STRATEGIC MANAGEMENT II

STRATEGIC MANAGEMENT IIPuonlinenotes.blogspot.com1GLOBAL BUSINESS ENVIRONMENTPuonlinenotes.blogspot.comCONCEPTGlobalization refers to the strategy of approaching worldwide markets with standardized products.Worldwide markets are created by end consumers that prefer lower-priced, standardized products over higher priced, customized products etc.Global corporations that use their worldwide operations to compete in local markets.Global firms headquartered in one country with subsidiaries in other countries.Puonlinenotes.blogspot.comAny company that aspires to industry leadership in the 21st century must think in terms of global, not domestic, market leadershipThe world economy is globalizing at an accelerating pace as countries previously closed to foreign companies open up their markets.As the internet shrinks the importance of geographic distance, and as ambitious, growth minded companies race to build stronger competitive positions in the markets of more and more countries.Companies in industries that are already globally competitive are under the gun to come up with a strategy for competing successfully in foreign markets.Puonlinenotes.blogspot.comGLOBAL CORPORATIONS Coca-Cola (Beverage)Zara (Apparel)Microsoft (Software)Apple (Smartphone)IBM (Personal Computers)Toyota (Automobiles)McDonald (Fast Food Restaurant)Starbucks (Coffee Chain)Nestle (FMCG)FedEx (Courier Service)Puonlinenotes.blogspot.comWHY FIRMS GLOBALIZEAdditional ResourcesVarious inputs- including natural resources,technologies,skilled personnel, and materials-may be obtained more readily outside the home country. Lowered CostsVarious costs-including labor, materials, transportation, and financing-may be lower outside the home country.IncentivesVarious incentives may be available from the host government or the home government to encourage foreign investment in specific locations.Puonlinenotes.blogspot.comNew Expanded MarketsNew and different markets may be available outside the home country; excess resources-including management, skills, machinery, and money-can be utilized in foreign locations.Exploitation of Firm-Specific AdvantagesTechnologies, brands, and recognized names can all provide opportunities in foreign locations.TaxesDiffering corporate tax rates and tax systems in different locations provide opportunities for companies to maximize their after tax worldwide profits.

Puonlinenotes.blogspot.comEconomies of ScaleNational markets may be too small to support efficient production, while sales from several combined allow for larger scale production.SynergyOperations in more than one national environment provide opportunities to combine benefits from one location with another, which is impossible without both of them.Power and PrestigeThe image of being international may increase a companys power and prestige and improve its domestic sales and relations with various stakeholders group.Protect Home Market Through Offense in Competitors HomeA strong offense in a competitors market can put pressure on the competitor that results in a pull-back from foreign activities to protect itself at home.Puonlinenotes.blogspot.comTrade BarriersTariffs, quotas, buy-local policies, and other restrictive trade practices can make exports to foreign markets less attractive; local operations in foreign locations thus become attractive.International CustomersIf a companys customer base becomes international, and the company wants to continue to serve it, then local operations in foreign locations may be necessary.

Puonlinenotes.blogspot.comInternational CompetitionIf a companys competitors become international, and the company wants to remain competitive, foreign operations may be necessary.RegulationsRegulations and restrictions imposed by the home government may increase the cost of operating at home; it may possible to avoid these costs by establishing foreign operations.ChanceChance occurrence results in a company deciding to enter foreign locations.

Puonlinenotes.blogspot.comTo Capitalize on its Core CompetenciesA company may be able to leverage its competencies and capabilities into a position of competitive advantage in foreign markets as well as just domestic markets.To Spread its Business Risk Across A Wider Market Base A company spreads business risk by operating in a number of different foreign countries rather than depending entirely on operations in its domestic markets.

Puonlinenotes.blogspot.comSTRATEGIC ORIENTATION OF GLOBAL FIRMSPuonlinenotes.blogspot.comMultinational CorporationsTypically display one of four orientations towards their overseas activities.They have certain set of beliefs about how the management of foreign operations should be handled.Ethnocentric OrientationBelieves that the values and priorities of the parent organization should guide the strategic decision making of all its operations.Polycentric OrientationThe culture of the country in which the strategy is to be implemented is allowed to dominate the decision making process. Puonlinenotes.blogspot.comRegiocentric OrientationExists when the parent attempts to blend its own predispositions/preferences with those of the region under consideration, thereby arriving at a region sensitive compromise.Geocentric OrientationAdopts a global systems approach to strategic decision making, thereby emphasizing global integration.Puonlinenotes.blogspot.comANALYSIS OF GLOBAL BUSINESS ENVIRONMENT Puonlinenotes.blogspot.comExternal and InternalAssessments are conducted before a firm enters global markets.External assessment involves careful examination of critical features of the global environment.Firm should concern the host nations in such areas as economic progress, political control, and nationalism.Other major areas of concern are industrial facilities, favorable balances of payments, and improvement of technological capabilities over the past decade along with host nations economic progress.Puonlinenotes.blogspot.comInternal AssessmentInvolves identification of the basic strengths of a firms operations.Strengths are more important in global operations because the these characteristics are given host nation values most and host nation can offer significant bargaining leverage.The internal assessment of a global firm is concerned with technical and managerial skills, capital, labor, and raw materials.The global capabilities that should be analyzed include the firms product delivery and financial management systems.

Puonlinenotes.blogspot.comENVIRONMENTAL CONSIDERATIONSEconomic FactorsSize of GNP and projected rate of growthForeign exchange positionSize of markets for the firms products: rate of growthPolitical FactorsForm and stability of the governmentAttitude toward private and foreign investment by government, customers, and competitionDegree of antiforeign discriminationPuonlinenotes.blogspot.comGeographic FactorsProximity of site to export marketAvailability of local raw materialsAvailability of power, water and gas.Labor FactorsAvailability of managerial, technical, and office personnel able to speak the language of the parent company.Degree of skill and discipline at all levelsDegree and nature of labor voice in management.Puonlinenotes.blogspot.comTax FactorsTax rate trendsJoint tax treaties with home country and othersAvailability of tariff protectionCapital Sources FactorsCost of local borrowingModern banking systemGovernment credit aids to new businessesBusiness FactorsState of marketing and distribution systemNormal profit margins in the firms industryCompetitive situation in the firms industry: do cartels exists?

Puonlinenotes.blogspot.comCOMPLEXITY OF THE GLOBAL BUSINESS ENVIRONMENTPuonlinenotes.blogspot.comGlobal firms face multiple political,economic,legal,social and cultural environments as well as various changes.Sometimes foreign governments work in performance with their militaries to advance economic aims even at the expense of human rights.International firms must resist the excitement to benefit financially from such immoral opportunities.

Puonlinenotes.blogspot.comInteractions between the national and foreign environments are complex, because of national sovereignty issues and widely differing economic and social conditions. Geographical separation, cultural and national differences, and variation in business practices all tend to make communication and control efforts between headquarters and the overseas affiliates difficult.Global firms face extreme competition, because of differences in industry structures within countries.Global firms are restricted in their selection of competitive strategies by various regional blocks and economic integrations such as NAFTA,SAFTA,SAARC,ASIAN and EU etc.Puonlinenotes.blogspot.comINTL VS GLOBAL COMPETITIONInternational CompetitorCompany operates in a selected few foreign countries, with modest ambitions to expand further Global CompetitorCompany markets products in 50 to 100 countries andis expanding operations into additional country markets annually

Puonlinenotes.blogspot.comMULTICOUNTRY VS GLOBAL COMPETITION Puonlinenotes.blogspot.comMulticountry CompetitionMulticountry competition exists when competition in one national market is not closely connected to competition in another national market-there is no global or world market, just a collection of self-contained country markets.Features Buyers in different countries are attached to different product attributes.Sellers vary from country to countryIndustry conditions and competitive forces in each national market differ in important respects.

Puonlinenotes.blogspot.comRivals firms battle for national championships and winning in one country does not necessarily signal the ability to farewell in other countries (SCBL vs. Nabil).The power of companys strategy and resource capabilities in one country may not enhance its competitiveness to the same degree in the other countries where it operates (KFC in Nepal).Any competitive advantage a company secures in one country may not guarantee that such competencies are minimal or nonexistent in another country (MTV viewers in Nepal).For example TV broadcasting, consumer banking, life insurance,apparel,metals fabrication, many types of food products like (coffee,cereals,breads,canned goods, frozen foods) and retailing etc.Puonlinenotes.blogspot.comGlobal CompetitionGlobal competition exists when competitive conditions across national markets are linked strongly enough to form a true international market and when leading competitors compete head to head in many different countries.Same group of rivals companies competes in many different countries, but especially so in countries where sales volumes are large and where having a competitive presence is strategically important to building a strong global position in the industry.

Puonlinenotes.blogspot.comA companys competitive position in one country both affects and is affected by its position in other countries.A firms overall competitive advantage grows out of its entire worldwide operations.Rival firms in globally competitive industries fight for worldwide leadership. Global competition exists in motor vehicles, television sets, tires, mobile phones, personal computers, copiers, watches, digital cameras, bicycles, and commercial aircraft.Puonlinenotes.blogspot.comLOCALIZED MULTICOUNTRY OR A GLOBAL STRATEGYPuonlinenotes.blogspot.comThe issue of whether to vary the companys competitive approach to fit specific market conditions and buyer preferences in each host country or whether to employ essentially the same strategy in all countries is perhaps the foremost strategic issue that companies must address when they operate in two or more foreign markets.Puonlinenotes.blogspot.com

THINK LOCAL ACT LOCAL APPROACHES TO STRATEGY MAKING

This approach to strategy making a company tailors its product offerings and perhaps its basic competitive strategy to fit buyer tastes and market conditions in each country where it opts to compete.The strength of employing a set of localized or multicountry strategies is that the companys actions and business approaches are deliberately crafted to accommodate the differing tastes and expectations of buyers in each country and to stake out the most attractive market positions via-via local competitors.Puonlinenotes.blogspot.comThis approach means giving local managers considerable strategy making latitude.Moreover having plants produce different product versions for different local markets, and adapting marketing and distributions to local customs and cultures.The bigger the country to country variations, the more that a companys overall strategy is a collection of its localized country strategies rather than a common or global strategy.

Puonlinenotes.blogspot.comWHEN THIS STRATEGY WILL BE SUITABLE?Significant country to country differences in customer preferences and buying habits.Significant cross-country differences in distribution channels and marketing methods.Stringent regulations requiring that products sold locally meet strict manufacturing specifications or performance standards.Trade restrictions of host governments are so diverse and complicated that they preclude a uniform, coordinated world wide market approach.Puonlinenotes.blogspot.coms34LIMITATIONSThey hinder transfer of a companys competencies and resources across country boundaries (since the strategies in different host countries can be grounded in varying competencies and capabilities)They do not promote building a single, unified competitive advantage-especially one based on low cost.Companies employing highly localized or multicountry strategies face big hurdles in achieving low-cost leadership unless they find ways to customize their products and still be in position to capture scale economies and experience/learning curve effects.For example like Dell Computers and Toyota, because they have mass customization production capabilities, can cost effectively adapt their product offerings to local buyer tastes.Puonlinenotes.blogspot.comTHINK GLOBAL, ACT GLOBAL APPROACHES TO STRATEGY MAKING Global strategies are best suited for globally competitive industries.A global strategy is one in which the companys approach is predominantly the same in all countriesIt sells the same products under the same brand names everywhere, uses much the same distribution channels in all countries, and competes on the basis of the same capabilities and marketing approaches worldwide.Puonlinenotes.blogspot.comAlthough the companys strategy or product offering may be adapted in very minor ways to accommodate specific situations in a few host countries, the companys fundamental competitive approach (low-cost,differentiation,best-cost,or focused) remains very much intact worldwide, and local managers stick close to the global strategy.This strategic theme prompts company managers to integrate and coordinate the companys strategic moves worldwide and to expand into most if not all nations where there is significant buyer demand.It puts considerable strategic emphasis on building a global brand name and aggressively pursuing opportunities to transfer ideas, new products, and capabilities from one country to another.

Puonlinenotes.blogspot.comDIFFERENCE BETWEEN LOCALIZED MULTICOUNTRY AND GLOBAL STRATEGY

Puonlinenotes.blogspot.comTHINK GLOBAL, ACT LOCAL APPROACHES TO STRATEGY MAKINGPuonlinenotes.blogspot.comIn this strategy a company can accommodate cross country variations in buyer tastes, local customs, and market conditions.This strategy uses the same basic theme such as low cost, differentiation, best-cost, or focusedThis provides the local managers full latitude to Incorporate whatever country specific variations in products attributes are needed to best satisfy local buyersMake whatever adjustments in production, distribution, and marketing are needed to be responsive to local market conditions and compete successfully against local rivals.Slightly different product versions sold under the same brand name may suffice to satisfy local tastes.Puonlinenotes.blogspot.comForeign Market AnalysisPuonlinenotes.blogspot.com

CROSS COUNTRY DIFFERENCES IN CULTURAL, DEMOGRAPHIC AND MARKET CONDITIONSWhen any firm wants to enter into the foreign market, the strategies uses by these firms to compete in foreign markets must be situation driven.Cultural, demographic and market conditions vary significantly among the countries of the world.Cultures and lifestyles are the most obvious areas in which countries differ; market demographics and income levels are close behind. For example consumers in Spain do not have the same tastes, preferences, and buying habits as consumers in Norway; buyers differ yet again in Greece, Chile, New Zealand and Taiwan etc. Puonlinenotes.blogspot.comSometimes product designs suitable in one country are inappropriate in another.For example in the USA electrical devices can run on 110 volt systems but in some EU the standard is a 240 volt system.Market growth varies from country to country.For example in emerging markets like BRICS countries market growth potential is far higher than in the more mature economies of developed nations such as UK,Canada or Japan etc.Puonlinenotes.blogspot.comOne of the biggest concerns of companies competing in foreign markets is whether to customize their offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide. The tension between the market pressures to localize a companys product offerings country by country and the competitive pressures to lower costs is one of the big strategic issues that participants in foreign markets have to resolve.Puonlinenotes.blogspot.comGAINING COMPETITIVE ADVANTAGE BASED ON WHERE ACTIVITIES ARE LOCATEDDifferences in wage rates, worker productivity, inflation rates, energy costs, tax rates, government regulations, and the like create sizable variations in manufacturing costs from country to country.Plants in some countries have major manufacturing cost advantages because of lower input costs(especially labor), relaxed government regulations, the proximity of suppliers, or unique natural resources.Puonlinenotes.blogspot.com45The low cost countries become principal production sites, with most of the output being exported to markets in other parts of the world.Companies that build production facilities in low-cost countries have a competitive advantage over rivals with plants in countries where costs are higher.The competitive role of low manufacturing costs is most evident in low wage countries like China, India, Pakistan, Cambodia, Vietnam, Mexico and Brazil etc.Puonlinenotes.blogspot.comThe quality of a countrys business environment also offers locational advantages-the government of some countries are attracting more FDI by lowering corporate tax rates (Ireland).Another locational advantage is the clustering of suppliers of components and capital equipment; infrastructure suppliers such as universities, vocational training providers, research enterprises, trade associations etc. Puonlinenotes.blogspot.comTHE RISK OF ADVERSE EXCHANGE RATE SHIFTSThe volatility of exchange rates greatly complicates the issue of geographic cost advantages.Currency exchange rates often move up or down 20 to 40 percent annually.Changes of this magnitude can either totally wipe out a countrys low cost advantage or transform a former high cost location into a competitive cost location.

Puonlinenotes.blogspot.comCompanies with manufacturing facilities in a particular country are more cost competitive in exporting goods to world markets when the local currency is weak (or declines in value relative to other currencies); their competitiveness erodes when the local currency grows stronger relative to the currencies of the countries to which the locally made goods are being exported.Fluctuating exchange rates pose significant risks to a companys competitiveness in foreign markets.Exporters win when the currency of the country where goods are being manufactured grows weaker and they lose when the currency grows stronger.Puonlinenotes.blogspot.comDomestic companies under pressure from lower cost imports are benefited when their governments currency weaker in relation to the countries where the imported goods are being made.Puonlinenotes.blogspot.comHOST GOVERNMENT POLICIESNational government enact all kinds of measures affecting business conditions and the operation of foreign companies in their markets.Host governments may set local content requirements on goods made inside their borders by foreign based companies, have rules and policies that protect local companies from foreign competition, put restrictions on exports to ensure adequate local supplies, regulate the prices of imported and locally produced goods, enact deliberately burdensome procedures and requirements for imported goods to pass customs inspection, and impose tariffs or quotas on the imports of certain goods.Puonlinenotes.blogspot.comGovernments may or may not have burdensome tax structures, stringent environmental regulations, or strictly enforced labor standards.Sometimes outsiders face a web of regulations regarding technical standards, product certification, prior approval of capital spending projects, withdrawal of funds from the country, and required minority ownership of foreign company operations by local companies or investors.Some government provide subsidies and low interest loans, market access and technical assistance etc.Puonlinenotes.blogspot.comSTRATEGY OPTIONS FOR ENTERING AND COMPETING IN FOREIGN MARKETSThere are a host of generic strategic options for a company that decides to expand outside its domestic and compete internationally or globallyMaintain a national (one-country) production base and export goods to foreign markets, using either company-owned or foreign-controlled forward distribution channels.License foreign firms to use the companys technology or to produce and distribute the companys products.Employ a franchising strategy Puonlinenotes.blogspot.com4.Follow a multicountry strategy varying the companys strategic approach (perhaps a little, perhaps a lot) from country to country in accordance with local conditions and differing buyer tastes and preferences.5.Follow a global strategy using essentially the same competitive strategy approach in all country markets where the company has a presence.6.Use strategic alliances or joint ventures with foreign companies as the primary vehicle for entering foreign markets and perhaps also using them as an ongoing strategic arrangement aimed at maintaining or strengthening its competitiveness.Puonlinenotes.blogspot.comStrategies for firms that are attempting to move toward globalization can be categorized by the degree of complexity of each foreign market being considered and by the diversity in a companys product line.Complexity refers to the number of critical success factors that are required to prosper in a competitive arena.When a firm must consider many such factors, the requirements of success increase in complexity.Diversity refers to the breadth of a business firms business lines.When a company offers many product lines, diversity is high.Puonlinenotes.blogspot.comLowHighHighMarket ComplexityProduct DiversityExportLicensing, contract manufacturing, franchisingJoint VentureForeign branchPrivate equity investmentWholly owned foreign subsidiaryPuonlinenotes.blogspot.comExportingUsing domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales.The amount of capital needed to begin exporting is often quite minimalExisting production capacity may well be sufficient to make goods for export.A manufacturer involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world.

Puonlinenotes.blogspot.comA manufacturer can establish its own distribution and sales organizations in some or all of the target foreign markets.These strategies are primarily favored by Chinese, Korean and Italian companies-products are designed and manufactured at home and then distributed through local channels in the importing countries.The primary functions performed abroad relate chiefly to establishing a network of distributors and perhaps conducting sales promotion and brand awareness activities.Puonlinenotes.blogspot.comIn some industries, firms gain additional scale economies and experience/learning curve benefits from centralizing production in one or several giant plants whose output capability exceeds demand in any one country market.This strategy will be inappropriate in the following situationsManufacturing costs in the home country are substantially higher than in foreign countries where rivals have plants,The costs of shipping the product to distant foreign markets are relatively high.Adverse shifts occur in currency exchange rates.Unless an exporter can both keep its production and shipping costs competitive with rivals and successfully hedge against unfavorable changes in currency exchange rates, its success will be limited. Puonlinenotes.blogspot.comLicensingIf a firm has a valuable technical know-how or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets can use this strategy.Advantages It can avoid the risks of committing resources to country markets that are unfamiliar, politically volatile, economically unstable, or otherwise risky.By licensing the technology or the production rights to foreign based firms, the firm does not have to bear the costs and risks of entering foreign markets on its own, yet it is able to generate income from royalties.Puonlinenotes.blogspot.comDisadvantagesThe big disadvantages of using this strategy is the risk of providing valuable technological know how to foreign companies and thereby losing some degree of control over its use.Monitoring licensees and safeguarding the companys proprietary know how can prove quite difficult in some circumstances.The companies to whom the licenses are being granted should be both trustworthy and reputable so that the organization can generate maximum level of royalty.Many software and pharmaceutical companies use this strategyPuonlinenotes.blogspot.comFRANCHISINGA special form of licensing is franchising.It is suitable for service and retailing enterprises.It allows a franchisee to sell a highly publicized product or service using the parents brand name or trademark, carefully developed procedures, and marketing strategies.In exchange the franchisee pays a fee to the parent company, typically based on the volume of sales of the franchiser in its defined market area.The franchise is operated by the local investor who must adhere to the strict policies of the parent.World most champion of franchising is McDonalds, which has 70 percent of its company-owned stores as franchisees in foreign markets.Puonlinenotes.blogspot.comThe franchisee bears most of the costs and risks of establishing foreign locations.A franchisor has to expend only the resources to recruit,train,support,and monitor franchisees.The big problem a franchisor faces is maintaining quality controlForeign franchisees do not always exhibit strong commitment to consistency and standarization,especially when the local culture does not stress the same kinds of quality concerns. Puonlinenotes.blogspot.comAnother problem that can arise is whether to allow foreign franchisees to make modifications in the franchisors product offering so as to better satisfy the tastes and expectations of local buyers.Should McDonalds allow its franchised units in Japan to modify Big Macs slightly to suit Japanese tastes?Puonlinenotes.blogspot.comForeign BranchingA foreign branch is an extension of the company in its foreign marketIt is a separately located strategic business unit directly responsible for fulfilling the operational duties assigned to it by corporate management including sales, customer service and physical distribution.Host countries may require that the branch be domesticated i.e. have some local managers in middle and upper level positions.The branch most likely will be outside the domestic countries legal jurisdiction.Puonlinenotes.blogspot.comEquity InvestmentSmall and medium size enterprises with strong growth potential frequently have the need for additional funds to be able to grow further before deciding to trade their stock publicly in the marketplace.These firms often enlist the support of a venture capital firm or private equity company that invests its shareholders money in start ups and other risky but potentially very profitable small and medium sized enterprises.In exchange for a private equity stake, which is sometimes a majority or controlling position, private equity company provides investment capital and a range of business services, including management expertise.

Puonlinenotes.blogspot.comWholly Owned SubsidiariesWholly owned foreign subsidiaries are considered by companies that are willing and able to make the highest investment commitment to the foreign market.These companies insist on full ownership for reasons of control and managerial efficiency.Policy decisions about local product lines, expansion, profits, and dividends typically remain with in the headquarter top managers.Fully owned subsidiaries can be started either from scratch or by acquiring established firms in the host country.

Puonlinenotes.blogspot.comJoint VentureJoint venture is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity.In this strategy two or more sponsoring firms form a separate organization and have shared equity ownership in the new equity.It allocates ownership, operational responsibilities, and financial risks and rewards to each member while preserving their separate identity/autonomy.

Puonlinenotes.blogspot.comp68This strategy occur because the companies involved do not want to or cannot legally merge permanently.Joint ventures provide a way to temporarily combine the different strengths of partners to achieve and outcome of value to all.Extremely popular in international undertakings because of financial and political-legal constraints, forming joint ventures is a convenient way for corporations to work together without losing their independence.

Puonlinenotes.blogspot.comLoss of control, lower profits, probability of conflicts with partners, and the likely transfer of technological advantage to the partner.Joint ventures are often meant to be temporary, especially by some companies that may view them as a way to rectify a competitive weakness until they can achieve long term dominance in the partnership.Joint ventures tend to be more successful when both partners have equal ownership in the venture and are mutually dependent on each other for results.

Puonlinenotes.blogspot.comStrategic AlliancesA strategic alliance is a long term cooperative arrangement between two or more independent firms or business units that engage in business activities for mutual gain.Alliances between companies or business units have become a fact of life in modern business.Reasons for forming strategic alliancesTo obtain or learn new capabilitiesTo obtain access to specific marketsTo reduce financial riskTo reduce political risk

Puonlinenotes.blogspot.comThe EndPuonlinenotes.blogspot.comStrategic analysis and Choice in a Multi Business CompanyPuonlinenotes.blogspot.comThe Corporate Parent RoleRealizing synergies from shared capabilities and core competencies is a key way value is added in multibusiness companies.The corporate managers has to analyze those synergies and find out ways to capture.Corporate parent can add value to its businesses by the following two ways.The parenting frameworkThe patching approachPuonlinenotes.blogspot.comThe Parenting FrameworkThis approach sees multibusiness companies as creating value by influencing or parenting the businesses they own.The best parent companies create more value than any other businesses do if they owned the same businesses.To add value a parent must improve its businesses.This approach call the potential for improvement within the business a parenting opportunities.Here are some ten places to look for parenting opportunities.

Puonlinenotes.blogspot.comSize and ageOld, large, successful businesses frequently produce well-established bureaucracies and overhead structures that are hard to take apart from inside the business.It could add value because of an external catalyst the parent.Some SMEs may lack some key functional skills, managerial capabilities or lack of capital to deploy in resources so as to accelerated growth potential.Parenting opportunities may add value in these circumstances.

Puonlinenotes.blogspot.comManagementSome of the issues in the businesses are the use inefficient manpower, high labor turnover, and use of low level of skills workers in the job.Some managers have less objectives perspectives.The parenting opportunities ensure and address these issues objectively and assist in any resolution in the coming period. These parenting opportunities could direct and provide new shape for the organization.

Puonlinenotes.blogspot.comBusiness DefinitionBusiness unit managers may have a erroneous vision of what their business should be.Some managers may employ vertical integration not to others.However accelerated trends toward outsourcing and strategic alliances are changing the definitions of many businesses.These creates parenting opportunity to help redefine a business unit in a way that creates greater value. Puonlinenotes.blogspot.comPredictable ErrorsManagers are responsible for previous strategic decisions are vested in the success of those decisions which may prevent openness to new alternatives.Older or mature businesses often accumulate a variety of products and markets, which becomes excessive diversification within the particular business.Cyclical markets can lead to underinvestment during downturns and overinvestment during upswing.Lengthy life cycles can lead to overreliance on old products.All of these are predictable errors a parent can monitor and attempts to create value.Puonlinenotes.blogspot.comLinkagesBusiness units may be able to improve market position or efficiency by linking with other businesses.Linkages among business units within or outside the parent company may be complex or difficult to establish without parent company help.An opportunity to add value may exist.Puonlinenotes.blogspot.comCommon CapabilitiesFundamental to successful diversification is the notion of sharing capabilities and competencies needed by multiple business units.Parenting opportunities may arise time to time through regular scrutiny of opportunities to share capabilities or add shared capabilities that would otherwise go unnoticed by business unit managers closer to daily business operations.Puonlinenotes.blogspot.comSpecialized ExpertiseThere may be situations where the parent company possesses specialized or rare expertise that may benefit a business unit and add value in the process.Unique legal, technical, or administrative expertise critical in a particular situation or decision point, which is quickly and easily available can prove very valuable.External RelationsIf a business have external stakeholders such as governments,regulators,unions, suppliers and shareholders the parent company can manage more effectively than individual business units.

Puonlinenotes.blogspot.coml82Major DecisionsA business unit may face difficult decisions in areas which it lacks expertise for example, making an acquisition, entering China, a major capacity expansion, divesting and outsourcing a major part of the business operations.Obtaining capital externally to fund a major investment may be much more difficult than doing so through the parent company.Puonlinenotes.blogspot.comMajor changesSometimes a business needs to make major changes in ways critical to the business future success yet which involves areas or considerations in which the business units management has little or no experience.Puonlinenotes.blogspot.comThe patching approachPatching/area is the process by which corporate executives routinely restore businesses to match rapidly changing market opportunities.It can take the form of adding, spitting/discharging, transfering,exiting or combining chunks of businesses.Patching is not seen as critical in stable, unchanging market. When markets are turbulent and rapidly changing, patching is seen as critical to the creation of economic value in a multi-business company. Puonlinenotes.blogspot.comThis strategy particularly used in the volatile markets.In this market patchers strategic analysis focuses on making quick, small frequent changes in parts of businesses and organizational processes that enable dynamic strategic repositioning rather than building long term defensible positions.To be successful with a patching approach to corporate strategic analysis and choice in turbulent markets, the managers should flexibly seize opportunities-as long as that flexibility is disciplined.

Puonlinenotes.blogspot.comThe basic argument of this approach is that no one can predict how long a competitive advantage will past, particularly in turbulent, rapidly changing markets.Managers in stable markets may be able to rely on complex strategies built on detailed predictions of future trends, managers in complex, fast moving markets where significant growth and wealth creation may occur face constant unpredictabilityThus strategy must be simple, responsive, and dynamic to encourage success. Puonlinenotes.blogspot.comThe Synergy Approach: Leveraging Capabilities and Core CompetenciesOpportunities to build value via diversification, integration, or joint venture strategies are usually found in market related, operating related and management activities.Each businesss basic value chain activities or infrastructure becomes a source of potential synergy and competitive advantage for another business in the corporate portfolio. Puonlinenotes.blogspot.comStrategic analysis is concerned with whether or not the potential competitive advantages expected to arise from each opportunity have materialized.Corporate strategists must take care to scrutinize possible obstacles to achieving the synergy or competitive advantage before diversification strategy.Capitalize on core competenciesThe basic reason to diversify is core competencies-key value building skills-can be leveraged with other products or into markets that are not a part of where they were created.

Puonlinenotes.blogspot.comEach core competency should provide a relevant competitive advantage to the intended businesses.The core competency must assist the intended business in creating strength relative to key competitors.The core competency can be transferable.Businesses in the portfolio should be related in ways that make the companys core competencies beneficialAny combination of competencies must be unique or difficult to re-createPuonlinenotes.blogspot.comBehavioral Considerations Affecting Strategic ChoiceStrategic choice is a decision.At both the corporate and business levels, this decision determines the future strategy of the firm.It is the decision to adopt one of the alternative scrutinized.If the currently used alternative is sufficient and can address the future success of the company the decision will be the simple.Several external and market variables will provide the pressure over the firm and make the strategic decision more challenging.Puonlinenotes.blogspot.comThe following factors influence the strategic choice decisionsRole of past strategyDegree of the firms external dependenceAttitudes toward riskInternal political considerations and the CEOTimingCompetitive reactionRole of Past StrategyA review of past strategy is the point at which the process of strategic choice begins.Past strategy exerts considerable influence on the final strategic choice.Puonlinenotes.blogspot.comCurrent strategies are often the architects of past strategies.They have invested substantial time,resources,and interest in these strategies, the strategists would logically be more comfortable with a choice that closely parallels past strategy or represents only incremental alternatives.Lower level management reinforces the top managers inclination toward continuity with past strategy during the choice process.The older and more successful a strategy the harder it is to replace.A strategy once initiated is very difficult to change because organizational momentum keeps it going.Some firms will replace their CEO if past strategy will fail so as to improve on that strategy.

Puonlinenotes.blogspot.comDegree of Firms External DependenceA comprehensive strategy is meant to effectively guide a firms performance in the larger external environment.Owners, suppliers, customers, government, competitors, and unions are a few of the elements in a firms external environment.A major constraint on strategic choice is the power of environmental elements supporting this decision.If a firm is highly dependent on one or more environmental factors its strategic alternatives and ultimate choice must accommodate this dependence.The greater a firms external dependence, the lower its range and flexibility in strategic choice.Puonlinenotes.blogspot.comAttitude Toward RiskRisk attitudes may vary from eager risk taking to strong aversion to risk, and they influence the range of available strategic choices.Where attitudes favor risk, the range and diversity of strategic choices expand.High risk strategies are acceptable and desirable. where management is risk averse, the diversity of choice is limited, any risky alternatives are eliminated before strategic choices are made.Risk oriented managers prefer offensive, opportunistic strategies.Risk averse managers prefer defensive, safe strategies.

Puonlinenotes.blogspot.comManagerial Risk Propensity and Strategic ChoicesRisk averseDecrease choicesDefensive strategiesStabilityIncrementalMinimize company weaknessesStrong ties with past strategyStable industryMaturing product/market evolutionRisk proneExpand choicesOffensive strategiesGrowthInnovationMaximize company strengthsFewer ties with past strategyVolatile industryEarly product/market evolution Puonlinenotes.blogspot.comInternal Political ConsiderationsPower/political factors influence strategic choice.The existence and use of power to further individual or group interests is common in organizational life.A major source of power in most organizations is the chief executive officer.In smaller and big organization if the CEO is strong or dominant and he will begins to favor a particular choice it is unanimously selected.In some large organizations, subunits and individuals particularly key managers have to reason to support some alternatives and oppose others.The costs are likely to be increased time spent on decision making and incremental (as opposed to drastic) change if there is the possibility of formal and informal negotiation.

Puonlinenotes.blogspot.comTiming ConsiderationsStrategic choice will be strongly influenced by the match between managements current time horizon and the lead time associated with different choices.Time dimensions involves the lead time required for alternative choices and the time horizon management is contemplating.Managements primary attention may be on the short or long run, depending on current circumstances.Puonlinenotes.blogspot.comCompetitive ReactionTop management frequently incorporates perceptions of likely competitor reactions to different options.If management chooses and aggressive strategy that directly challenges a key competitor, that competitor can be expected to mount aggressive counterstrategy.The capacity of the competitor to react and the probable impact on the chosen strategys success.Puonlinenotes.blogspot.comDiversificationA diversified company is a collection of individual businesses.The strategy making task will be more complex than individual businesses.In diversified company strategy making involves assessing multiple industry environments and developing a set of business strategies.In diversified company corporate level executives delegate considerable strategy making authority to the heads of each business units.They provide latitude to craft a business strategy suited to their particular industry.Puonlinenotes.blogspot.comIn diversification the corporate managers task is to finding the followingsPicking new industries to enter and deciding on the means of entryThe particular concern are new industries to get into and whether to entry by starting a new business from the ground up, acquiring a company already in the target industry, or forming a joint venture or strategic alliance with another company.Initiating actions to boost the combined performance of the businesses the firm has entered.Corporate strategists must strengthen the long term competitive positions and profits of the businesses the firm has invested in.

Puonlinenotes.blogspot.comCorporate parents can help to their business subsidiaries by providing financial resources, by supplying missing skills or technological know-how or managerial expertise to better perform key value chain activities and by providing new avenues for cost reduction.A company can pursue rapid growth strategies in its most promising businesses, initiate turnaround efforts in weak performing businesses with potential and divest businesses that are no longer attractive or dont fit into managements long range plans.Puonlinenotes.blogspot.comPursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantageA company that diversifies into businesses with competitively important value chain match up and can get competitive advantage than totally unrelated.A company can transfer its skills on another business units and can reduce the costs.Establishing investment priorities and steering corporate resources into the most attractive business units.A companys different businesses are usually not equally attractive from the perspective of investing additional funds.Puonlinenotes.blogspot.comCorporate management has to Decide on the priorities for investing capital in the companys different businessesChannel resources into areas where earnings potential are higher and away from areas where they are lowerDivest business unit that chronically poor performers or are in an increasingly unattractive industry.Puonlinenotes.blogspot.comWhen to DiversifyIf a company has potential growth opportunities in its present industry there is no urgency to pursue diversificationThe big risk of a single business company is having all the eggs into one basket.If the demand for the industrys product is eroded by the appearance of alternative technologies, substitute products, or fast shifting buyer preferences, unattractive or unprofitable, then the companys future prospect will be dim.Diversifying into new industries always merits strong consideration whenever a single business company encounters diminishing market opportunities and stagnating sales in the principal business.Puonlinenotes.blogspot.comIn the following situations the company may consider the diversificationWhen it spots opportunities for expanding into industries whose technologies and products complement its businessWhen it can leverage existing competencies and capabilities by expanding into businesses where these same resource strengths are key success factors and valuable competitive assetsWhen diversifying into closely related businesses opens new avenues for reducing costs.When it has a powerful and well known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such businesses.Puonlinenotes.blogspot.comRelated Vs Unrelated DiversificationOnce a company makes a decision to diversify the big question is whether to diversify into related businesses or in unrelated businesses or some mix of both.Businesses are said to be related when their value chains posses competitively valuable cross business relationships that present opportunities for the businesses to perform better under the same corporate umbrella than they could by operating as stand alone entities.Puonlinenotes.blogspot.comThe big appeal of related diversification is to build shareholder value by leveraging these cross business relationships into competitive advantage, thus allowing the company as a whole to perform better than just the sum of its individual businesses.Businesses are said to be unrelated when the activities comprising their respective value chains are so dissimilar that no competitively valuable cross business relationships are present.

Puonlinenotes.blogspot.comRelated DiversificationA related diversification strategy involves building the company around businesses whose value chains possess competitively valuable strategic fits.Strategic fit exists whenever one or more activities comprising the value chains of different businesses are sufficiently as to present opportunities for Transferring competitively valuable expertise, technological know-how,or other capabilities from one business to another.Combining the related value chain activities of separate businesses into a single operation to achieve lower costs.Exploiting common use of a well known and potent brand nameCross business collaboration to create competitively valuable resource strengths and capabilities.Puonlinenotes.blogspot.com 109Unrelated DiversificationAn unrelated diversification strategy focuses on entering and operating businesses in industries that allow the company as a whole to grow its revenues and earnings.The basic of this strategy is that any company or business that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity.Puonlinenotes.blogspot.comThe corporate manager has to consider following criteria while taking unrelated diversification strategyWhether the business can meet corporate targets for profitability and return on investmentWhether the business is in an industry with attractive growth potentialWhether the business is big enough to contribute significantly to the parent firms bottom lineWhether the business has burdensome capital requirementsWhether the business is plagued with chronic union difficulties and labor problemsWhether there is industry vulnerability to recession,inflation,high interest rates, tough government regulations concerning product safety or the environmentand other potentially negative factors.Puonlinenotes.blogspot.comAdvantages of Unrelated DiversificationBusiness risk can be minimizedFinancial resource can be employed to maximum advantage in best profit prospects and in firms which have high profit potential.Bargaining position of the company can established and can set up to upper limit if turnaround firm can be acquiredStable/balanced financial conditions can be created

Puonlinenotes.blogspot.comDisadvantages of DiversificationThe difficulties of competently managing many different businesses and being without the added source of competitive advantage that cross business strategic fit provides.Relying solely on the expertise of corporate executives to wisely manage a set of unrelated businesses is a much weaker foundation for enhancing shareholder value than is a strategy of related diversification where corporate performance can be boosted by competitively valuable cross business strategic fits.Puonlinenotes.blogspot.comBuilding Shareholder ValueCreating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of its parts.Diversification must do more for a company than simply spread its business risk across various industries.Diversification can not be considered a success unless it results in added shareholder value.To raise the value of the shareholders economically the following tests should have passed before diversify.The industry attractiveness testThe cost of energy testThe better off test

Puonlinenotes.blogspot.comThe industry attractiveness testThe industry to be entered must be attractive enough to yield good ROI or Net Profit than in present businesses.The cost of entry testThe cost to enter the target industry must not be so high as to erode the potential for good profitability.However the more attractive an industrys prospects are for growth and good long term profitability, the more expensive it can be to get into.Entry barriers for start up companies are likely to be high in attractive industries where as low in other industries.If entry barriers are low profit potentials can be shared among the new entrants.Buying a well positioned company in an appealing industry often entails a high acquisition cost that makes passing the cost of entry test less likely.Puonlinenotes.blogspot.comThe better off testDiversifying into a new business must offer potential for the companys existing businesses and the new business to perform better together under a single corporate umbrella than they would perform operating as independent stand alone businesses(1+1=3).

Puonlinenotes.blogspot.comThank YouPuonlinenotes.blogspot.comOperationalizing StrategyPuonlinenotes.blogspot.comPuonlinenotes.blogspot.comStrategy ImplementationStrategy implementation is the sum total of the activities and choices required for the execution of a strategic plan.It is the process by which objectives, strategies, and policies are put into action through the development of programs, budgets, and procedures.Though implementation is usually considered after strategy has been formulated, implementation is a key part of strategic management.Strategy formulation and strategy implementation should thus be considered as two sides of the same coin.

Puonlinenotes.blogspot.comStrategy implementation is concerned with the following pointsWho are the people who will carry out the strategic plan?What must be done to support the companys operations in the new intended direction?How is everyone going to work together to do what is needed?Puonlinenotes.blogspot.comProblems associated with implementation of strategic changeImplementation may take more time than originally plannedUnanticipated major problems may ariseActivities are ineffectively coordinatedCompeting activities and crises may take attention away from implementationThe involved employees may have insufficient capabilities to perform their jobs.Lower level employees may inadequately trainedUncontrollable external environmental factors can create problemsDepartmental managers may provide inadequate leadership and direction.Key implementation tasks and activities may poorly definedThe information system may inadequately monitored activities.

Puonlinenotes.blogspot.comWho Implement StrategyDepending on how a corporation is organized, those who implement strategy will probably be a much more diverse set of people than those who formulate it.In most large, multi industry corporations, the implementers are everyone in the organization.Vice presidents of functional areas and directors of divisions or strategic business units (SBUs) work with their subordinates to put together large scale implementation plans.

Puonlinenotes.blogspot.comPlant managers, project managers, and unit heads put together plans for their specific plants, departments, and units.Every operational manager down to the first line supervisor and every employee is involved in some way in the implementation of corporate, business and functional strategies.What must be done?The managers of divisions and functional areas work with their fellow managers to develop programs, budgets, and procedures for the implementation of strategy.They also work to achieve synergy tends to result in better organizational performance.Puonlinenotes.blogspot.comNature of Strategy ImplementationSuccessful strategy formulation does not guarantee successful strategy implementation.Requires managerial forces during the actionFocuses on efficiencyPrimarily is an operational processRequires special motivation and leadership skillsRequires coordination among many individualsPuonlinenotes.blogspot.comShort Term ObjectivesShort term objectives are measurable outcomes achievable or intended to be achieved in one year or less.They are specific, usually quantitative, results operating managers set out to achieve in the immediate future. For example Objectives More inventoryLess inventoryFrequent short runLong production runsPuonlinenotes.blogspot.comFast order processingCheap order processingFast deliveryLowest cost routingField warehousingLess warehousingPlant warehousingImportance of short term objectivesShort term objectives operationalize long term objectives.For example if we commit to a 20 percent gain in revenue over five years, what is our specific target or objective in revenue during the current year, month, or week to indicate we are making appropriate progress.Puonlinenotes.blogspot.comShort term objectives help raise issues and potential conflicts within an organization that usually require coordination to avoid otherwise dysfunctional consequences.Short term objectives assist strategy implementation by identifying measurable outcomes of action plans or functional activities, which can be used to make feedback, correction, and evaluation more relevant and acceptable.We have to design action plan so as to support short term objectives.

Puonlinenotes.blogspot.comThe action plan specify what exactly is to be done inside the organization.The action plan also clear about time frame for completion i.e. when the effort will begin and when its results will be accomplished.Moreover the action plan also identify the person who is responsible to perform the task.The accountability is very much important to ensure actions plans are acted upon. Puonlinenotes.blogspot.comQualities of Effective Short Term ObjectivesMeasurable Short term objectives are more consistent and concerned with What is to be accomplishedWhen it will be accomplishedHow its accomplishment will be measured. It is far easier to quantify the objectives of line units (production) than of certain staff areas (personnel).Difficulties in quantifying objectives often can be overcome by initially focusing on measurable activity and then identifying measurable outcome.

Puonlinenotes.blogspot.comPriorities Short term objectives requires priority because of a timing consideration or their particular impact on a strategys success.If we are not establishing priorities conflicting assumptions about the relative importance of annual objectives may inhibit progress toward strategic effectiveness.We can prioritize based on the discussion and negotiation during the planning process.For example we can rank as primary, secondary and next etc.Puonlinenotes.blogspot.comLinked to long term objectivesShort term objectives can add breadth and specificity in identifying what must be accomplished to achieve long term objectives.The value added benefits of short term objectives and action plansIt provides operating personnel a better understanding of their role in the firms mission.Moreover it also provides clarity of purpose and the use of people assets of the organization.

Puonlinenotes.blogspot.com2.Short term objectives and action plans become the forum for raising and resolving conflicts between strategic intention and operational realities.It provides a basis for strategic control.It provides a clear, measurable basis for developing budgets, schedules and other mechanisms for controlling the implementation of strategy.It provides the motivational payoff.It clarify the personnel and group roles in a firms strategies and are also measurable, realistic, and challenging can be powerful motivators of managerial performance-particularly when these objectives are linked to the firms reward structure.Puonlinenotes.blogspot.comLong Term ObjectivesThe results that an organization seeks to achieve over a multiyear period is called long term objectivesIt represents the results expected from pursuing certain strategiesStrategies represent the actions to be taken to accomplish long term objectives.The time frame for objectives and strategies should be consistent, usually from two to five years.Puonlinenotes.blogspot.comQualities of Long Term ObjectivesAcceptableFlexibleMeasurable over timeMotivatingSuitableUnderstandableAchievableAcceptableLong term corporate objectives frequently are designed to be acceptable to groups external to the firm.For example the efforts to decrease air pollution that are undertaken at the resolve of the Environmental Protection Agency.Puonlinenotes.blogspot.comFlexible Objectives should be adaptable to unforeseen or extraordinary changes in the firms competitive or environmental forecasts.For example the personnel department objective of providing managerial developing training for 15 supervisors per year over a next five year period might be adjusted by changing the number of people to be trained.Measurable Objectives must clearly and concretely state what will be achieved and when it will be achieved.Puonlinenotes.blogspot.comFor example the objective of substantially improving our return on investment would be better stated as increasing the return on investment on our line of paper products by a minimum of 1% a year and a total of 5% over the next three years.Motivating The objectives should be productive and have to set at a motivating level i.e. one high enough to challenge but not so high as to frustrate or so low as to be easily attained.Puonlinenotes.blogspot.comA broad objective that challenges one group frustrates another and minimally interests a third.The objectives be tailored to specific groupsSuitableObjectives must be suited to the broad aims of the firm, which are expressed in its mission statement.Each objective should be a step toward the attainment of overall goals.Puonlinenotes.blogspot.comUnderstandable Strategic managers at all levels must understand what is to be achieved.Objectives must be clear meaningful and unambiguous.AchievableObjectives must be possible to achieveHowever turbulence in the remote and operating environments affects a firms internal operations, creating uncertainty and limiting the accuracy of the objectives set by strategic management.

Puonlinenotes.blogspot.comAreas of long term objectivesProfitabilityProductivityCompetitive positionEmployee developmentEmployee relationsTechnological leadershipPublic responsibilityPuonlinenotes.blogspot.comPoliciesPolicies are directives designed to guide the thinking,decisions,and actions of managers and their subordinates in implementing a firms strategy.Policies are also called these standard operating procedures.Policies increase managerial effectiveness by standardizing many routine decisions and clarifying the direction managers and subordinates can exercise in implementing functional tactics.Puonlinenotes.blogspot.comPolicies are derived from functional tactics with a key purpose of aiding strategy execution.Policies facilitate solving repetitive problems and guide the implementation of strategy.Moreover it refers to specific guidelines,methods,procedures,rules,forms,and administrative practices established to support and encourage work toward stated goals.These are the instruments of strategy implementation.Puonlinenotes.blogspot.comThese are boundaries,constraints,and limits on the kinds of administrative actions that can be taken to reward and sanction behavior.Policies clarify what can and cannot be done in pursuit of an organizations objectives.For example corporate relate to surfing the web while at work.Carnival paradise ship has no smoking policy anywhere anytime abroad ship.

Puonlinenotes.blogspot.comImportance of policiesPolicies establish indirect control over independent actionIt states how things are to be done and empower employees to conduct activities without direct intervention by top management.Policies promote uniform handling of similar activitiesIt facilitates the coordination of work tasks and helps to reduce friction/resistance arising from favoritism, and discriminationPuonlinenotes.blogspot.comPolicies ensures quicker decisionsIt standardizes answers to answers to previously answered questions that otherwise would recur and be pushed up the management hierarchy again and again.Policies institutionalize basic aspects of organization behaviorIt minimizes conflicting practices and establishes consistent patterns of action in attempt to make the strategy work.It provides freedom to operating personnel to act.Puonlinenotes.blogspot.comPolicies reduce uncertainty in repetitive and day to day decision makingIt provides necessary foundation for coordination, efficient efforts and freeing operating personnel to act. Policies counteract resistance to or rejection of chosen strategies by organization members.When major strategic change is undertaken unambiguous operating policies clarify what is expected and facilitate acceptance, particularly when operating managers participate in policy development. Puonlinenotes.blogspot.comPolicies offer predetermined answers to routine problemsIt provides more time to review previously applied answers for ordinary and extraordinary problems.Policies afford managers a mechanism for avoiding speedy and ill conceived decisions in changing operations.Puonlinenotes.blogspot.comPolicies may be written and formal or unwritten and informal.Informal unwritten policies are usually associated with a strategic need for competitive secrecy.Formal written policies have at least following advantages.They require managers to think through the policys meaning, content and intended use.They reduce misunderstandingThey make equitable and consistent treatment of problems more quickly.Puonlinenotes.blogspot.comThey ensure unalterable transmission of policiesThey communicate the authorization or sanction of policies more clearlyThe supply of convenient and authoritative referenceThey systematically enhance indirect control and organization wide coordination of the key purposes of policies.

Puonlinenotes.blogspot.comFunctional Tactics to Operationalize StrategyFunctional tactics are the key, routine activities that must be undertaken in each functional areas such as marketing, finance, POM,R&D and HRM to provide the goods and services.Functional tactics translate grand strategy into action designed to accomplish specific short term objectives.Every value chain activity in a company executes functional tactics that support the business strategy and help accomplish strategic objectives.

Puonlinenotes.blogspot.comPOM Functional TacticTypical questions that the functional tactic should answerFacilities and equipment One big facilities or several small facilitiesIntegration of separate processesMechanization or automation levelSize and capacity toward peak or normal levelSourcing Suppliers sourcesSuppliers selection, retention and developmentUse of hedging tools (forward buying)Operation planning and controlMake to order or make to buyInventory level Inventory used, controlled and replenishedQuality control, labor cost, product useMaintenance of assets or breakdownJob specialization, plant safety, safety standardsPuonlinenotes.blogspot.comMarketing Functional tacticTypical questions that the functional tactic should answerProduct/ service Products and service emphasizedProducts and service contribution to profitabilityProduct and service image we seek to projectConsumer needs does the product seek to meetChanges in the product and service to influence customerPrice Price base competitionDiscounts Standard pricing or regional controlPrice segments we targetGross profit marginCompetition based pricing or cost/demand based pricing PlaceMarket coverage, geographic areas, channels of distributionChannel objectives, structure and managementRelationships of marketing managers with distributors, sales reps and direct sellersOrganization we want Sales force organized around territory,market,or product

Promotion Promotion priorities and approachesAdvertising/communication priorities and approaches to products,markets,and territories etc.Best marketing media.Puonlinenotes.blogspot.comFinance and Accounting Functional tacticTypical questions that the functional tactics should answerCapital acquisitionCost of capitalLong term and short term debt, preferred and common stockInternal and external financingRisk and ownership restrictionsLeasing Capital allocationPriorities for capital allocationSelection of projectsOperations manager autonomy for capital allocationDividend and working capital managementDividend payout ratioDividend stability (importance)Cash or stock dividendCash flow requirement, minimum and maximum cash flow Credit policiesLimits, payment terms, and collection proceduresPayment timing and procedure Puonlinenotes.blogspot.comR&DFunctional tacticTypical questions that the functional tactics should answerBasic research versus product and process developmentInnovation and breakthrough researchProduct development,refinement,and modification

Time horizonShort term or long termMarketing and production strategyOrganizational fitIn build R&D or contracted R&DCentralized or decentralized R&DRelationships of R&D units with product managers, production managers and marketing managersBasic R&D postureOffensive posture to lead innovation

Puonlinenotes.blogspot.comHRMFunctional tacticTypical questions that HRM tactics should answerRecruitment, selection and orientationHuman resources to chosen strategyRecruitment, selection and socializationCareer development and training Demand for future human resource needs Training and development

Compensation PayMotivation and retention Payment,incentive,benefits and seniority policyEvaluation,discpline and controlEvaluation of people formally or informallyDisciplinary actions Control of individual and group behaviorLabor relations and equal opportunity requirementsLabor management cooperationHiring policiesPuonlinenotes.blogspot.comDifference between business strategies and functional tacticsFunctional tactics are different from business strategies in three waysTime horizonSpecificityParticipants who develop themPuonlinenotes.blogspot.com1.Time horizonFunctional tacticsFunctional tactics identify activities to be undertaken now in or in the immediate future.Functional tactics focuses on now and it adjusts to changing current situations.Business strategies Business strategies focus on the firms posture three to five years out.Puonlinenotes.blogspot.com2.SpecificityFunctional tacticsFunctional tactics are more specific than business strategiesBusiness strategiesBusiness strategies are more general than functional tactics.3.Participants Functional tacticsFunctional tactics are developed by business managers and operating managers.Business strategiesBusiness strategies are developed by corporate managers and business managers

Puonlinenotes.blogspot.comResource Allocation Strategic management enables resources to be allocated according to priorities established by annual objectives.All organizations have at least four types of resources that can be used to achieve desired objectives: financial resources, physical resources, human resources and technological resources.Allocating resources to particular divisions and departments does not mean that strategies will be successfully implemented.Puonlinenotes.blogspot.comThe following factors may influence in the resource allocation decisionsAn overprotection of resourcesToo great an emphasis on short-run financial criteriaOrganizational politicsVague strategy targetsA reluctance to take risksA lack of sufficient knowledgeThe real value of any resource allocation program lies in the resulting accomplishment of an organizations objectives. Puonlinenotes.blogspot.comEffective resource allocation does not guarantee successful strategy implementation because programs,personnel,controls,and commitment must breathe life into the resources provided.Strategic management itself is sometimes referred to as a resource allocation process. Puonlinenotes.blogspot.comManaging Conflict Interdependency of objectives and competition for limited resources often leads to conflict.Conflict can be defined as a disagreement between two or more parties on one or more issues.Establishing annual objectives can lead to conflict because individuals have different expectations and perceptations,schedules create pressure, personalities are incompatible, and misunderstandings between line managers and staff managers occur.Puonlinenotes.blogspot.comEstablishing objectives can lead to conflict because managers and strategists must make trade offs in the areas ofShort term profits or long term profitsProfit margin or market shareMarket penetration or market developmentGrowth or stabilityHigh risk or low riskSocial responsiveness or profit maximization etc.Puonlinenotes.blogspot.comPuonlinenotes.blogspot.comConflict is unavoidable in organizations.It should be managed and resolved before dysfunctional consequences affect organizational performance.Conflict can serve to energize opposing groups into action and may help managers identify problems.

Puonlinenotes.blogspot.comApproaching to managing conflictAvoidanceDiffusionConfrontation Avoidance Avoidance includes such actions as ignoring the problem in hopes that the conflict will resolve itself or physically separating the conflicting individuals or groups.Puonlinenotes.blogspot.comDiffusionDiffusion can include playing down differences between conflicting parties while emphasizing similarities and common interests, compromising so that there is neither a clear winner nor loser, resorting to majority rule, appealing to a higher authority, or redesigning present positions.ConfrontationIt is exemplified by exchanging members of conflicting parties so that each can gain an appreciation of the others point of view, or holding a meeting at which conflicting parties present their views and work through their differences.Puonlinenotes.blogspot.comEmployee empowerment Empowerment is the act of allowing an individual or team the right and flexibility to make decisions and initiate action.It is being expanded and widely advocated in many organizations today.Some of the employee empowerment techniques are training, self managed work groups, eliminating whole layers of hierarchy, and use of automation.The effort of employee empowerment should have ensure and consistent with mission, strategy and tactics.The employee should have get considerable latitude to take a decision.Puonlinenotes.blogspot.comThe EndPuonlinenotes.blogspot.comInstitutionalizing StrategyPuonlinenotes.blogspot.comPuonlinenotes.blogspot.comPuonlinenotes.blogspot.comOrganizational structure refers to the formalized arrangement of interaction between and responsibility for the tasks, people, and resources in an organization.It is a chart often a pyramidal with positions or titles and roles in cascading fashion.Institutionalizing of strategy refers to the getting work of the business done efficiently and effectively so as to the strategy work.Puonlinenotes.blogspot.comIt is concerned with the best way to organize people and tasks to execute the strategy effectively.It also denotes the activities that are done inside the organization and activities that are done outside the organization (outsourcing).It is also concerned with the structure of the organization we want to aspire.Moreover it refers to the degree of control, coordination, openness, and innovation in implementing a strategy as per the company situation

Puonlinenotes.blogspot.comTypes of Organization StructuresSimple organizational structureFunctional organizational structureDivisional structureStrategic business unitsHolding companyMatrix organizational structureProduct team structurePuonlinenotes.blogspot.comSimple organizational structureStructure in which there is an owner and a few employees and where the arrangement of tasks, responsibilities, and communication is highly informal and accomplished through direct supervision is called simple organizational structure.The very smallest business enterprise follow this organization structure. All strategic and operating decisions are made by the owner, or a small owner partner team.Puonlinenotes.blogspot.comIn this structure there will be limited scope, little formalized roles, communication and procedures.One bad strategic decision could provide threatened to the continuance of the business.This structure provides high degree of owners control.It also allows rapid response to product/ market shifts and ability to accommodate unique customer demands without major coordination difficulties.This structure encourage employees to multitasking as well.This structure usually require multitalented, resourceful owner, good at producing and selling a product or service and at controlling scarce funds. Puonlinenotes.blogspot.comFunctional organizational structureStructure in which the tasks,people,and technologies necessary to do the work of the business are divided into separate functional group (e.g. marketing,operations,and finance) with increasingly formal procedures for coordinating and integrating their activities to provide the businesss products and services. Functional structures predominate in firms with a single or narrow products focus.Puonlinenotes.blogspot.comPuonlinenotes.blogspot.comFunctional Organizational StructureStrategic AdvantagesAchieves efficiency through specializationDevelop functional expertiseDifferentiates and delegates day to day operating decisionsRetains centralized control of strategic decisionsTightly links structure to strategy by designating key activities as separate unitsStrategic DisadvantagesPromotes narrow specialization and functional rivalry or conflictCreates difficulties in functional coordination and interfunctional decision makingLimits development of general managersHas a strong potential for interfunctional conflict priority placed on functional areas, not the entire businessMay cost more to do a function than it does outside the company, unless outsourced.Puonlinenotes.blogspot.comDivisional StructureWhen a firm diversifies its product/service lines, covers broad geographic areas, utilizes unrelated market channels, or begins to serve heterogeneous customer groups, a functional structure rapidly becomes inadequate.A divisional organizational structure is one in which a set of relatively autonomous units, or divisions, are governed by central corporate office but where each operation division has its own functional specialists who provide products or services different from those of other divisions.

Puonlinenotes.blogspot.comA divisional structure allows corporate management to delegate authority for the strategic management of distinct business entities-the division.This enables decision making in response to varied competitive environments and corporate management to concentrate on corporate level strategic level decisions.The division usually is given profit responsibility which facilitates accurate assessment of profit and loss.Puonlinenotes.blogspot.comChief Executive OfficerVP Administrative ServicesVP Operating SupportGeneral Manager Division A/SBU AGeneral Manager Division B/SBU BGeneral Manager Division C/SBU CManager HRManager Account and Finance Manager R&DManager Marketing and SalesManager POMPersonnelAccounting and ControlDivision Planning MarketingPOMPersonnelAccounting and ControlDivision Planning MarketingPOMDivisional Organizational StructurePuonlinenotes.blogspot.comAdvantages and disadvantagesStrategic advantagesForces coordination and necessary down to the appropriate level for rapid responsePlaces strategy development and implementation in closer proximity to the unique environments of the divisionFrees chief executive officer for broader strategic decision makingSharply focuses accountability for performanceRetains functional specialization within each divisionProvides good training good for strategic managersIncreases focus on products, markets, and quick response to changeStrategic disadvantagesFosters potentially dysfunctional competition for corporate level resourcesPresents the problem of determining how much authority should be given to divisional managersCreates a potential for policy inconsistencies among divisionsPresents the problem of distributing corporate overhead costs in a way that is acceptable to division managers with profit responsibilityIncreases costs incurred through duplication functionsCreates difficulty maintaining overall corporate image.Puonlinenotes.blogspot.comStrategic Business UnitThe SBU is an adaptation of the divisional structure where by various divisions or parts of divisions are grouped together based on some common strategic elements usually linked to distinct product market differences.For example General Foods has its own SBUs such as Breakfast foods, beverages, main meals, and pet foods etc.Some firms encounter difficulty in controlling their divisional operations as the diversity,size,and number of these units continues to increase and add the SBU layers in their hierarchy.Puonlinenotes.blogspot.comHolding CompanyStructure in which the corporate entity is a broad collection of often unrelated businesses and divisions such that it (the corporate entity) acts as financial overseer holding the ownership interest in the various parts of the company, but has a little direct managerial involvement.It reduces the cost and one of the drawback of this structure is lack of control over decisions to make timely corrections and adjustments.Puonlinenotes.blogspot.comMatrix Organization StructureThe matrix organizational structure is one in which functional and staff personnel are assigned to both a basic functional area and to a project or product manager.It provides dual channels of authority, performance responsibility, evaluation, and control.The matrix form is intended to make the best use of talented people within a firm by combining the advantages of functional specialization and product project specialization.Puonlinenotes.blogspot.comThe matrix organization structure increases the number of middle managers who exercise general management responsibilities through the project manager role.It broadens the middle managers exposure to organization wide strategic concerns.It overcomes a key deficiency of functional organizations while retains the advantages of functional specialization.It is difficult to implement.Dual chains of command challenge fundamental organizational problems.Negotiating shared responsibilities the use of resources and priorities can create misunderstanding or confusion among subordinates.Puonlinenotes.blogspot.comChief Executive OfficerVPEngineeringVPProductionVPPurchasingVP AdministrationAdministration CoordinatorPurchasing Agent Production StaffEngineering StaffProject Manager AProject Manager BEngineering StaffProduction StaffPurchasing Agent Administration CoordinatorProduction StaffProject Manager CEngineering StaffPurchasing Agent Administration CoordinatorPuonlinenotes.blogspot.comAdvantages and DisadvantagesStrategic advantagesAccommodates a wide variety of project oriented business activities Provides good training ground for strategic managersMaximizes efficient use of functional managersFosters creativity and multiple sources of diversityGive middle management broader exposure to strategic issues

Strategic disadvantagesMay result is confusion and contradictory policiesNecessitates tremendous horizontal and vertical coordinationCan reproduce information and excess reportingCan cause neighborhood battles and loss of accountability

Puonlinenotes.blogspot.comProduct Team StructureThe product team structure seeks to simplify and increase the focus of resources on a narrow but strategically important product, project, market, customer, or innovation.The product team structure assigns functional managers and specialists to a new product, project, or process team that is empowered to make major decision about their product.The team is created at the inception of the new product idea and they stay with it indefinitely if it becomes a viable business.

Puonlinenotes.blogspot.comInstead of being assigned on a temporary basis as in the matrix structure team members are assigned permanently to that team in most cases.This result in much lower coordination costs and because every function is represented usually reduces the number of management levels above the team level needed to approve team decisions.Puonlinenotes.blogspot.comChief Executive OfficerResearch and DevelopmentEngineeringOperations FinanceSales and MarketingProduct or Process TeamPuonlinenotes.blogspot.comStructuring an Effective OrganizationMajor efforts to improve traditional organizational structures seek to reduce unnecessary control and focus on enhancing core competencies, reducing costs, and opening organizations more fully to outside involvement and influence.Puonlinenotes.blogspot.comToday and tomorrow, organizational structure reflects an external focus, flexible interaction,interdepedency, and a bottom up approach, just to mention a few characteristics associated with strategy execution and success.The fundamental trends are driving decisions about effective organizational structures in the twenty first century are GlobalizationInternetSpeed of decision makingMatch structure with strategy

Puonlinenotes.blogspot.comGlobalizationThe need for global coordination and innovation is forcing constant experimentation and adjustment to get the right mix of local initiative, information flow, leadership, and corporate culture.Global firms have to locate operations in numerous countries.Today it will call on talents and resources wherever they can be found around the globe, just as it now sells worldwide.

Puonlinenotes.blogspot.comFor example some MNCs based in the USA,do its software programming in New Delhi, its engineering in Germany, and its manufacturing in Indonesia.Organizations structures are revolutionary day by day.InternetThe internet gives everyone in the organization, or working with it, from lowest clerk to the CEO to any supplier or customer, the ability to access a vast array of information-instantaneously, from anywhere.

Puonlinenotes.blogspot.comWe can access ideas,requests,instructions from the global in the blink of an eye.It allows the global enterprise with different functions, offices, and activities spread around the world to be flawlessly connected so that far customers, employees and suppliers can work together in real time. SpeedTechnology or digitization means removing human minds and hands from an organizations most routine tasks and replacing them with computers and networks.Digitizing everything from employee benefits to accounts receivable to product design cuts cost, time, and payroll resulting in cost savings and vast improvements in speed.

Puonlinenotes.blogspot.comMatch structure with strategyA single product firm or single dominant business firm should employ a functional structureA firm in several lines of business that are somehow related should employ a functional structureA firm in several unrelated lines of business should be organized into strategic business unitsEarly achievement of a strategy structure fit can be a competitive advantage

Here are some efforts which helps to make structuring an effective organization.

Puonlinenotes.blogspot.comRedefine the role of corporate headquarters from control to support and coordinationEvery multibusiness companies are in trouble regarding resource exploitation, market responsiveness and creativity.Rigorous financial controls and reporting enable cost efficiency, resource deployment and autonomy across different units.Flexible controls are conducive to responsiveness, and innovationThe creation of new resources and capabilities will generate future competitive advantage.Puonlinenotes.blogspot.comAggressive portfolio management provides maximum shareholder value through independent businesses.It needs cross coordination and recognition between these business interdependencies2.Balance the demands for control/differentiation with the need for coordination/integrationSpecialization of work and effort allows a unit to develop greater expertise, focus and efficiency.

Puonlinenotes.blogspot.comOrganizations strategy depends on dividing different activities within the firm into logical, common groupings- sales,operations,administration, or geography-so that each set of activities can be done most effectively.Control of sets of actitivities is at a premium.Dividing each set of activities is an important structural decision.The seperate functional activities has to be coordinated and integrated.Puonlinenotes.blogspot.comRestructuring to emphasize and support strategically critical activitiesRestructuring is redesi