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
Strategic Management Concepts
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
Case Study: Sony’s Business Strategy and It’s Failure
Sony is the combination of two word sonus and sonny. The both words sonus and sonny is a latin word. The literal meaning of sonus is sound and, sonic and sonny is little son. Easy to pronounce and read in any language, the name Sony, which has a lively ring to it, fits comfortably with the spirit of freedom and open-mindedness. Since, Sony is the combination of two word “sonus” and “sonny”, represents a very small group of young people who have the energy and passion towards unlimited creations and innovative ideas. Sony foundation was started in 1946 when Masaru Ibuka and Akio Morita worked together with a small team of obsessive and committed group of employees build “Tokyo Tsushin Kenkyujo” (Totsuko), or “Tokyo Telecommunications Research Institute” (billion dollar global conglomerate). In 1958 the company was formally adopted “Sony Corporation” as its corporate name. The main objective of the company Continue reading
Meaning of Demerger
It has been defined as a split or division. As the same suggests, it denotes a situation opposite to that of merger. Demerger or spin-off, as called in US involves splitting up of conglomerate (multi-division) of company into separate companies. This occurs in cases where dissimilar business are carried on within the same company, thus becoming unwieldy and cyclical almost resulting in a loss situation. Corporate restructuring in such situation in the form of demerger becomes inevitable. Merger of SG chemical and Dyes Ltd. with Ambalal Sarabhai enterprises Ltd. (ASE) has made ASE big conglomerate which had become unwieldy and cyclic, so demerger of ASE was done. A part from core competencies being main reason for demerging companies according to their nature of business, in some cases, restructuring in the form of demerger was undertaken for splitting up the family owned large business empires into smaller companies. The historical demerger Continue reading
Value Chain Analysis – Porter’s Value Chain
The concept of Value Chain was propagated by Michael Porter in the 1980s in his book “Competitive Advantage: Creating and Sustaining Superior Performance” (Porter, 1985), as a tool of analyzing the firm’s internal environment and resource base. Value Chain Analysis is an analytical tool that describes all activities that make up the economic performance and capabilities of the firm, used to analyze and examine activities that create value for a given firm. A firm can be conceived of an aggregation of discrete activities and the competitive edge arises based on how a firm performs these activities better than its competitors. The cluster of these activities is called the value chain. According to Porter: “Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its product. Each of these activities can Continue reading