Growth through mergers and diversification represents a very good alternative to be taken into account in business planning. The external growth contributes to opportunities for effective alignment to the firm’s changing environments. The primary reason for acquiring or merging with another business is to produce improved cash flow or to reduce the risk faster or at a lower cost than achieving the same goal internally. Thus, the goal of any acquisition is to create a strategic advantage by paying a price for the target that is lower than the total resources required for internal development of a similar strategic position. Another reason is the expectation on the part of the diversifying or acquiring firm that it has or will have excess capacity of general managerial capabilities in relation to its existing product market activities. Moreover, there is an expectation that in the process of interacting with the generic management activities, Continue reading
Corporate Strategies
Business Level Strategies – Cases of Wal-Mart, Apple, Zara and Ikea
Business Level Strategy is concerned more with how a business competes successfully in a particular market. It relates to strategic decisions about the choice of products, identifying and fulfilling the needs of customers, building competitive advantages over competitors, exploiting or creating new opportunities etc. Business level strategies are essentially positioning strategies whereby businesses tend to secure for themselves an identity and position in the market. The aim here is to increase the business value for the corporate and stakeholders by increasing the brand awareness and value perceived by the customers. They can either focus on pricing or product differentiation to increase the perceived customer value. Customers are the foundation of successful business-level strategy – Who will be served by the strategy? What needs shall the strategy satisfy? How will the strategy satisfy those needs? The low cost strategy emphasizes having the lowest costs, not necessarily the lowest price, in a Continue reading
Case Study: IBM’s Turnaround Under Lou Gerstner
“Who Says Elephants Can’t Dance” describes how Louis Gerstner lead the organizational turnaround at IBM when it was at the verge of extinction. Louis Gerstner was the chairman and CEO of IBM from April 1993 to March 2002. Before joining IBM, he had worked on various consulting assignments at McKinsey and led successful organizational changes at American Express and RJR Nabisco. During the early nineties, IBM was rapidly losing its market share in most of the markets it catered to its competitors. The management was planning to break the organization into individual businesses. Soon after his appointment as CEO, Gerstner identified that the unique competitive advantage of IBM was due to its scale and broad-based capabilities, and therefore advocated that “keeping the company together” will help IBM to utilize this unique advantage by positioning itself as software integrator. Gerstner was instrumental in shifting the mental model of employees from self-centric Continue reading
Types of Merger
An extensive appraisal of each merger scheme is done to patternise the causes of mergers. These hypothesized causes (motives) as defined in the mergers schemes and explanatory statement framed by the companies at the time of mergers can be conveniently categorized based on the type of merger. The possible causes of different type of merger schemes are as follows: Horizontal merger: These involve mergers of two business companies operating and competing in the same kind of activity. They seek to consolidate operations of both companies. These are generally undertaken to: Achieve optimum size Improve profitability Carve out greater market share Reduce its administrative and overhead costs. Vertical merger: These are mergers between firms in different stages of industrial production in which a buyer and seller relationship exists. Vertical merger are an integration undertaken either forward to come close to customers or backwards to come close to raw materials suppliers. These Continue reading
Important Elements of Merger Procedure – Scheme and Valuation
Scheme of Merger The scheme of any arrangement or proposal for a merger is the heart of the process and has to be drafted with care. There is no specific form prescribed for the scheme. It is designed to suit the terms and conditions relevant to the proposal but it should generally contain the following information as per the requirements of sec. 394 of the companies Act, 1956: Particulars about transferor and transferee companies Appointed date of merger Terms of transfer of assets and liabilities from transferor company to transferee company Effective date when scheme will came into effect Treatment of specified properties or rights of transferor company Terms and conditions of carrying business by transferor company between appointed date and effective date Share capital of Transferor Company and Transferee Company specifying authorized, issued, subscribed and paid up capital. Proposed share exchange ratio, any condition attached thereto and the fractional Continue reading
Strategic Business Decisions on Research and Development (R&D)
Industrial research can have one of two fundamental orientations. First orientation is the scientific research, which is concerned with generating new concepts that may or may not have product applications. The second orientation is the commercial development – which can take several forms, but is essentially product, as opposed to concept, oriented. Thus commercial development is a more pragmatic and market-centered form of R&D effort than scientific research. Research and Development strategy has four primary elements: R&D goals, extent of integration of the R&D function, amount of market coupling desired, and size of the budget. 1. Research and Development Goals Goals are needed to specify the purpose of R&D is used as part of product or market development or market-penetration business-level strategies, the firm’s desired competitive position can largely determine the amount and type of R&D needed. More specifically R&D can have one of four basic purposes that normally would Continue reading