Cheat Sheet for Strategic Management

M&A & Restructuring Strategies. optical fusion Two Firms agree to integrate trading operations on relatively correspond basis(usu completelyy 1 dominates an some other in mkt sh be/size/as cut back value) dirty putsch (delivers superiorer shargonholder value than friendly clears)(Preannouncement returns of dirty affectover anticipated with improver in bidder & natess share price). variegation give rises value by using excess pick. Restructuring utilize to correct with in stiff mergers/acquirements. M habituated as inwardness of growth to potentially lead to strategic combat. ?ing ext env bear off type of M habituated. M theatrical roled cuz of uncertainty in agonistic l. ) outgrowth market power cod to belligerent threat 2)Spread risk overdue to uncertainty 3)Shift consequence game to diff mkts 4)Manage patience & regulatory ? s. Increases strategic competitiveness & value. Shareholders of acquired wet compass above avg returns while shareholders of a cquiring dissolute earn 0 returns. Reflects confideors scepticism of projected synergies. Reasons for Acquisition 1)Increased mkt power(horizontal,vertical,related, sbjct to regulatory review & pecuniary mkt analysis)able to sell good/service above competitive levels/ be of its primeval or bread and furtherter activities upseter than competitors.Buy competitor/supplier/allocator to Increase size, resource & capabilities. naiant Acq helps to shape make up- bagfuld & revenue synergies. Better Most effective when integrate assets with acqed soaked. Vertical Acqsitions program lines surplus parts of value chain. (CVS/Caremark)Related acquisitions(acqing firm in related industry). Create value thru synergy by integ range resource & capabilities. 2) cover entry barriers. Help gain immediate access to international markets. blue the barrier, higher chance firm will acquire. )Cross-border acquisitions(made btwn companies with HQs in diff ctys) spheric M declined in financial crisis. Chinese companies try horizontal cross-border acqtns of natural resource. India seek access to pdt innovation capabilities & forward-looking br/distribution channels. 4) toll of radical harvesting readyment & increased speed to mkt. pile up access to new pdts & to legitimate pdts new to firm. Pharmaceutical firms. 5)Lower risk than developing new crops. Acquisitions may bring a substitute for innovation. Acquisitions shld always be strategic than defensive 6)Increased variegation.Diff for companies to develop pdts that differ from current lines for mkts in which they lack experience. Acquisition strategies used to support unrelated & related variegation stgies. More related firms are, greater prob acq is successful. Horizontal & related acqs contribute more(prenominal) to strategic competitiveness. Cisco. 7)Avoid excessive competition 8)Reshaping firms competitive scope(Lessen dependence on specific mkts) 9) disclose & developing new capabilities. Broadens their a cquaintance base & crucify inertia. Acquire good talent by means of cross-border acqtns.Seek to acquire diff but related & complementary capabilities to build own knowledge base. Biological Drugs, AstraZeneca. Problems in achieving Acquisition success Greater success accrues to (select right target, avoid high premium by doing due dilligence, integrate operations,retain human capital to chthonicst& target firms operations) 1)Integration difficulties (cultures,diff financia & ascendency schemes, working kins, resolve problems of lieu of acqed firms executives) 2)Inadequate evaluation of target.Due diligence possible acquirer evaluates target firm for acquisition. Done by investment bankers,accountatnts,lawyers,mgmt consultants. Without due dilligence, bribe price is made by pricing of other comparable acquisitions than plastered assessment of where,when,how mgmt quarter drive real perf gains. bidding war 3)Large & odd debt. Firms increase debt to finance acqtns. E. g. J unk Bonds. High debt increases chance of bankruptcy, downgrading credit rating & firm may divest some assets to relieve burden to inhabit solvent. )Inability to get hold of Synergy. summations worth more when used tgt than seperately. Created by efficiences from EOS, EOSC & share-out resources. nonpublic synergy(combining & desegregation target firm & acquiring firms assets yield capabilities & hollow competencies that couldnt be developed by integrating either firms assets with another firm. Transaction cost to acquire & create synergies (indirect & direct) 5)Overdiversification Related diversification outperforms unrelated.Related diversification req more info processing, indeed being overdiversify with smaller no. of biz units than unrelated. Scope created by over diversification causes mangers to rely on financial than strategic controls. Tendencyfor acquisitions to stimulate substitutes for innovation. 6)Managers over focus on acqusitions Managers need to search for vi able c, everlasting(a) due dilligence, prepare negotiations & manage consolidation process, fag end divert attention. 7)Too banging Bureaucratic controls, stifling innovation.Effective Acquisitions Complementary Assets/resources(meet current needs to build competitiveness, high synergy & competitive advantage), Friendly acquisitions(lower premiums,faster & effective integrating), Due dilligence(overpayment avoided), Maintain fiscal slack(Acquired firm has slack, financing is easier/cheaper), Low-moderate debt(lower risk/financing cost),Sustained emphasis on R of acqing firm (maintain LT CA in mkts), Acqing firm is flexible (faster/effective consolidation for synergy) Restructuring (firm ? s its set of biz or financial coordinate).Deal with spoilure of acquisition/? s in ext or int env. Downsizing (reduction in no. of employee/ operational units but may change the com face of biz in community portfolio) used when paid too high premium, reduce duplicate structural jobs. Dow nscoping(divesture,spin-off to eliminate biz unrelated to firms core biz) Refocus on core biz Leverage Buyouts(party buys all of firms assets with debt to guide on firm private). Re construction & sell. management buyouts, Employee buyouts, altogether-firm buy outs(purchase whole than part of firm). MBOs lead to downscoping, strategic focus, improved executing.Downsizing- minify labour be(ST) - loss of human capital/lower performance(LT). Downscoping- reduced debt costs/emphasis on strategic controls(ST)-higher performance(LT). LBOs-emphasis on strategic controls/high debt cost(ST)-higher performance/riskcreates ST & risk-averse managerial focus(LT) worldwide schemeRationale for international diversification is to extend harvest life cycle. 4 benefits of using international dodge 1)Increase market size (size of international mkt affect firms willingness to invest in R&D to build CA in that mkt.Firm cull to invest more in cty with scientific knowledge&talent to produce value creating product & processes 2)increased EOS & learning (Firm able to exploit core competencies through resource&knowledge sharing btwn units & meshing partners across borders. New learning opportunities. BUT, firms need to bring strong R&D system to absorb knowledge) 3)develop CA through location(lower basic cost of gds/services. Gain access to critical supplies/customers. Reduce liability of extraneousness if low cultural distance) 4)return on investment (Generate above-avg ROI) International BL Strategies(cost leadership, differentiated, focus, integrated).Determinants of case Advantage 1)Factors of production. Basic Factors. Advanced Factors(digital comm systems & educated workforce). Generalized factors(highway system/ss of debt capital). narrow down Factors(skilled personnel in specific indsty). 2)Dem& conditions(nature/size of buyers needs in stem market for industrys gds/services) Large mkt sgmt produce dem& to create scaleefficient facilities. 3)Related & Supporting Industries (Italys whip-processing industry provides leather to produce shoes. Supporting indstry & design services contribute to success of shoe industry.Cameras & copiers are related industries in Japan) 4)Firm scheme, structure & rivalry(Ger galore(postnominal) an(prenominal) technical training system for continuous product & process improvements. Italy designers. Japan reconciling & competitive systems assist cross- serviceable management of complex assembly operations. US compt btwn computer & software producers increase development). The factors are likely to produce CA when firm develops & implements an appropriate strategy that take advantage of distinct cty factors. International CL Strategy (scope of firms operations thru pdct & geog diversification) Unilever Multi-house servant Strategy.Decentralized decisions to SBUs. less knowledge sharing for firm as a whole =(no economies of scale,costly. Global strategy(centralized control at home office. SBUs interdependent to achieve integration across bizs) EOS. =( forgo growth opp in local mkts. CEMEX Transnational Strategy Flexible Coordination is required-Building shared vision & individual commitment thru integrated web. Starbucks china Environmental Trends Liability of foreignness relative to domestic competitors. Regionalization(more similar culture, wakeless social norms)EU & NAFTA promotes regionalization.Internatonal Entry Mode 1)Exporting (exporters must establish some means of marketing & distribution) high transportation costs, tariffs, less control of products, pay distributer fee,diff to market competitive product/provide customization to international mkt, Exchange pass judgment volatility. 2)Licensing (purchase right to manufacture/sell firms pdts by paying a royalty)exp& returns base on prior innovation. low cost, low risk little control, low returns. 3)strategic Alliances(uncertain env) shared costs/risks/resources, gain access to new technologies, no tariffs roblem integrat ing btwn partners (2 cultures) 4)Acquisitions(quicker) quick access to new mkt high cost(debt), complex negotiations, prob merging with domestic operations 5)New Wholly Owned Subsidiary(Green Field venture) Max control, potential above-avg returns complex, costly, date consuming, high risk. Export,licensing & strategic chemical bond good for early market development. joystick venture/greenfield venture - IP rights not protected, high need for global integration, growing no. of competitors. strategical competitive outcomes 1)Enhanced returns.Decrease initially, then increase. Diversifying geographically into core biz areas positive effect on line of credit price. Offshore outsourcing created sig value-creation opp as firms move into flexible labor mkts. 2)Enhanced innovation. Exposure to new pdcts & mkts. Opp to integrate new knowledge into operations. Generation of resources to sustain innovation. Risks in international environment 1)Politcal Risk. Govt derangement/regulatio ns/corruption/conflict/war/conflicting & diverse legal regimen/potential nationalization of private assets/? s in govt policy 2)Economic risk.Govt oversigh & control of economic&financial capital/weak IP rights&protections impact FDI/terrorism/investment losses from political risk/security risk of foreign firms acquiring key natural resources or strategic IP. accommodating Strategy(shared objective) Strategic alliance(firms combine resources&capabilities to create CA) Leverage existing resource/capabilities to develop additional resources/capabilities for new CAs. Collaborative/relational Advantage-CA developed through a cooperative strategy. 3 Types of Strategic Alliances 1)Joint Venture.Siemens AG & Fujitsu - Fujitsu Siemens Computers (Own equal % & contribute equally. 2 or more firm create legally independent community to share some resources/capabilities to develop CA). Optimal when firms need to create a CA that is diff from individual advantages & when highly uncertain hype rcompetitive markets are targeted. 2)Equity. Baidu & Japanese telecommunication operator NTT DOCOMO (2or more firms own diff % of company they formed to create CA, e. g. many FDIs such as companies from quadruplex countries are making in mainland China) 3)Non- fair-mindedness. HP (2 or more firms develop contractual relationship to create CA.Firm DOES not establish better independent company thus dont take equity positions)- less black-tie, fewer commitments & no intimate relationship. E. g. licensing/distribution agreements & supply contract. Reasons firm develop Strategic Alliances Allow partners to create value they couldnt develop simply & to enter markets faster with greater penetration. Firms lack full resources & capabilities to reach their objectives. sluggish cyclemkt Gain access to restricted mkt. Establish a franchise in a new mkt. Maintain mkt stability(establishing st&ards). Fast-cycle mkt Speed up development of new goods/services.Speed up new market entry. Mainta in market leadership. Form an industry technology st&ard(). Share risky R&D expenses. Overcome uncertainty. St&ard-cycle mkt Gain mkt power(reduce industry overcapacity). Gain access to complementary resources. Establish better EOS. Overcome trade barriers. Meet competitive challenges frm other competitors. Pool resources for large projects. Learn new biz techniques. BL Cooperative Strategy 1)Complementary Strategic Alliances (Vertical, horizontal) -firms share r&c in complementary ways to develop CAs. More value-creating than other strategies.Vertical(from diff stages of value chain e. g. Nintendo) Horizontal(same stage(s) of value chain to create CAs. ) 2)Competition response strategy(to competitors attacks). Becuz they can be diff to reverse & exp t operate, strategic alliances are formed to take strategic than tactical actions to respond to attacks. 3)Uncertainty reducing strategy (new pdt mkts/emerging economies 4)Competition-reducing strategy (explicit/tacit collusions) Tacit collusion Firms in industry indirectly aline their production & pricing decisions by observing each other actions/responses.Results in output below fully competitive levels & above fully competitive prices. reduce service quality, on- eon performance. Mutual forbearance- Form of tacit collusion where firms dont take actions against rivals they meet in aggregate mkts. Assessment R integrated must(prenominal) be VCRN. vertical strategy have greatest probability of creating sustainable CA. CL Cooperative Strategy. Firm use this strategy to diversify in pdts offered/markets served. Diversify by means other than M. Require fewer resource commitments, greater tractability. 1)Diversifying S/A Highly diverse network of alliances can lead to poorer performance by partner firms. 2)Synergistic S/A(create EOScope across multiple functions/bizs btwn partners) 3) Franchising (contractual relationship to describe/control sharing of its R with partners) Advantages Attr brisk strategy for fragm ented industry(retailing,hotels,motels) where large number of small/med firms compete without one having a dominant share. Assessment Alliance costs needs monitoring. International Cooperative Strategy 1)Cross-border alliance(firms with HQs in diff nations decide to combine some R to create CA & value).Incentives extra domestic growth opp, foreign govt economic policies. China & India have strong preference to license local companies. Strategic alliance with local partners help firms overcome liability of foreignness. Operational advantages due to local market information. Network cooperative strategy (several firms form multiple partnerships to achieve shared objectives) Particularly effective when formed by geographically agglomerate firms. Gain heterogeneous info & knowledge from multiple sources. lock in partnerships precluding alliance with others.Stable Alliance network (mature industries where dem& is constant & predictable) Built primarily to exploit EOS/EOScope existing b twn partners e. g. airline industry Dynamic Alliance Network (frequent product innovations & short pdct lifecycle) Competitive risks Inadequate contracts. Mis standard of competencies. Partners may act opportunistically. Partners fail to use their complementary resources. Holding alliance partners specific investments hostage. Risk&Asset Management ApproachesDetailed contracts & monitoring. Develop trusting relationships - create value.Managing cooperative strategies Cost minimization(Firm develops formal contracts with partners specifying how strategy is to be monitored & how partner behavior is controlled) Opportunity maximization(Maximize partnerships value-creating opportunities) unified Governance Set of chemical mechanisms used to manage the relationship among stakeholders & to determine & control the strategic direction & performance of organizations.. It is concerned with spikeing effectiveness of companys card of directors. Verifying transparency of firms operations. Enhancing accountability to shareholders.Incentivizing executives. Maximizing value creation for stakeholders & shareholders. time interval of Ownership & managerial control. Allows each group to focus on what it does trounce Shareholders bears risk that firms expenses exceed revenue (shareholders will hold a diversified portfolio to diversify risk). Managers formulate & implement strategy & decision-making. Agency relationships( surrounded by firms owner & top-level managers) Managerial opportunism seeking self-interest with deceit. An attitude & set of behaviors. Prevents maximization of shareholders wealth.Product Diversification as Agency Problem 1)Diversification increase size/complexity & thus managerial compensation. 2)Reduces mangers employment risk as a firm & its managers are less vulnerable to reduction in dem& associated with a single/limited no. of product lines/bizs. 3)Managers have control of firms free cash flows which they invest to diversify instead of giving to shareholders. Shareholders like a diversified position between dominant & related-constrained diversification strategies. Shareholders prefer riskier strategies & more focused diversification. Managers prefer higher levels of product diversification.Managers may prefer level of diversification that maximises firm size & compensation while reducing employment risk. Agency costs sum of incentive/monitoring/enforcement costs, individual financial losses incurred by brains because of agents. 3 internal political science mechanism 1)Ownership Concentration (No. of large-block shareholders & total lot of shares they own) X Diffuse ownership (large number of shareholders with small holdings & few large-block shareholders) Large-block shareholders are active in their dem&s that corporations adopt effective governance mechanisms.Ownership of many modern corporations now concentrated in h&s of institutional investors than individual shareholders. Institutional owners (financial institutio ns that control large-block shareholder positions) They are powerful governance mechanism. They have both size & incentive to discipline ineffective top-level managers. 2)Board of Directors (group of select individuals to formally monitor & control managers in order to act in owners best interests) Insiders Firms CEO & other top-level managers. Related outsiders Individuals not involved with firms unremarkable operations but have relationship with firm.Outsiders provide independent rede to firm & may hold managerial positions in their company. Outsiders have no firm info & thus emphasize use of financial than strategic controls to evaluate firm. Shifts risk to managers who make decision to maximise their interest & reduce employment risk. Enhance effectiveness of BOD 1. Increase diversity 2. Strengthen internal management & accounting control systems 3. Establish consistent use of formal processes to evaluate BOD performance 4. Creation of lead director 5. compensation of dir ector, reduce shopworn options. )Executive Compensation practice LT incentive plans. Effectiveness dont link pay to financial outcomes. Manager may focus ST effects to heighten pay. Other factors also affect firms performance which are not under managers control. Market for corporate Control (external governance mechanism. The market is a set of potential owners seeking to acquire undervalued firms & earn above average ROIs by replacing ineffective top-level management teams) Used only when internal controls fail. gilt parachutes help them leave while Golden hellos help them to get in the door of the next firm.Hostile Takeover Defensive Strategies Poison pill allows shareholders to transfer their rights into large no. of common shares if anyone acquires more than set amount of targets stock to dilute percentage f shares acquiring firm must purchase at premium. Litigation Lawsuits that help target company stall hostile attacks e. g. antitrust,fraud. Greenmail repurchase of s tocks from agressor at premium for agreement to no longer be targeted for takeover. Standstill agreement Contract btwn parties in which pursuer agrees not to acquire any more stock for specified period for a fee.Capital structure change Dilution of stock, making it costly for bidder to acquire e. g. recapitalization, new debt, share buybacks, stock selling) Corporate charter amendment Ammendment to stagger elections of members to the BOD of attacked firm so that all are not elected same year, preventing bidder to install new age in same year. Corporate governance in Germany 2 tiered board structure, place responsibility of monitoring & controlling managerial decisions & actions with separate groups. Banks exercise sig power as source of financing. Power sharing includes representation from community & unions.Corporate Governance in Japan Cultural concepts of obligation, family & consensus. Close relationship btwn stakeholder & company through cross-shareholding can negatively im pact efficiencies. Keiretsus Strongly interconnected groups of firms tied tgt by cross-shareholdings. Banks are highly influential with firms managers. Global Corporate Governance Relatively uniform governance structures, moving closer to US corporate governance model. Organizational Structure & Control. Organizational Structure Specifies firms formal reporting relationships, procedures, controls, authority & decision-making processes.Curcial to match structure with strategy Controls guide the use of strategy, indicate how to compare actual results with expected results, & suggest corrective actions to take when the difference is unacceptable. Strategic Controls Largely subjective criteria intended to verify that the firm is using appropriate strategies for theconditions in the external environment & the companys competitive advantages. Strategic controls are concerned with examining the fit between What the firm aptitude do (opportunities in its external environment) What the fi rm can do (competitive advantages).Evaluate the degree to which the firm focuses on the requirements to implement strategy BL direct activities. CL(related) sharing of knowledge, markets, technologies across bizs. Financial Controls objective criteria used to measure firms performance against antecedently established st&ards. Focus on ST outcomes. ROI, ROA, EVA(economic value addedmarket based measure). produces risk-adverse managerial decisions. requisite for unrelated diversification Simple Structure (owner manager makes all major decisions & monitors activities) a couple of(prenominal) rules, limited task specialization, basic tech system.Functional Structure(CEO & limited corporate staff make decisions. Functional line managers present. functional specialization from active sharing. impedes comm. & cordination among functional areas. Multi- segmental Structure. Operating divisions represent separate biz / profit center. sort out corporate officer delegates responsibilitie s for daily operations & business unit strategies to division managers. Ties together all operating divisions. Enables more accurate monitoring of performance of each unit. Facilitates comparisons between divisions.Stimulates managers to look for improvements. Matches between BL strategies & Functional Structure 1)For cost leadership strategyWalmart (simple reporting structure, few layers in decision-making & authority, centralized in a staff function. Job specialized.. 2) For differentiation strategy. Complex & flexible reporting relationship, freq use of cross-functional product development teams, strong focus on mkting & R&D. Few formal rules & procedures. Jobs not specialized. Decentralized. 3)For integrated cost leadership/differentiation strategy.Diff primary & support activities emphasized. Match between CL Strategy & Multi-divisional Structure(M-form) 1)Cooperative form for related-constrained. centralise at corporate office Extensive use of integration mechanism emphasis o n strategic criteria linked to overall corporate performance. patronize direct fall into place btwn division managers. Liason roles in each divisions reduce time integrating with work occurring in other divisions. Matrix Organization might be formed(dual structure combining both functional specialization & biz product or project specialization.Cooperation among divisions implies loss of managerial autonomy - managers hesitatnt to cooperate. Use strategic controls to evaluate manager on how well they cooperate. 2)SBUForm for related-linked strategy coordination between SBUs is hard. Diff to communicate complex biz model to shareholders. 3)Competitive form for Unrelated Diversification Strategy Decentralized to divisions no integration mechanism emphasize on financial criteria linked to divisional performance. Finance & Auditing & Legal Affairs second tier. Divisions 3 tier. internal competition creates flexibility resources allocated to most potential division.Challenges the statu s quo & inertia. Motivates drivings due to funding if u are an efficient division. Matches btwn International Strategies & World-wide structure 1)Worldwide Geog Area for Multidomestic Strategy. Decentralization to business units in each country. No integration mechanisms. Informal coordination inability to create global efficiency 2)Worldwide Product divisional Structure for Global Strategy. Aims to gain EOS & EOSCCentralized. Integrating mechanism important(e. g. Direct contact btwn managers, liaison roles btwn departments). inability to quikly respond to local needs & preferences difficulty in coordinating decisions across borders. 3)Combination Structure for Transnational Strategy Global Matrix. flexibility in designing products & responding to customer needs. employee accountable to 2 boss. Difficult to be simultaneously loyal to both. Can be member of several functional or product group teams. Difficult & time consuming for approval. interbreeding Structure. (some divisions oriented to products while others oriented toward market areas) Matches btwn Cooperative Strategies & Network Structures.Strategic network (group of firms formed to create value by participating in multiple cooperative arrangements) can be a form of CA when operations create value that is hard to imitate. Used to implement BL, CL & International Strategies. Strategic center firm(main firm) does Strategic outsourcing, seek ways to support members effort to develop Core competencies, Manage development & sharing of technology-based ideas(req formal reports of technology-orientated outcomes of their efforts),Emphasizes principal competition are btwn value chains & between networks of value chains.Centralized. Strategic network for BL Cooperative Strategy(horizontal,vertical Chp 9), CL Cooperative Strategies & International Cooperative Strategies(Distributed strategic networks -Several regional strategic centre firms are included in dist network to manage partner firms multiple coopera tive arrangements)