Strategic Business Management Advanced Stage Sk Md Tarikul Islam FCA, MBA (UK) Chapter-03 Strategic Implementation By the end of this chapter, you should be able to understand and apply: Acquisition and strategic alliances Aligning organizational structure and strategy Managing change Cost reduction Evaluating functional strategies Business plans Acquisition and strategic alliances Merger: Joining of two separate companies to form a single company Acquisition: Purchase of a controlling interest in another company. Classic reasons for acquisition: – Marketing advantage – Production advantage – Finance and management – Risk-spreading Acquisition and strategic alliances Better off tests: Michel Porter suggests that potential acquisitions should be assessed against three tests: i. ii. iii. Better off test: Competitive advantage Attractiveness test: Structurally attractive, diversification Cost of the entry Another key point is called parenting test. **Ashridge Management School – 70% merger fails because of lack of experiences. Acquisition and strategic alliances - The mechanics of acquiring company PE Ratio Accounting rate of return Value of net assets including brand Dividend yield Discounted cash flows Market prices IQ 1: Due diligence Acquisition and strategic alliances - Acquisition and organic growth compared Advantages of acquisitions Disadvantages of acquisitions Quick entrance Can be too expensive Can avoid barriers to entry Valuation issues Deal can be made without Customer loyalty cash Lack of fit Favourable access to technical Post-acquisition cost expertise, customer contacts Lack of information and goodwill Cultural differences Rationalization cost !! Stakeholders, banks, competition IQ2: Growth strategies Acquisition and strategic alliances - Strategic Alliances Reasons: Limitations: Share development cost Regulatory environment Complementary market/ technology Learning from each other Technology (e.g. R&D) Core competence Strategic priorities Aligning organizational structure and strategy Formal/ Top-down/ Command-and-control approach Burns & Stalker: - Mechanistic (McDonald) - Organic (Google) Challenges that inform structure (J, S & W): -Flexibility of organizational design (rapid environmental change, environmental uncertainty) - Effective system (Creation and exploitation of knowledge) - Internationalization Aligning organizational structure and strategy - Configuration and Type of structures Organizational configuration: i. ii. iii. Structure Process Relationship Types of structures (J, S & W): Functional Multidivisional Holding company Matrix Transnational Team Project Aligning organizational structure and strategy - Type of structures Functional: People are organized according to the type of work they do. E.g production , selling etc. Multidivisional: Divide the organizations into semi-autonomous divisions. E.g. product, market Holding company: Divisions are separate legal entities Matrix: Mixture of functional, product and territorial organization Transnational: Attempts to reconcile global scope with local responsiveness. Team: Cross functional activities Project: Employees from different departments works for a temporary organization. Project Management Definition A temporary organisation that is needed to produce a unique and predefined outcome or result at a given time using predetermined resources. [Prince2, 2009] Project Management 1. Cost, time and quality Simplest way to consider project’s objectives 2. But which are the most important? Need to ‘trade-off’ Allows the prioritisation of the objectives Effects decisions during planning Effects decisions during execution 3. The iron triangle More time may mean a better result More time is likely to cost more Project Management Project Management Project Management -Project Life Cycle (PLC) Managing change The continuous process of aligning an organization with its marketplace and doing it more responsively and effectively than competitors. – Berger The process of change Balogun and Hope Hailey flow chart: Stage 1: Analyze competitive position Stage 2: Determine type of change needed Stage 3: Identify desired future state Stage 4: Analyze the change context Stage 5: Identify the critical change features Stage 6: Determine the design choice Stage 7: Design and transition process Stage 8: Manage the transition Stage 9: Evaluate the change outcomes Lewin’s 3 stage model The Ice cube model: Unfreeze Change Refreeze Lewin’s force field analysis: - Define the problem -List the forces supporting and opposing the desired change -Draw the force field diagram p.160 -Strengthening or weakening forces -Resources needed -Action plan for timing, milestones and responsibilities Balogun and Hope Hailey – Scope of change Realignment Transformation Incremental Adaptation Evolution Big Bang Reconstruction Revolution Change Management Change Management IQ 4: Managing change Turnaround One specific situation when change management will be required is a turnaround situation. J, S & W identified 7 elements of such strategy: Crisis stabilization - Increase revenue and decrease cost Management change Communication with the stakeholders Attention to target markets Concentration of effort Financial restructuring Prioritization Cost Reduction – Supply chain mangement Supply chain management: The planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Hierarchy of supply chain decisions: - Supply chain design decisions - Supply chain planning decisions - Supply chain operation decisions Cost Reduction – Supply chain management Push model: Based on historical sales pattern Pull model: Demand driven Drivers of supply chain management (Chopra and Meindl): - Facilities - Inventory - Transportation - Information - Sourcing - Pricing Cost Reduction – Supplier selection Speed, Quality Price Flexibility Reliability Strategic Procurement: is the development of true partnership between company and a supplier of strategic value. Cost Reduction – E_procurement Advantages for buyer: Facilities cost savings Easier to compare price Faster purchase cycle Reduction in inventory Online catalogue High accessibility Data rich MIS Improved service level Cost control Advantages for supplier: Faster order acquisition Immediate payment system Lower operating cost Non-ambiguous ordering Data rich MIS Lock-in of buyers Automated manufacturing demand Cost Reduction – Business Process Reengineering BPR: Is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service and speed. Outsourcing: is becoming a tool for cost savings. SLA usually include – - Service level - Exit route - Timescale - Software ownership - Dependencies - Employment issues Cost Reduction – Outsourcing and assurance report ISAE 3402, Assurance Reports on Controls at a Service Organization applies only when the service organization is responsible for, or otherwise able to make assertions about, the suitable design of the control. Objective of the service auditor p.185 Requirements and procedures p. 185 Points to note: Type 1 report: Report on description and design of controls Type 2 report: ++ operating effectiveness of control Cost Reduction – Operations Management Operations management: Design, implementation and control of the process in an organization that transform inputs into output products and services. 5 types advantages of OM: Reduce the costs Customer satisfaction Reduce the risk of operational failure Reduce the amount of capital to be deployed Basis for future innovation Cost Reduction – Operations Management Operations performance objectives: Quality Speed Dependability Flexibility - Product/service flexibility - Mix flexibility - Volume flexibility - Delivery flexibility - Cost Cost Reduction – Operations Management Characteristics of operations can be summarized as the four Vs: The volume of their output The variety of their output The variation in the demand of their output Visibility to the customers Cost Reduction – Capacity planning Level capacity plan: Maintain activity at a constant level Chase demand plan: Match to the forecast fluctuations in demand Demand management planning: Reduce peak demand by switching it to off-peak periods Mixed plans: Mixture of the above three Capacity control: – – – Materials requirements planning Manufacturing resource planning ERP software Cost Reduction – JIT Systems JIT: Goods or services should be produced only when they are ordered or needed. 3 key elements of JIT: Elimination of waste Involvement of all staff in operation Continuous improvement Cost Reduction – Quality management Quality assurance: Procedures and standards are devised with an aim of ensuring defects are eliminated during development and production process. Quality control: Checking and reviewing work that has been done. Narrower than quality assurance. TQM: a popular technique of quality assurance. Main elements are: – – – – Internal customers and internal suppliers SLA Quality culture within the firm Empowerment Evaluating Functional strategies Functional strategies: Support corporate and business strategy in terms of resources, processes and people. Evaluating functional strategies in terms of: - Marketing - Production - Finance - HRM - IS - R&D Business plans Foundation upon which a funding application will be made. Contents of BP: Statutory data Executive summary Marketing Product/ service details Management team PP&E Start-up cost Business plan Summary Appendices *ISAE 3400, The Examination of Prospective Financial Information Conclusion After having solid grounding, review as many questions as possible to avoid panic in the exam !!! Questions?? Thank You !!
