Normally multibusiness companies comprise two elements: business units, which could theoretically be independent companies, relating directly to the capital markets; and one or more layers of other line and staff managers above or outside the businesses, which we refer to collectively as “the parent”. The businesses are directly involved in value creation: they produce goods and services and attempt to sell them for more than their cost. But the parent is involved much less directly. Its ability to create value depends largely on its influence on the businesses and the way it supports them. The parent acts as an intermediary between the businesses and outside investors. It clearly incurs costs, both direct and indirect. It is therefore justified only if, through its influence, it creates more value than these costs. If it does not, businesses and shareholders would be better off without it. This bottom-up view challenges the very existence Continue reading
Strategic Management
Strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives. It involves the systematic identification of specifying the firm’s objectives, nurturing policies and strategies to achieve these objectives, and acquiring and making available these resources to implement the policies and strategies to achieve the firm’s objectives. Strategic management, therefore, integrates the activities of the various functional sectors of a business, such as marketing, sales, production etc. , to achieve organizational goals. It is generally the highest level of managerial activity, usually initiate by the board of directors and executed by the firm’s Chief Executive Officer (CEO) and executive team.
Difference Between Business Strategy and Corporate Strategy
Business Level Strategy Business level strategy concentrates on developing a firm specific model that will allow the firm to gain competitive advantage over its rivals in the industry such as in which it operates. Business strategy would focus on improving its competitive position of a company’s or business unit’s products within the specific industry or market segment that the company and/ or its business units serve. The question explored in business level strategy is: How a company can best be competed in the industry that they are in? For an example Honda motors, Japan has a domestic market for its products and also it operates internationally. Thus business strategy should be crafted focusing on the ways of how it out beat the domestic competitors who operates both in the domestic market and as well as the in the international market like Mazda, Mitsubishi, Suzuki, Toyota and Nissan and competitors in Continue reading
Business Valuation
Business valuation is the process of assessing the worth of the enterprise which is subject to merger or takeover so that the consideration amount can be quantified and price of one enterprise for the other can be fixed. Such valuation helps in determining the value of shares of the acquired and acquiring company to safeguard the interest of the shareholders of both the companies. The share of any member in a company is a movable property and can be transferred in the manner provided in the articles. A share represents a bundle of rights like right to elect directors, to vote on resolutions of the company, share in the surplus, if any, on liquidation etc. Valuation of shares in an amalgamation or takeover is made on a consideration of a number of relevant factors, such as stock exchange prices of the shares of the two companies, the dividends paid on Continue reading
What is Competitive Advantage? Definition and Meaning
The choice of industry affects firm performance but, within any given industry, some companies are more profitable than others. Why do some companies do better than their competitors? A firm that formulates and implements a strategy that leads to superior performance relative to other competitors in the same industry or the industry average has a competitive advantage. The greater the performance, the greater is its competitive advantage. A sustained competitive advantage occurs when a firm maintains above-average performance for a number of years. “When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage” (Porter, 1985) Strategy describes the goal-directed actions a firm intends to take in its quest to gain and sustain competitive advantage. The firm that possesses competitive advantage provides superior Continue reading
Porter’s Value Chain
The term ‘Value Chain’ was used by Michael Porter in his book “Competitive Advantage: Creating and Sustaining superior Performance” (1985). The value chain analysis describes the activities the organization performs and links them to the organizations competitive situation. Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value every particular activity adds to the organizations products or services. This idea was build upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will turn’s possible to manufacture something for which customers are willing to pay a price. Porter argues that the capability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage. Porter Continue reading
Reasons for Mergers
In general, a merger can be defined as the integration of an acquired company into the existing, acquiring company. In terms of finance, an acquiring company purchases the majority of shares from the acquired company, thus merging both assets into one expanding share. A merger tends to be a permanent arrangement and usually the company who acquires the shares retains its namesake. The International Competition Network identifies three major types of merger transactions: Share Acquisitions, Asset Acquisitions, and Joint Ventures. A share acquisition is defined by obtaining a controlling equity interest in the target such that it can exercise ‘decisive influence’ over the target’s business operations. On the other hand, an asset acquisition is defined as a “buyout strategy” in which valuable elements – rather than shares – of a financially unstable company are purchased. Furthermore, the acquiring company can choose which specific assets or liabilities it wants to purchase. Continue reading