Once a firm has an acquisition motive, there are two key questions that need to be answered. The first relates to how to best identify a potential target firm for an acquisition, given the motives. The second is the more concrete question of how to value a target firm. Choosing a Target Firm Once a firm has identified the reason for its acquisition program, it has to find the appropriate target firm. If the motive for acquisitions is under valuation, the target firm must be under valued. How such a firm will be identified depends upon the valuation approach and model used. With relative valuation, an under valued stock is one that trades at a multiple (of earnings, book value or sales) well below that of the rest of the industry, after controlling for significant differences on fundamentals. Thus, a bank with a price to book value ratio of 1.2 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.
Grand Strategy Matrix
The Grand Strategy Matrix has become a popular tool for formulating feasible strategies, along with the SWOT Analysis, SPACE Matrix, BCG Matrix, and IE Matrix. Grand strategy matrix is the instrument for creating alternative and different strategies for the organization. All companies and divisions can be positioned in one of the Grand Strategy Matrix’s four strategy quadrants. The Grand Strategy Matrix is based on two dimensions: competitive position and market growth. Data needed for positioning SBUs in the matrix is derived from the portfolio analysis. This matrix offers feasible strategies for a company to consider which are listed in sequential order of attractiveness in each quadrant of the matrix. Quadrant I (Strong Competitive Position and Rapid Market Growth) – Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position. The first quadrant refers to the firms or divisions with strong competitive base and operating Continue reading
The Concept of Strategist
Strategist is the person performing the activities associated with business strategy planning. There are various kinds of strategists in any kind of organization like board of directors, chief executive officer, entrepreneurs, senior management, SBU-level executives, corporate planning staff, consultants, middle level manager, and executive assistants. Each one plays a different role in an organization. The major responsibilities of a strategist are: First, he must assume the responsibility to develop a plan to complete the strategy activities, the plan must be initiated, dates set, deadlines established, and the process must be monitored to ensure that the deadlines are met. Second, basic assumptions about forecasts, economic indicators, technology, and general industry competitiveness must be agreed on and communicated to the functional areas. Procedures must be developed to assure uniformity in the development of the plan. Responsibility for undertaking fundamental studies and valuation of special matters necessary to strategic planning must be assumed. Continue reading
Prescriptive and Descriptive Schools of Strategy – Similarities and Differences
Strategy is a direction and scope of an organization over the long term, which achieves advantage in changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations. Having strategy in an organization is very important because it helps on how to meet the goals in consideration with the organization’s situation. An organization strategy answers all questions about fundamental business whether to concentrate in single business or build a group of several businesses, either to go for a broad range of customers or to concentrate on a market niche, either to focus on a wide or narrow product line, whether to base on competitive advantage with low cost or product differentiation. An organization has to know deeply everything concerned strategic management, strategic levels, and has to reach to the level of achievement of the strategic goals. Organizations also use strategy as the most important tool Continue reading
Strategy Formulation and Stakeholder Influence
Strategy is defined as the direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a changing environment and to fulfil stakeholder expectations. A strategic plan is therefore large scale future oriented activities that allow interaction with the competitive environment in order to achieve company objectives. It follows that strategic management is the process whereby a strategy is formulated, evaluated, and continuously improved. Strategic planning flows from the definition of an organization’s vision, mission and objectives and subsequent environmental scanning, to understand the organization’s strategic position with respect to the macro external environment, its industry, competitors, internal resources, competencies and expectations and influence of stakeholders. This initial process establishes a basis for strategic choice by means of a match of identified strengths to opportunities. The translation of strategic choice into action is then implemented across all levels of Continue reading
Types of Defensive Strategies
The defensive strategy is mainly to discourage the challenger firms to attack and is further divided into the pre-entry (protecting a firm by making it difficult for another firm to enter in the same industry – increase the entry barriers or it takes place before the market leader firm is attacked by the challenger firm) and the other one is the post-entry (making the life difficult for the competitor firm once it has entered the market). Pre-Entry Defensive Strategies Fortify and Defend: This mainly works by convincing the challenger firm that it is absolutely unprofitable to enter the market or it decreases the profit expectations of the about-to-enter firm. This is done by creating entry barriers like location, capital requirements, access to raw materials and distribution channels etc. The related firms as an example that can use this strategy would be — aerospace and automobiles. Covering all Bases: This mainly Continue reading