific
manufacturing facilities, investments and organizational results to be sought (the goals and objectives). Strategies, goals
structure. In a successful corporation, strategic planning works and objectives may come from individual inspiration, group
as the path finder to various business opportunities, simulta- discussion, formal decision-making techniques, or otherwise –
neously it also serves as a corporate defense mechanism helping but the bottom line is that, in the end, the management agrees
the firm avoid costly mistakes in product market choices or on how to address the critical issues.
investments. Strategic planning has the ultimate burden of
In strategic planning it is crucial to formally consider the manner
providing a corporation with certain core competencies and
in which an organization will accomplish its goals. The
competitive advantages in its fight for survival and growth. It
solution to this encompasses formulation of a strategy.
is not just a matter of projecting the future. It seeks to prepare
the corporation to face the future. Its ultimate burden is Strategy is a plan or course of action which is of vital, pervasive
influencing the corporation’s mega environs in its favor, or continuing importance to the organization as a whole.
working into the environs and shaping it instead of getting Whereas management is defined as the conducting or supervis-
carried away by its turbulence or uncertainties. The success of ing of something (as a business) especially the executive
the efforts and activities of the enterprise depends heavily on function of planning, organizing, directing, controlling and
the quality of strategic planning i.e. the vision, insight, experi- supervising any industrial or business project or activity with,
ence, quality of judgment and the perfection of methods and responsibility for results. (Websters Third New International
measures. Dictionary). In light of this strategic management can be
defined as the formulation and implementation of plans and
Features of Strategic Planning the carrying out of activities relating to matters which are of
The salient features of strategic planning are as under: vital, pervasive or continuing importance to the total organiza-
1. It is an inclusive, participatory process in which the Board tion. In other words, strategic management is the application
and staff take on a ‘shared ownership’ of strategic thinking to the job of leading an organization and
2. It is a key part of effective management has four basic doctrines.
3. It prepares the firm not only to face the future but even i. Matching business requirements with internal capabilities,
shape the future in its favor. ii. Having strategically balanced portfolio,
4. It is based on quality data iii. Achieving and sustaining competitiveness, and
5. It draws from both intuition and logic. iv. Developing long-term internal and core competencies.

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 Strategic planning is useful only if it supports strategic thinking
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and leads to strategic management.

Practice Questions
1. Core competencies are not fixed but flexible. Explain.
2. Explain the current forms of strategies available to a firm
3. Briefly explain the features of successful strategic planning
Notes

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