Corporate Evaluation & Strategic Management

BY:

Mohanad Ali Kareem

MBA
IV semester
2015

Department of Commerce and Business

Administration
Acharya Nagarjuna University

UNIT- I
STRATEGIC MANAGEMENT:
In a hyper competitive marketplace, companies can operate
successfully by creating and delivering superior value to target
customers and also learning how to adopt to a continuously
changing

business

environment.

So

to

meet

changing

conditions in their industries, companies need to be farsighted

and visionary, and must develop long-term strategies. Strategic
planning, an important component of strategic management,
involves developing a strategy to meet competition and ensure
long-term survival and growth. The overall objective of strategic
management is two fold:
1-To create competitive advantage, so that the company can
outperform the competitors in order to have dominance over
the market.
2-To guide the company successfully through all changes in the
environment.
Strategic management starts with developing a company
mission (to give it direction), objectives and goals (to give it
means and methods for accomplishing its mission), business
portfolio (to allow management to utilize all facets of the
organization), and functional plans (plans to carry out daily
operations from the different functional disciplines).
#Framework:
The basic framework of strategic process can be described in a
sequence of five stages as shown in the figure - Framework of
strategic management: The five stages are as follows:

Stage one: This is the starting point of strategic planning and

consists of doing a situational analysis of the firm in the
environmental context. Here the firm must find out its relative
market position, corporate image, its strength and weakness
and also environmental threats and opportunities. This is also
known as SWOT (Strength, Weakness, Opportunity, Threat)
analysis. You may refer third chapter for a detailed discussion
on SWOT analysis.
Stage two: This is a process of goal setting for the
organization after it has finalized its vision and mission. A
strategic vision is a roadmap of the companys future
providing specifics about technology and customer focus, the
geographic and product markets to be pursued, the capabilities
it plans to develop, and the kind of company that management
is trying to create.
Stage three: Here the organization deals with the various
strategic alternatives it has.
Stage four: Out of all the alternatives generated in the earlier
stage the organization selects the best suitable alternative in
line with its SWOT analysis.
Stage five: This is a implementation and control stage of a
suitable strategy. Here again the organization continuously
does situational analysis and repeats the stages again.

Strategic management model:

The strategic management process can best be studied and
applied using a model. Every model represents some kind of
process.

The

model

illustrated

in

the

Figure:

Strategic

management model is a widely accepted, comprehensive. This

model like any other modal of management does not guarantee
sure-shot success, but it does represent a clear and practical
approach

for

formulating,

implementing,

and

evaluating

strategies. Relationships among major components of the

strategic management process are shown in the model.

Identifying an organization's existing vision, mission, objectives,

and

strategies

management

is

the

process

starting
because

point
an

for

any

strategic

organization

present

situation and condition may preclude certain strategies and

may

even

dictate

particular

course

of

action.

Every

organization has a vision, mission, objectives, and strategy,

even if these elements are not consciously designed, written, or
communicated. The answer to where an organization is going
can be determined largely by where the organization has been.

UNIT- I I

Strategic business unit (SBUs):

Analysing portfolio may begin with identifying key businesses
also termed as strategic business unit (SBU). SBU is a unit of the
company that has a separate mission and objectives and which

can be planned independently from other company businesses.

The SBU can be a company division, a product line within a
division, or even a single product or brand. SBUs are common in
organisations

that

are

located

in

multiple

countries

with

independent manufacturing and marketing setups. An SBU has

following characteristics:

Single business or collection of related businesses that can

be planned for separately.
Has its own set of competitors.
Has a manager who is responsible for strategic planning
and profit.
After identifying SBUs the businesses have to assess their
respective attractiveness and decide how much support each
deserves.
There are a number of techniques that could be considered as
corporate portfolio analysis techniques. The most popular is the
Boston Consulting Group (BGC) matrix or product portfolio matrix.
But there are several other techniques that should be understood
in order to have a comprehensive view of how objective factors
can help strategists in exercising strategic choice.

Boston consulting group (BCG) growth-share matrix:

The BCG growth-share matrix is the simplest way to portray a

corporations portfolio of investments. Growth share matrix also
known for its cow and dog metaphors is popularly used for
resource allocation in a diversified company. Using the BCG
approach, a company classifies its different businesses on a twodimensional growth-share matrix. In the matrix:
1. The vertical axis represents market growth rate and
provides a measure of market attractiveness.
2. The horizontal axis represents relative market share and
serves as a measure of company strength in the market.
Using the matrix, organisations can identify four different types
of products or SBU as follows:
Stars: are products or SBUs that are growing rapidly. They also
need heavy investment to maintain their position and
finance their rapid growth potential. They represent best
opportunities for expansion.
Cash Cows: are low-growth, high market share businesses or
products. They generate cash and have low costs. They are
established, successful, and need less investment to
maintain their market share. In long run when the growth
rate slows down, stars become cash cows.

Question Marks:, sometimes called problem children or

wildcats, are low market share business in high-growth
markets. They require a lot of cash to hold their share. They
need heavy investments with low potential to generate cash.
Question marks if left unattended are capable of becoming
cash traps. Since growth rate is high, increasing it should be
relatively easier. It is for business organisations to turn them
stars and then to cash cows when the growth rate reduces.
Dogs :are low-growth, low-share businesses and products.
They may generate enough cash to maintain themselves, but
do not have much future. Sometimes they may need cash to
survive. Dogs should be minimised by means of divestment
or liquidation.

The General Electric Model:

The General Electric Model (developed by GE with the
assistance of the consulting firm McKinsey & Company) is
similar to the BCG growth-share matrix. However, there are
differences. Firstly, market attractiveness replaces market
growth as the dimension of industry attractiveness, and
includes a broader range of factors other than just the market
growth rate. Secondly, competitive strength replaces market
share as the dimension by which the competitive position of
each SBU is assessed. This also uses two factors in a matrix /
grid situation as shown below:

The criteria used to rate market attractiveness and business

position assigned different ways because some criteria are more
important than others. Then each SBU is rated with respect to all
criteria. Finally, overall rating for both factors are calculated for
each SBU. Based on these ratings, each SBU is labeled as high,
medium or low with respect to (a) market attractiveness, and (b)
business position.

Every organization has to make decisions about how to use its

limited resources most effectively. Thats where this planning
models can help determining which SBU should be stimulated for
growth, which one maintained in their present market position and
which one eliminated.

UNIT- I I I
Grand strategies/directional strategies:
Grand strategies are the decisions or choices of long term plans
from available alternatives. Grand strategies also called as master
or corporate strategy. It is based on analysis of internal and
external

environment.

This

direct

the

organization

towards

achievement of overall long term objectives (strategic intent).

They

involve

Expansion,

Quality

Improvement,

Market

Development, Innovation, Liquidation, etc. Usually they are

selected by top level managers such as directors, executives etc.
The corporate strategies a firm can adopt have been classified into
four broad categories: stability, expansion, retrenchment and
combination known as grand strategies. Grand strategies, which
are often called master or business strategies, are intended to
provide basic direction for strategic actions. They are seen as the

basic of coordinated and sustained efforts directed toward

achieving long-term business objectives.

Stability Strategies:
Are pursued by the firms who want to achieve a slow and
steady improvement in their performance and are doing well in
the industry which itself is a trouble free.
#It is less risky, involves fewer changes
#Environment is relatively stable
#Example- Corporation Bank
1-No Change Strategy :
It is a conscious decision to do nothing new Because no Major
Strengths and weakness within the organization and no new

competitors

and external and internal environment Small

Medium sized operating in a familiar market , more often a

niche market that is limited in scope and product or services
through a time tested technology rely on this strategy
2)Profit Strategy :
Firm reduces investments, cut costs, raise prices, increase
productivity because of the problems like recession, industry
downturn, Competitive pressure It is a frequent method to get
rid from the temporary difficulties
3)Pause/Proceed- with-caution Strategy:
This is tactic in nature. It is employed by firms that wish to test
the ground before moving ahead with the full fledged grand
strategy It is a temporary strategy.

Expansion strategies :
Here, the firm seeks significant growth-maybe within the current
businesses; maybe by entering new business that are related to
existing businesses; or by entering new businesses that are
unrelated to existing businesses.
Expansion strategy is adopted because:
1- It may become imperative when environment demands
increase in pace of activity.
2- Psychologically, strategists may feel more satisfied with the
prospects of growth from expansion; chief executives may

take pride in presiding over organizations perceived to be

growth-oriented.
3-Increasing size may lead to more control over the market visa-vis competitors .
4-Advantages from the
operations may accrue.

experience

curve

and

scale

of

Types of Expansion strategies :

Expansion
Expansion
Expansion
Expansion
Expansion

through
through
through
through
through

concentration
integration
diversification
cooperation
internationalization

Intensification strategies:
Intensification strategies, Focus or specialization strategy It
involves investment of resources in a product line for an
identified market with the help of proven technology. For
expansion concentration is often the first preference strategy
It requires minimal organizational changes so that is less
threatening Fewer problems as dealing with known situation.
Igor Ansoff gave a framework as shown which describe the
intensification options available to a firm.

Diversification Strategies:
Diversification endeavors can be related or unrelated to
existing businesses of the firm. Based on the nature and
extent

of

their

relationship

to

existing

businesses,

diversification endeavours have been classified into four

broad categories:
(i) Vertically integrated diversification
(ii) Horizontally integrated diversification
(iii) Concentric diversification
(iv) Conglomerate diversification

Vertically integrated diversification:

In vertically integrated diversification, firms opt to engage in
businesses that are related to the existing business of the firm.
The firm remains vertically within the same process. Sequence
It moves forward or backward in the chain and enters specific
product/process steps with the intention of making them into
new businesses for the firm. The characteristic feature of
vertically integrated diversification is that here, the firm does
not jump outside the vertically linked product-process chain.
The example of Reliance Industries provided at the close of this
chapter illustrates this dimension of vertically integrated
diversification
Horizontal integrated diversification:
Through the acquisition of one or more similar business
operating at the same stage of the production-marketing chain
that is going into complementary products, by-products or
taking over competitors products.
Concentric diversification:
In concentric diversification, the new business is linked to the
existing businesses through process, technology or marketing.
The new product is a spin-off from the existing facilities and
products/processes.
This
means
that
in
concentric
diversification too, there are benefits of synergy with the
current operations. However, concentric diversification differs
from vertically integrated diversification in the nature of the
linkage the new product has with the existing ones. While in
vertically integrated diversification, the new product falls within
the firm's current process-product chain, in concentric
diversification, there is a departure from this vertical linkage.
The new product is only connected in a loop-like manner at one
or more points in the firm's existing process/technology/product
chain.
Conglomerate diversification:

In conglomerate diversification, no such linkages exist; the new

businesses/ products are disjointed from the existing
businesses/products in every way; it is a totally unrelated
diversification. In process/technology/function, there is no
connection between the new products and the existing ones.
Conglomerate diversification has no common thread at all with
the firm's present position.

UNIT IV

Cooperative strategies:
Mergers and acquisitions
Joint ventures
Strategic alliances

Mergers and acquisitions:

Mergers- It takes place when the objectives of the buyer
firm and the seller firms are matched. A merger is a
combination of two or more organisations in which one
acquires the assets and liabilities of the other in exchange
for shares or cash or both the organisations are dissolved
and assets and liabilities are combined and new stock is
issued.
Acquisition or takeover- These are based on the strong
motivation of the buyer firm to acquire. Takeover can be in
the form of hostile takeovers and friendly takeovers.
Types of mergers and acquisitions:

 1-Horizontal mergers- Mergers between two or more

organisations in the same business
2-Concentric mergers- It take place when there is a
combination of two or more organisations related to each
other either in terms of customer functions, customer
groups or alternative technologies.
3-Vertical mergers- Not necessary the same business
4-Conglomerate mergers- For e.g. footwear company
combine with pharmaceutical firm.

Important issues in mergers and acquisitions:

Strategic issues- Synergistic

effects, strategic advantages

and distinctive
competencies.
Financial issues- Sources of
finance for acquisition, share
price of target firm, growths
prospects of target firm,
quality and integrity of top
management.
Managerial issues
Legal issues

Advantages of Mergers & Acquisitions:

Accelerating a
company's growth,
particularly when its
internal growth is
constrained due to
scarcity of resources.
Enhancing profitability
Diversifying the risks of
the company
A merger may result in
financial synergy
Joint Venture strategies:

A Joint venture could
beseverity
considered as anof
entity
Limiting
the
resulting from a long term contractual agreement between two
or more
parties, to undertake mutually
beneficial economic
competition
by
activities, exercise joint control.
increasing

The
JV parties can be the
individuals, partnerships or
corporations that continue to operate independently from the
company's
other except
for activities relatedmarket
to the Joint Venture.

It is
an Entity resulting from a long term contractual
power.

agreement between two or more parties, to undertake

mutually beneficial economic activities, exercise joint control
and contribute equity and share in the profit and losses of the
entity.

e.g.: Maruti Udyog Jt. venture between Govt of India &

Suzuki

TVS-Suzuki - joint venture between TVS and Suzuki

Joint venture of Samsung & Texas Instruments to

Samsung-HP joint venture to market HPs products in

Korea

Conditions for joint venture:

1-When an activity is uneconomical for an organisation to

do alone.
2-When the risk of the business has to be shared.

3-When the distinctive competencies of two or more

organisations can be brought together.
Types of joint ventures:

# Between two organisations in one industry.

# Between two organisations across different industries.

# Between an Indian organisation and a foreign

organisation in India.

# Between an Indian organisation and a foreign

organisation in that foreign country.

# Between an Indian organisation and a foreign

organisation in third foreign country.

Rationale for Joint Ventures:

1-To bring together complementary advantages
2. Technology transfer
3-To enlarge ones business by sharing investment & business
Risk.
4-To gain endorsement from government authorities.
5-To gain economies of scale/critical mass.

6-Tax advantage.
7-To obtain access to distribution channels or raw material
supply.

Reasons for Failure of Joint Ventures:

1-Rigid contract which does not provide flexibility to permit
adjustments in tune with changing circumstances.
2-Partners concerned with their respective businesses. Hence,
inability to give sufficient time and management attention to
the JV.
3-Conflict of interest between partners, with both later on
wanting to expand independently in the same business.
4-Issues of leadership, cultural incompatibility and inability to
deal with rapid changes in the environment.
5-Opportunistic behavior: Lack of mutual trust and willingness
to cooperate in achieving common goals.

STRATEGIC ALLIANCE:
Strategic Alliance is a formal relationship between two or more
parties to pursue a set of agreed upon goals or to meet a
critical
business
need
while
remaining
independent
organizations. Partners may provide the strategic alliance with
resources
such
as
products,
distribution
channels,
manufacturing capability, project funding, capital equipment,

knowledge, expertise. The alliance is a cooperation or

collaboration which aims for a synergy where each partner
hopes that the benefits from the alliance will be greater than
those from individual efforts .
A strategic alliance may even be formed with potential or
actual competitors (often in non-competing lines or markets),
suppliers or customers; thereby creating horizontal, vertical or
diagonal linkages.
Types of Strategic Alliance (Based on its focus)

Technology Development Alliance

Operations and Logistics Alliance
Marketing, Sales and Service Alliance
Single Country or Multicountry Alliance
X and Y Alliance

FACTORS
PROMOTING
ALLIANCES:

THE

RISE

OF

STRATEGIC

To gain access to foreign markets in the pharmaceutical

industry, Pharmacia and Pfizer have formed an alliance for
smooth market entry to accelerate the acceptance of a
new drug.
To reduce financial risks IBM, Toshiba and Siemens have
entered into an alliance to share the fixed costs of
developing new microprocessors.
To bring complementary skills Intel formed and alliance
with Hewlett- Packard (HP) to use HPs capability to
develop Pentium microprocessors
To reduce political risks Maytag, a U.S company entered
into alliance with Chinese appliance maker RSD to gain
access to China.
To achieve competitive advantage GM and Toyota
established joint venture by name Nummi Corporation.
To set technological standards Philips entered into an
alliance with Matsushita to manufacture and market the
digital compact cassette.

Advantages Of Strategic Alliance:

1. Strategic alliances facilitate entry into foreign markets
2. Help in sharing costs & risks associated with development
of new products or processes.
3. Helps firms to establish technological standards for the
industry.
4. Helps firms to establish technological standards for the
industry.

Disadvantages Of Strategic Alliance:

Strategic alliances give competitors a low cost route to
technology and markets.

UNIT V
Strategic evaluation and control:
Evaluation and control mechanisms are set in place to inform
every stage of the strategic management process. They are a
means of collecting whatever information we may need to
compare plans against actual events, to ensure that things are
working well, and to anticipate, or correct, any faults or
weaknesses in the system. Effective evaluation and control can
tell us what we are doing well and what we are not. This may
sound good in theory, but it is not exactly pleasant when you
are out there in the workplace and your CEO wants to know
why you have fallen flat on your face! Here is how some witty
minds explain the managers tendency to forget about
evaluation and control:
Strategic controls take into account the changing assumptions
that determine a strategy, continually evaluate the strategy as
is being implemented and take the necessary steps to adjust
the strategy to the new requirement.
These relates to the environmental and organisational factors
that are dynamic and eventful
Strategic controls are early warning system and differ from
post-action controls that evaluate only after implementation
had been completed.

Purpose of Strategic Evaluation and control:

The need for feedback

Appraisal and reward
Check on the validity of strategic choice
Congruence between decisions and intended strategy
Successful culmination of the strategic management
process
Creating inputs for new strategic planning
Ability to coordinate the tasks performed
Four Types of Strategic Controls:

Premise Control
Implementation Control
Strategic Surveillance
Special alert control

Strategic Control Process:

Although control systems must be tailored to specific situations,
such systems generally follow the same basic process.
Regardless of the type or levels of control systems an
organization needs, control may be depicted as a six-step
feedback model):
1. Determine what to control.What are the objectives the
organization hopes to accomplish?
2. Set

control

standards. What

are

the

targets

and

tolerances?
3. Measure performance. What are the actual standards?
4. Compare the performance the performance to the
standards. How well does the actual match the plan?

5. Determine the reasons for the deviations. Are the

deviations due to internal shortcomings or due to external
changes beyond the control of the organization?
6. Take

corrective

action. Are

corrections

needed

in

internal activities to correct organizational shortcomings,

or are changes needed in objectives due to external
events?

Strategic Audit:
A Strategic Audit takes a detailed look at the prevailing
strategies in key areas of the organisation. Asking the right
questions and identifying and implementing appropriate actions
to enable the organisation to get on course and stay on course.
The strategic audit is the ideal starting point for all new
ventures and for any business or organisation wishing to
develop and grow.
Strategic Audits are conducted from a specially devised
template based on the keyquestions listed above. These are
adapted to suit the specific focus of the organisation. The

template then provides the basis for investigation

discussion with key members of the management team.

and

Whilst each organisation is likely to have unique

strategic issues to explore, most audits are closely
related to the following key questions:
What business are we in?
Do we have the team to deliver a winning strategy?
What are the key external factors affecting the
organisation?
Are we doing the right things?
Are we doing things right?
Is our intended strategy sustainable, feasible and
achievable (SFA)?
How do we translate strategy into action?
How will we know when weve been successful?
As a result of the strategic audit, organisations gain and
understanding of the nature and extent of existing strategies
and the level of consistency and buy in across the management
team A documentary output is provided which includes:
An overview of existing strategies, including strengths and
weaknesses
A graphic analysis of the organisations strategic focus
Assessment and outline recommendations for strategic
development.