Module 3

Corporate Strategic Management

Class-BBA LLB 1 SEM

Business-Level Strategy: Definition, Examples, and Implementation

In the dynamic and fiercely competitive business landscape, organizations must strategically
position themselves to gain an edge over their rivals. Business-level strategy refers to companies'
deliberate and purposeful actions to achieve competitive advantage within their specific market
segments. It involves making critical choices about how to allocate resources, differentiate
offerings, and create unique value for customers. By effectively implementing a well-defined
business-level strategy, companies can carve out a distinct position in the market, attract
customers, and drive sustainable growth.

This article will analyze various aspects of business-level strategies and explore how they enable
companies to thrive in today's highly competitive environment.

Strategy Levels

To effectively discuss business-level strategies, it is important to understand the broader context

in which they operate. Organizational strategies can be categorized into three distinct levels:
• Corporate-level strategy
• Business-level strategy
• Functional-level strategy

These levels address varying aspects of the organization's operations and each one is vital in
accomplishing overall objectives. Let's take a closer look at these levels.
Corporate-Level Strategy

This strategy level is related to the decisions made by top-level management within an
organization to establish its overall direction and scope. This includes key choices related to
managing the company's portfolio, mergers and acquisitions, diversifying, and allocating
resources. The purpose of corporate strategy is to define the company's primary objectives and
direct the selection and management of its business units or product lines.

Business-Level Strategy

Business strategy refers to the steps taken by a company to gain an advantage over its
competitors in a specific market segment. This includes making choices regarding positioning,
differentiation, target customers, and value creation. Business-level strategies are created to align
with the overall corporate strategy while also adapting to the unique qualities and dynamics of
specific markets or industries.

Functional-Level Strategy

Functional strategies are plans developed and executed within specific departments or functional
areas, such as marketing, operations, finance, and human resources. The purpose of these
strategies is to improve each function's abilities to support the overall business strategy. By
converting broader business goals into specific plans and tactics, functional strategies ensure that
different organizational departments work efficiently together.

Example: In a retail company, the corporate-level strategy might focus on global expansion and
diversification. Business units can specialize in clothing and home decor, ach with unique
strategies to target customers and gain a competitive edge. Functional-level strategies in
marketing should tailor activities to the preferences of each business unit, ensuring efficient
execution.

The Importance of Business-Level Strategy

The significance of business strategies lies in their ability to provide a clear roadmap for
organizations to achieve competitive advantage in their specific markets. Here is why a properly
defined strategy is important and what benefits it brings to companies.

1. Differentiation and Unique Value Proposition

A crucial aspect of business-level strategy is differentiation. It enables companies to distinguish

themselves from competitors by offering unique value to customers. Companies can tailor their
products, services, and experiences to stand out in the marketplace by understanding customer
needs and preferences.

2. Effective Resource Allocation

Business-level strategies play a vital role in guiding resource distribution decisions. They ensure
that resources are effectively managed, optimizing their utilization and maximizing returns.
Whether it is investing in research and development, marketing campaigns, or operational
improvements, a focused business-level strategy helps allocate resources to initiatives that align
with the company's competitive positioning.
3. Building Sustainable Competitive Advantage

Business-level strategies contribute to long-term sustainability by creating barriers to entry for

potential competitors. By building a strong market position, reputation, and customer loyalty,
companies can withstand competitive pressures and maintain profitability over time. This
sustainability is achieved through a combination of differentiation, customer-centric strategies,
and continuous innovation.

Business-Level Strategy Types

Porter's generic strategies outline the methods through which companies strive to position
themselves within their selected market domain. The first high-level decision to make is how you
want to attract customers:

• with a lower price of your product

• with your product being different from the competition

If you choose to offer your product at a lower price than your competition, then you have chosen
a cost leadership strategy. In case you decide to make products different from those the
competition offers, then we are talking about a differentiation strategy.

Developing your business strategy further, you should choose a competitive scope and whether
you want to focus on:

• Broad market - offering your products to a diverse market

• Narrow market - offering your products to a niche market

Combining these two approaches can further refine the business strategy into a focused cost
leadership strategy and a focused differentiation strategy.
Business level strategy examples

Let us have a more detailed look at several different types of business-level strategies.

Cost Leadership Strategy

This business strategy relies on offering products at a low cost thus becoming the least expensive
producer or provider of goods and services in a particular industry. To achieve this, companies
need to cut costs across the entire value chain, so they can offer their products or services at
lower prices than rivals. By being cost leaders, businesses can draw in customers who are
looking for affordable products, expand their market share, and possibly increase their profits.

Benefits
1. Increased Market Share
2. Higher Profit Margins

Risks
1. Price Erosion
2. Imitation by Competitors
3. Technological Changes
Example

McDonald's utilizes this strategy in the fast-food industry, optimizing its processes, streamlining
operations, and delivering standardized products at affordable prices.

Differentiation Strategy

Differentiation strategy focuses on offering products or services perceived as superior or distinct

from competitors. Companies pursuing differentiation aim to provide unique value, features,
quality, innovation, customer service, or brand image that set them apart in the eyes of
customers.

Benefits
1. Customer Loyalty
2. Premium Pricing
3. Barriers to Competitors' Entry

Risks
1. Imitation by Competitors
2. Cost Structure

Example

Apple differentiates itself in the technology industry through its focus on sleek design, intuitive
user interfaces, seamless integration of hardware and software, and premium quality, creating a
distinct and loyal customer base.

Focused Cost Leadership Strategy

Companies using this business strategy gain an advantage in cost within a particular and specific
market segment. They concentrate on serving a specific group of customers with affordable
products. This allows them to optimize their operations, processes, and products to create cost-
efficient solutions that meet the specific needs of their customers.
Benefits
1. Targeted Customer Base
2. Cost Efficiency

Risks
1. Limited Market Size
2. Market Changes

Example

Southwest Airlines (with a focus on regional routes) adopts this strategy by offering low-cost
flights on regional routes. By operating with a streamlined business model, high aircraft
utilization, and efficient operations, Southwest Airlines provides cost-effective air travel options
to customers in specific markets.

Focused Differentiation Strategy

A focused differentiation strategy concentrates on delivering unique and specialized products or

services to a specific market segment. Companies try to differentiate themselves in the targeted
niche through superior quality, innovation, customization, customer experience, or unique
features.

Benefits
1. Enhanced Customer Loyalty
2. Premium Pricing

Risks
1. Narrow Market Size
2. Evolving Customer Preferences

Example

Tesla (with a focus on electric vehicles) has differentiated itself in the automotive industry by
offering high-performance electric vehicles with advanced technology, sustainability, and sleek
design. By targeting customers seeking environmentally friendly and cutting-edge transportation
solutions, Tesla has established a leadership position in the electric vehicle market.

Integrated Strategy

Also known as a hybrid strategy or integrated cost leadership/differentiation strategy, it

combines elements of both cost leadership and differentiation strategies. Companies
implementing this strategy simultaneously deliver superior value to customers through unique
and differentiated offerings while maintaining cost efficiency and operational effectiveness.

Benefits
1. Flexibility and Adaptability
2. Increased Customer Satisfaction

Risks
1. Complexity
2. Trade-offs

Example

Toyota has adopted an integrated strategy by offering a range of high-quality vehicles with
advanced technology, reliability, and innovative features, while also focusing on cost efficiency
in its manufacturing processes.

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How to Choose and Implement the Right Business-Level Strategy

Choosing the right business-level strategy is crucial for a company's success. Here is how to do
it.
1. Conduct Market Analysis

Assess the competitive landscape, customer needs, and market trends to identify potential
opportunities.
2. Evaluate Internal Capabilities

Examine the company's internal resources, capabilities, and core competencies to

determine its strengths and areas where it can excel.

3. Define Company Goals

Clearly define the company's objectives, both short-term and long-term, to guide the
strategy selection process.

4. Assess Risk Tolerance and Financial Constraints

Evaluate the company's risk appetite and financial limitations to understand the feasibility
of different strategies.

5. Analyze Strategy Options

Consider various business-level strategies, such as cost leadership, differentiation,

focused strategies, or an integrated approach. Assess the benefits, risks, and requirements
of each strategy.

6. Align Strategy with Strengths

Select a strategy that leverages the company's strengths and resources, enabling it to
create a competitive advantage in the market.

7. Consider Customer Alignment

Evaluate how well the chosen strategy aligns with the needs, preferences, and
expectations of the target customer segment.

8. Analyse Long-Term Sustainability

 Assess the potential for the long-term sustainability of the chosen strategy, considering
factors such as market dynamics, changing customer preferences, and technological
advancements.

9. Regularly Review Strategy

Continuously review and adapt the strategy to ensure it remains relevant and effective in
response to evolving market conditions.

10. Execute and Monitor

Develop a detailed plan for implementing the chosen strategy, and closely monitor its
progress and impact on key performance indicators.

What is Diversification Strategy?

Diversification is defined as “the entry of a firm or a business, either by processes of internal

business development or acquisition, which entails changes in administrative structure, systems
and other management processes. As the saying goes, “Don’t put all your eggs in one basket”, a
company is diversified when it is in two or more lines of business. Diversification is a strategy
for company growth through starting by new business outside the current markets. This strategy
could be understood through the lens of Ansoff Matrix proposed by Igor Ansoff in 1957. This
matrix classifies and explains different growth strategies for a company and is a strategic
planning tool to devise the growth strategy. According to this matrix, there are four growth
alternatives which are based on two dimensions i.e. markets and products. Each of these are
taken at two levels i.e. new and existing. The figure below describes the Ansoff Matrix. There
are four options as proposed

• Market Penetration – When the company uses existing products to penetrate deep into existing
markets. The firm can achieve this by improving quality, marketing and productivity. The firm
can also consider collaborating with distributors and network partners to penetrate into the
market. For example, when McDonalds introduced the Happy Meal option for its customers.
• Market Development – When the company using existing products to enter into new markets,
it is called as the market development strategy. The company can go into new sales areas,
segments or find out new uses. The firm can also consider exporting, buying competitors or
engage into licensing. For example when McDonalds entered India and simultaneously started
entering various states and cities of India

• Product Development – When the firm develops new products for the existing markets, this
strategy is known as product development. The company invests in R&D, modifications or
extensions or could even go in for buy in products. For example, when McDonalds introduced
McPizza or Royal Paneer exclusively for the Indian market.

• Diversification – When the firm develops new products for new markets, this strategy is known
as diversification. There is a need to switch internal focus and the company creates new business
units, buy subsidiaries, get engaged in technology share or build consortiums. For example,
McDonalds started its coffee-house-style food and beverage chain under the brand name McCafe
The focus of this module will be on this strategy of expansion and growth.

Corporate Strategists often ask this question – “What is the appropriate scale and scope of a
firm?” The answer to this question influences how large and how diversified the firms will be.
Firms look forward to leverage their existing capabilities or competencies and therefore intends
to diversify.

Advantages and Disadvantages of Diversification

There are various advantages and motivation to use the diversification strategy. Most companies
use diversification strategies in order to capitalize on synergies. Some of them are as follows

• Risk Reduction

• To move out of unattractive and undesirable industries

• To ensure stability of cash flows

• To use surplus cash

• To avoid hostile takeovers

 • To build shareholder value

• To create synergies among the business of firms

• Exploit better and additional opportunities

• Efficient capital allocation

• Builds corporate brand equity

• Facilitates cross selling and gives access to more markets.

• Increased flexibility

• Increased profitability

• Ability to grow quickly

• Better access to capital markets

• Diversification of Risk

While diversifying the major objective of firms is to look for synergistic effects. These synergies
are obtained by exploiting economies of scale, economies of scope and efficient allocation of
capital. Though the lists of benefits are enormous, this strategy has also some limitations and
disadvantages. These are

• Shareholders have no say in capital allocation process.

• It is easier to hide poorly performing business.

• Risk of inferior investment in new businesses

• Overextension of company’s resources

• Lack of expertise in running the diversified business as different business require

different skill sets
 • May result in reduced innovation because of increased bureaucratic procedures and
ability to quickly respond to market changes

• As the firm diversifies there is a risk of decreased commitment on the core business.

• Increases the overall administrative costs and often result in losses.

• There are limits to diversification as the firm should ensure that the extent of
diversification must be balanced with its bureaucratic costs.

• As the scope of diversification widens, control and bureaucratic costs increases there is
difficulty in coordination among various businesses.

• As the scope of diversification widens, information overload can lead to poor resource
allocation decisions and create inefficiencies

Types of Diversification Strategy

Though there are various ways in which the diversification strategy can be looked upon, but at
the initial level, we classify this at two levels. These include

Related Diversification - This strategy is based on transferring and leveraging competencies,

sharing resources, and bundling products. The value chain possesses competitively valuable
cross business strategic fits. In this case, a firm enters into a new business activity in a different
industry that has common features with the existing value chain of the business. In other words,
the new business is related to the company’s existing business activities. This strategy of growth
and expansion is based on transferring and leveraging competencies. There has to be a strategic
fit between the existing business and the new business that the firm intends to diversify. For
example when a newspaper company like Times of India intends to venture into TV Channel like
Times Now. Another example can be when PepsiCo entered into snack business by introducing
snack brand like Fritos, Lays etc. In this case, the firm can leverage its skills, competencies,
brand name, marketing skills and knowledge, sales and distribution capacity, R&D, new product
capabilities etc to develop the new business it has diversified into. This form of diversification is
also viewed as synergistic diversification as it involves harnessing product and market
knowledge.
Unrelated Diversification – This strategy is based on using the general organizational
competencies to increase profitability of each business unit. The new business wherein the firm
intends to diversify has no connection with the existing value chain of the company. Infact the
value chains are so dissimilar that no competitively valuable cross-business relationship exists.
This strategy involves diversifying into business that has no strategic fit, no meaningful value
chain relationships and no unifying strategic theme. The firms which pursue unrelated
diversifications are generally known as conglomerates. Firms can build shareholder value
through unrelated diversification through astute corporate parenting by management, cross
business allocation of financial resources; and acquiring and restructuring undervalued
companies. The basic approach is to diversify into any industry where potential exists and
through diversification the firm can realize higher profits. For example Samsung operates in
electronic, shipbuilding, insurance etc. Similarly Tata Group is in multiple business like airlines,
telecom, steel etc.

TYPES OF DIVERSIFICATION

There are four major types of diversification knows as:

Vertical Diversification

Vertical diversification is the extension of current business activities. Such extension is of two
types known as

a) Backward diversification:- It is a diversification where company moves one step

back from the current line of business for example cupboard manufacturing unit
enter into it’s a raw material supply unit (Color and Hardware).

b) Forward diversification: - In this case company enters into the activity which is
extension of its current business for example cloth manufacturer enter into
garment manufacturing.
Horizontal Diversificationn

In this case company enters into a new business which is very closely related with existing line
of business and it is with the help of the same technology and the market. For example gent’s garments
manufacture enter into ladies garments manufacturing.

Concentric Diversification

In this new business is linked to the existing business which is indirectly related. For example a
car seller may start finance company to increase his sale.

Conglomerate Diversification

In this type of diversification, the attempt is made to diversify the present market or product in a
totally new product of market. There is a no linkage between old and a new business. For
example Transport operator entered into furniture manufacturing.

Joint Venture Strategy

Joint venture could be considered as an entity resulting from a long term contractual agreement
between two or more parties, undertaken for mutual benefits. It is a type of partnership and when
both parties establishing new units that time they are exercising supervising and control over the
new business. Joint venture also involves the sharing of ownership. Now a days joint ventures
are very popular as there is sharing of development cost, risk spread out and expertise combined
to make effective use of resources. It is best way to enter into foreign collaboration. Generally
Indian firms are entering into foreign collaboration with the help of joint ventures. Following are
the advantages of joint venture:
a) Huge capital
b) Better use of resources
c) Goodwill and reputation.
d) Risk sharing.
 e) Economies of scale
f) Expansion and diversification.
g) Helps to face competitions
h) Customer satisfaction.
i) Motivate employees

CORPORATE RESTRUCTURING

Corporate restructuring is the process of redesigning one or more aspects of a company. The
process of reorganizing a company may be implemented due to a number of different factors,
such as positioning the company to be more competitive, survive a currently adverse economic
climate, or poise the corporation to move in an entirely new direction
.
Need for Corporate Restructuring

Corporate Restructuring is concerned with arranging the business activities of the corporate as a
whole so as to achieve certain predetermined objectives at corporate level. Such objectives
include the following:

1. Growth and Expansion: Corporate restructuring helps a firm to grow and expand. For
instance, merger may enable a company to grow faster as compared to firms that undertake
internal expansion.

2. Competitive Advantage: Corporate restructuring may enable an organization to gain

competitive advantage in the market. For instance takeover or merger may enable a firm
to gain economies of large scale production and distribution. Therefore, a firm would be in a
better position to produce quality goods and at lower prices.

3. Corporate image: Corporate restructuring may be undertaken to improve the image of the
firm to improve its performance. Improved performance enables a firm to improve its image.
 4. Concentration on core business: Corporate restructuring may be undertaken to enable a
firm to focus on core business. In some cases, a firm may find it difficult to manage growing
business, and therefore, it may divest non core business to concentrate on core business.

5. Debt servicing problem: Some firms may face the problem of debt burden. They may find
it difficult to service the debt .i.e., repayment of loan installment and interest. Some firms
may divest a part of the business so as to generate funds for the purpose of repayment of
debt.

6. Market Share: Corporate restructuring may be undertaken to increase market share.

For instance, firms may adopt the strategy of merger or takeover in order to increase the
market share. The merger or takeover may enable the firm to take the advantage of goodwill
of enjoyed by the merged firms or takeover firm.

7. Mismatch Problem: Restructuring may be undertaken to overcome the problem of

mismatch of business. At times, a business firm may take over another business or entered
into a new line of business which may not match with the current line of business.

8. Obsolete Products: At times, a firm may withdraw obsolete products from the market.
After withdrawing obsolete products the firm can utilize its resources on existing brands.

Types of Corporate Restructuring

The most commonly applied tools of corporate restructuring are amalgamation, merger,
demerger, acquisition, joint venture, disinvestments etc. Corporate restructuring refers to
reorganizing a business firm. It may include a major reorganizing such as in the case of mergers,
or a minor restructuring such as downsizing of workforce. The main purpose or corporate
restructuring is to make best use of resources in order to generate higher return on investment.
FORMS OF CORPORATE RESTRUCTURING

Corporate restructuring refers to reorganizing a business firm. It is done in order to make best
use of resources and to generate maximum return on investment.

A. MERGERS AND TAKEOVERS

1. Mergers: They can be defined as the fusion or absorption of one company by another. In a
case of Company A and Company B, a merger can take place by Company A and
Company B merges into a third entity to be called as Company A Band Company A
and B ceases to be legal entity, OR Company A transfers its business and undertakings
including assets and liabilities into Company B and Company A ceases to be in existence.

A merger refers to a combination of two or more companies into one company. It may involve
absorption or consolidation. In absorption one company acquires another company, and in
consolidation two or more companies join to form a new company.

Mergers may be broadly classified as follows:

Concentric within same industries and taking place at the same level of economic activity -
exploration, production or manufacturing wholesale distribution or retail distribution to the
ultimate consumer.
• Horizontal merger: A firms engaged in same line of business
• Vertical merger: A firms engaged in different stages of production in an industry.
• Conglomerate : Merger of firms engaged in unrelated lines ofbusiness or between
unrelated businesses.
Reason for mergers
a. To undertake diversification this follows the need of a narrowly based business
to reduce the risks by broadening its activities. To reduce the risks effectively,
the acquired firm must not be subject to the same risk promoting factors as a
parent firms even though its may operate in a different fields.
b. To secure scare sources of supply, where any of the resources which the
business needs are in short supply or subject to other difficulties, one solution
for it is to acquire its own sources. By mergering the different resources
available with two or more units can be pooled together.
c. To secure economies of scale Increase in volume of often leads to decreasein
operating costs, thereby enabling a larger capacity bank to survive. Mergeris
considered when the bank has low profitability and through merger bankcan
secure economies of scale.
d. To have better management Where the business suffer from poor management
and it does not appear possible to rectify this in the near future, the problem
may be resolved by merging with good management team.
e. To improve the financial standing When two firms join together, the strengths
of both of them are added together and the market may put a higher valuation
on such combination than on the constituent parts.
f. To achieve a monopoly position The elimination of competition by absorption
gives a firm a greater control over a market. The competition in the market can
be reduced with the merger of firms engaged in the similar market.
g. Revival of Sick units Merger can bring out a revival of sick units. The sick
units can merged with strong companies, and therefore, the problem of
industrial sickness can be avoided in case of certain units.

2. Amalgamation

It is an arrangement‘ or reconstruction‘. Amalgamation is a legal process by which two

or more companies are joined together to form a new entity or one or more companies are
to be absorbed or blended with another and as a consequence the amalgamating company
loses its existence and its shareholders become the shareholders of new company or the
amalgamated company. To give a simple example of amalgamation, we may say A Ltd.
and B Ltd. form C Ltd. and merge their legal identities into C Ltd. It may be said in
another way that A Ltd. + B Ltd. = C. Ltd. 3. Take over: It is generally involves in the
acquisition of a block of equity capital of a company which enables the acquirer to take
control of the affairs of the taken over firm. In the theory, the acquirer must buy more
 than 50% of the paid up capital of the acquired company to take over the control of the
affairs of the acquired firm, but in practice in most of the cases, even between 20% to
40%is sufficient enough to exercise control, as the remaining shareholders are scattered
and unorganized, and therefore, are not likely to challenge the control of the acquirer.
Takeover is a corporate device whereby one company acquires control over another
company, usually by purchasing all or a majority of its shares.

Takeovers may be classified as friendly takeover, hostile takeover and bailout takeover.
Takeover bids may be
• Mandatory - This type of bid has arisen due to regulatory requirement.
• Partial - Partial bid covers a bid made for acquiring part of the shares of a class of
capital where the offer or intends to obtain effective control of the offered through
voting power.
• Competitive bids - This type of a bid envisages the issue of a competitive bid so
that when a bid is announced by a prospective acquirer, if any other person finds
interest in acquiring the shares, such acquirer should offer a competitive bid.
Reasons for takeover - The most obvious reasons for takeover are :
• Quick growth
• Diversification
• Establishing oneself as industrialist
• Reducing competition
• Increasing the market share or even creating goodwill

Corporate Venturing

Corporate venturing – also known as corporate venture capital – is the practice of directly
investing corporate funds into external startup companies. This is usually done by large
companies who wish to invest small, but innovative, startup firms. They do so through joint
venture agreements and the acquisition of equity stakes. The investing company may also
provide the startup with management and marketing expertise, strategic direction, and/or a line
of credit.
As a subset of Venture Capital, Corporate Venture Capital (CVC) was started due to the vast
emergence of startup companies in the technology field. The main goal of CVC is to gain a
competitive advantage and/or access to new, innovative companies that may become potential
competitors in the future.

CVC does not use third-party investment firms and does not own the startup companies it is
investing in – as compared to pure Venture Capital investments.

Some of the biggest Corporate Venture Capital players are:

• Google Ventures -> https://www.gv.com/

• Qualcomm Ventures
• Salesforce
• Intel Capital

There are other industries where CVCs are popular as well, such as biotechnology and
telecommunication companies. Currently, CVC has a fast-growing market influence, boasting
over 475 new funds and 1,100 veteran funds.

Objectives of Corporate Venture Capital

Unlike Venture Capital, Corporate Venture Capital strives to achieve goals both strategically and
financially. A strategically driven CVC primarily aims to directly or indirectly increase the sales
and profits of the venturing company by making deals with startups that use new technologies,
entering new markets, identifying acquisition targets, and accessing new resources, while
financially driven CVCs invest in new companies for leverage.

This is often achieved through investment exits, such as initial public offerings or the sale of a
company’s stakes to interested parties. Both strategic and financial objectives are often combined
to bring higher financial returns to investors.
What Stages of a Startup do CVC Firms Specialize In?

Corporate Venturing Corporations may invest in startup companies in the following stages of a
company’s growth and development:

#1 Early-Stage Financing

Startup companies that are able to begin operations, yet are not at the stage of commercial
production and sales. At this stage, a startup consumes a large amount of cash for product
development and initial marketing.

#2 Seed Capital Funding

Initial capital or money used to cover initial operating expenses and to attract venture capitalists.
The amount of funding is usually small at first and is exchanged for an equity stake in the
business. Investors view this seed capital as risky, which is why some want to wait until the
business has been established before infusing large capital investments.

#3 Expansion Financing

Capital provided to companies that are expanding through launching new products, physical
plant expansion, product improvement, or marketing.

#4 Initial Public Offering

This is the ideal stage that most CVCs are trying to reach in the long run. When the startup
company’s stocks become available to the public, the investing company will sell their
investments to earn significant returns. Earnings will then be reinvested in new ventures where
future returns are expected.

#5 Mergers and Acquisitions

This involves financing a startup company’s acquisitions through an investment fund, as well as
aligning the startup with a complimentary product or business line that will project a similar
brand for both companies. When an interested firm decides to buy the startup, the investing
company will take the chance to cash in by selling their stakes. Mergers also benefit the
investing company by sharing resources, processes, and technologies with the startup company.
This will bring some advantages, such as cost savings, liquidity, and market positioning.

STRATEGIC EVALUATION

CRITERIA FOR EVALUATING STRATEGIC ALTERNATIVES

There are a number of different criteria for evaluating strategic alternatives. It would be very
difficult to use all these criteria to get a satisfactory result simultaneously. However, to make the
evaluation practically possible, all the criteria can be classified into three groups, viz., criteria of
suitability, criteria of feasibility and criteria of acceptability.

(i) Criteria of Suitability: These criteria attempt to measure the extent to which the proposed
strategies fit the situation identified in the strategic analysis. The situation should indicate the list
of the important opportunities and the threats that the firm faces and the particular strengths and
weaknesses of the firm. The evaluation should measure the suitability of the strategy to the
situation. The evaluation of suitability is also called the criteria of consistency. The strategy to be
selected should meet the following criteria:

• To what extent, the strategy can overcome the difficulties identified in the
strategic analysis? For example, can the strategy increase the market share of the
company?
• To what extent the strategy can exploit the environmental opportunities by using
the company’s strengths? For example, can the strategy provide the status of
leader in introducing the new product, under the stable market conditions?
• Does the strategy fit in with the company’s objectives and values? For example,
would the strategy fit in the recently signed agreement with the members of the
Chamber of Commerce and Industry in the country?

(ii) Criteria of Feasibility: These criteria, assess the practical implementation and working of
the strategy. For example, will the strategy of price-cut result in hike in profits under the
competitive environment? The following questions need to be assessed at the evaluation stage:
 • Can the company provide enough financial resources to implement the strategy?
This can be examined by analysing future cash flows, company’s commitments,
ability and willingness of the management to budget the funds.
• Is the company capable of performing to the required level?
• Can the necessary market position be achieved? Will the necessary marketing
skills be available?
• Can competitive reactions be coped with?
• How will the company ensure that the required managerial and operative skills be
available?
• Will the technology be available to compete effectively?
• Can the necessary materials and services be procured?

(iii) Criteria of Acceptability: The third measurement is acceptability of the strategy. The firm
should assess the strategy to decide whether the consequences of proceeding with a strategy are
acceptable. The strategy should be acceptable to the strategy decision maker in the company.
Therefore, acceptability involves not only the consequences of the strategy, but also the personal
considerations like values of the strategy decision maker. The following factors will help to
identify the likely consequences of the strategy after its implementation:

• What will be the financial performance of the firm in terms of profitability?

• How will the financial problems (like liquidity) be solved?
• What will be the effect on capital structure?
• Will any proposed changes be acceptable to the general cultural expectations
within the organisation?
• Will the function of any department, group or individual change significantly?
• Will the company’s relationship with outside stakeholders (like suppliers,
bankers, customers) need to change?
• Will the strategy be acceptable to the company’s environment (like local
community)?
• Will the proposed strategy fit existing systems or will it require major changes?
A STRATEGYANALYSIS FRAMEWORK

According to Fred D. David, significant strategy analysis techniques can be integrated into three-
stage decision-making framework, The first stage of analytical frame work consists of the
Internal Factor Evaluation (IFE) Matrix, the External Factor Evaluation (EFE) Matrix and
Competitive Profile Matrix. These three techniques summarise the basic input information
needed to generate feasible alternative strategies. Hence, this step is called input stage. The
second stage of analytical framework consists of Threats-OpportunitiesWeaknesses-Strengths
(TOWS) Matrix, Strategic Position and Action Evaluation (SPACE) Matrix, Boston Consulting
Group (BCG) Matrix, General Electric (Nine-Cell Matrix), Directional Policy Matrix, Hofer’s
Life Cycle Matrix, Internal-External (IE) Matrix and Grand Strategy Matrix. This stage of
analytical framework focuses on generating feasible alternative strategies. Key internal and
external factors are matched in this stage. Hence, it is called ‘matching stage.’ The third stage of
the analytical framework is the decision stage. This stage helps to select specific strategies.

STRATEGIC CONTROL

Strategic control focuses on monitoring and evaluating the strategic management process to
ensure that it functions in the right direction. The strategic control aims at achieving the results
planned at the time of strategy formulation. Strategic control is a special type of organisational
control.

PURPOSES OF STRATEGIC CONTROL

The basic purpose of strategic control is to help top management to achieve strategic goals as
planned. To be specific, the purposes of strategic control are to answer the questions such as: Are
our internal strengths still holding good? Have we added other internal strengths?

PROCESS OF STRATEGIC CONTROL

The strategic control process consists of six steps. Top management, initially must decide what
elements of the environment and the organisation need to be monitored, evaluated and
controlled. The three key areas to be monitored and controlled are: the macroenvironment, the
industry environment and internal operations.
 • Step 1: Key Areas to be Monitored

Macro-environment: As stated earlier, one of the key areas to be monitored is the

macro- environment of the company. This area should be focussed first. Normally, individual
companies cannot influence the environment significantly. But, the external environmental
forces must be continuously monitored as the changes in the environment influence the strategic
implementation process of the company. As discussed in the earlier chapters, continuous
strategic fit between the company and its external environment is necessary. Therefore, strategic
control is essential.

Strategic Monitoring and Control Includes: Modifying any one or more of the areas
like company’s mission, objectives, goals, strategy formulation and strategy implementation. The
modification depends upon the nature and degree of changes and shifts in the environment.

Industry Environment: The strategist also monitors and control the industry related
environment. The environmental forces may not be as they were planned. The changes in the
environment may provide new opportunities or pose new threats. The strategy, therefore, should
be modified accordingly. Thus, the purpose is to modify the company’s strategy, goals and
operations in order to capitalise the new opportunities and defend against the new threats
effectively. The industry environment of the future should be considered by the top management
for the purpose of strategic evaluation and control.

Internal Operations: The strategist has to evaluate the internal operations continuously
in view of the changes in the macro-environment and industry environment. The strategist has to
introduce changes in internal operations when the changes in the environment affect the strategy.

• Step 2: Establishing Standards

Evaluating an organisational performance is normally based on certain standards. These

standards may be the previous year’s achievements or the competitor’s records or the fresh
standards established by the management. Qualitative judgements like the qualitative features of
the product or service in the last year may be used. Quantitative measures like return or
investment, return on sales may also be used for judging the performance. Companies should
establish the standards for evaluating the performance of the strategies taking several factors into
consideration.

The standards may include:

o Quality of Products/Services.
o Quantity of Products to be Produced.
o Quality of Management.
o Innovativeness/Creativity.
o Long term investment value.
o Volume of sales and/or market share.
o Financial soundness in terms of return on investment, return on equity capital,
market price of the share, earnings per share, etc.
o Community and environmental responsibility in terms of amount spent on
community development, variety of facilities provided to the community,
programmes undertaken for the environmental protection and ecological balance,
etc.
o Production targets, rate of capacity utilisation, design of new products, new uses
of existing products, rate of customer complaints about the product quality,
suitability of ingredients, etc.
o Soundness of human resource management in terms of number of employee
grievances, employee satisfaction rate, employee turnover rate, industrial relations
situation, etc.
o Ability to attract, develop and retain competent and skilled people.
o Use of company’s assets.
o Production targets, rate of capacity utilisation, design of new products, new uses
of existing products, rate of customer complaints about the product quality,
suitability of ingredients, etc.
o Corporate image among the customers and general public.
• Step 3: Measuring Performance
The strategist has to measure the performance of various areas of the organisation before taking
an action. Strategic audits and strategic audit measurement methods are useful to measure the
organisational performance.

Strategic Audit

A strategic audit is an execution and evaluation of organisation’s operations affected by the

strategy implementation. Strategic audit may be very comprehensive, emphasising all facets of a
strategic management process. It may also be narrowly focused, emphasising only on a single
part of the process such as environmental process. Strategic audit may be quite formal adhering
to organisational rules and procedures. It may be quite informal providing freedom and
autonomy to the managers to take decisions. The strategic audit must work to integrate related
functions. Hence, the strategic audits are carried out by cross-functional teams of managers.

Strategic Audit Measurement Methods

Generally accepted methods may be used to measure organisational performance. These methods
can be broadly divided into two categories, viz., (i) Qualitative Methods and (ii) Quantitative
Methods.

(I) Qualitative Methods

Qualitative measurements are in the form of non-numerical data that are subjectively
summarised. These measurements are organised and provided to the strategists for
decisionmaking and strategy control action. Critical questions are designed to reflect important
facets of organisational operations. Answers to these questions form as the basis for
measurements. There are no universally acceptable list of questions by all companies.

Is organisational strategy appropriate, given organisational resources? Strategy

implementation invariably requires the allocation of sufficient resources. Therefore, the strategist
should enquire, whether the existing organisational resources are sufficient to carry out a
proposed strategy? The strategist should not implement the strategy, without the allocation of
sufficient money, material, machines/technology and human resources.
 Is the time horizon of the strategy appropriate? Organisational strategies are formulated
to achieve specific goals within a time framework. The strategist should require whether the time
framework, under the existing circumstances is realistic and acceptable? Organisational goals
cannot be achieved satisfactorily, if there is inconsistency between these two variables:

Qualitative measurement methods are efficient and are useful. But applying them relies mostly
on human judgement. Conclusion based on such methods should be drawn carefully due to the
subjectivity of the judgement.

(II) Quantitative Method

Under quantitative organisational measurements of the performance of strategy implementation

is taken place in the form of numerical data. The numerical data can be summarised and
organised to draw conclusions and to recommend strategic action. Quantitative measurements
can be used to evaluate:

(i) Number of units produced per time period,

(ii) Cost of production, cost of marketing,
(iii) Productivity and production efficiency levels,
(iv) Employee turnover, absenteeism levels,
(v) Sales and sales growth market shares,
(vi) Profit-gross, net, earning per share, dividend rate, return on equity, market price of
the share,
(vii) Cost of production,
(viii) Cost of marketing, etc.

Organisations design and use their own methods to evaluate the performance quantitatively.

Step 4: Compare Performance with Standards

Once the performance of the different aspects of the organisation is measured, it should be
compared with the predetermined standards. Standards are set to achieve the already formulated
organisational goals and strategies. Organisational standards are yardsticks and benchmarks that
place organisational performance in perspective. The strategists should set standards for all
performance areas of the organisation based on the organisational goals and strategies. Normally,
the standards vary from one company to the other company. Further, they also vary from time to
time in the same company. The standards developed by General Electric can be used as model
standards. These standards include.

1. Profitability Standards: These standards include how much gross profit, net profit,
return on investment, earning per share, percentage of profit to sales the company
should earn in a given time period.
2. Market Position Standards: These standards include total sales, sales-regionwise and
product-wise, market share, marketing costs, customer service, customer satisfaction,
price, customer loyalty shifts from other organisations’ products etc.
3. Productivity Standards: These standards indicate the performance of the organisation
in terms of conversion of inputs into outputs. These standards include capital
productivity, labour productivity, material productivity, etc.
4. Product Leadership Standards: These standards include the innovations and
modifications in products to increase the new uses of the existing product, developing
new products with new uses, etc.

Step 5: Take No Action if Performance is in Harmony with Standards

If the performance of various organisational areas match with the standards, the strategist need
not take any action. He should just allow the process to continue. However, he can try to improve
the performance above the standards, if it would be possible, without having any negative impact
on the existing process.

Step 6: Take Corrective Action, if necessary

Strategist should take necessary corrective action, if performance is not in harmony with
standards. The strategists compare the performance with standards. If they find any deviation
between the standards and performance, they should take corrective action to bridge the gap
between the standards and performance.

• Causes of Deviations: It is very easy to conclude that someone made a mistake, when
deviations are identified. But, the deviation may be the result of an unexpected move by a
 competitor, a typical whether patterns or changes in external environment. Therefore, the
strategist should consider the following before making a decision, in this regard:
o Was the cause of deviation internal or external?
o Was the cause random, or should it have been anticipated?
o Is the change temporary or permanent?
o Are the present strategies still appropriate?
o Does the organisation have the capacity to respond to the change needed?

• Corrective Action: Corrective action may be defined as change in a company’s operations

to ensure that it can more effectively and efficiently reach its goals and perform up to its
established standards.

Strategies that do not achieve standards produce three possible responses, viz., (i) to revise
strategies, (ii) to change standards, and (iii) to take corrective action in the existing process
without changing standards and strategies. Strategy change may require a ‘fine tuning’ of the
existing strategy or complete changes in strategies. If it is realised that the existing standards are
unrealistic under the present conditions, the strategist should reset the standards taking the
existing conditions into consideration.

Corrective action may be as simple as increase in the price or may be as complex as change the
chief executive officer. Deviations require re-examination of the company’s mission, objectives,
relationship to its environment, internal strengths, weaknesses and strategies.