Corporate restructuring

the rapid advances in information technology and acute resource constraints across the globe,the business world has become more complex To survive and compete present dayorganisations should do away with their existing culture, policies and start with a clean sheet They have put more emphasis on the business process as a whole and to do every thing to keep the smile on customers face

 Cement industry-top 6 players are ACC,gujarat Ambuja,madras cements,Lafarge,india cements, grasim industries and L&T account for 70% With every better price realisations every big player is trying to expand business rapidly through mergers and acquisitions The acquisition route is preferred in cement industry because of i,a new plant suffers from a 3 year gestation period ii,cement technology has not changed much globally in recent years

 iii,cement industry is fragmented in india with more than 40 players Large scale restructuring is taking place in almost all cement companies in order to withstand onslaught from MNC players like lafarge,cemex,blue circle etc The big strategic alliances between gujarat ambujaACC and Grasim-L&T changed the scene in the industry These groups now control 50% of sales

 There are low tax rates and tax incentives for housing made more attractive there are huge investments planned for infrastructure development recently The cement industry should see happy days again

 As peter drucker says, every organisation must prepare to abandon every thing it does Externally the organisation must search for new products,new services and new opportunities They should also work with suppliers,distributors and customers to redefine markets and industries

 Restructuring involves strategies for reducing the scope of the firm by exiting from uprofitable business Restructuring is a popular strategy during post liberalisation era where diversified organisations divested to conentrate on core business Tata groups restructuring resulted in reducing companies from 107 operating in 25 businesses to less than 30 operating in just 12 businesses

 It divested lakme,TISCOs cement division and goodlass nerolac while strengthening core businesses Hindustan unilever has 18 different businesses grouped under seven different divisions HUL divested non-core businesses like diary products,specaility chemicals and animal feeds and also acquired certain companies in core business

Reasons for restructuring

1.The main reason for restructuring is over diversification in the previous decade The performance of these units declined because because of bureaucratic costs and inefficiencies involved in expanding The cost involved in creating the scope of business was greater than the additional value created by such a move

 2.The diversified companies found that new competitors attacked their core business areas The companies were forced to concentrate on the troubled core businesses It was suggested to drop the diversified businesses which were considered to be a distraction

 3.the innovation in management process and strategy has reduced the advantages of diversification Long term contracting with suppliers is considered to be a superior strategy This can be in contrast to diversification and becoming self sufficient

Mergers and acquisitions

A merger occurs when two or more organisations combine to become one through an exchange of stock or cash or both Mergers can take place in 2 different ways; 1.Acquisition- is the purchase of a firm by a firm that is considerably larger The firm that acquires is called the acquiring firm and the other the merging firm

 2.consolidation- if both the firms dissolve their identity to create a new firm its called consolidation The combining firms firms may join hands through a cooperative or hostile approach A friendly merger takes place when both the firms agree to combine their might in order to gain certain synergistic benefits

 The synergies could be marketing synergy operating synergy,investment synergy and management synergy It results in carefully negotiated acquisition of one firm by another A hostile merger other wise known as takeover refers to a surprise attempt by one company to acquire the control of other

Types of mergers
1.vertical merger is a combination of two or more firms not necessary in the same line of business These firms are complimentary in terms of supply of materials and marketing of goods and services In vertical mergers the merging firms would be a supplier or a buyer using its products as intermediary product for final production For eg a footwear company may merge with a leather tannery or retail shoe outlets

 2.Horizontal mergers- is a combination of two or more firms in the same line of business formed primarily to obtain economies of scale in production It also broadens the product line,reduce the working capital needs or eliminate competition,gain better control over the market etc Eg:The merger of Kingfisher and Deccan airlines

 3.Concentric mergers- its a combination of two or more firms somewhat related to each other in terms of customer functions It also has related firms of customer groups production processes or technologies used 4.Conglomerate mergers-is a combination of two or more firms unrelated to each other Rather than concentrating on a common factors, top managers who pursue this strategy is chiefly concerned with the rate of return

Takeovers
Companies in recent times have been using takeover or acquisition as a powerful tool to gain control over rival firms 1.Friendly take over- is acquiring a portion or whole of the equity capital of another firm through mutual consent The reasons could be unable to fight competition,lacking funds to expand,being small in size,want to exit from the business altogether

 Electrolux targeted companies like Maharaja intron ltd etc, HULs take over of TOMCO was a very smooth one as Tatas were looking to divest it 2.Hostile take over- acquiring a portion or whole of the equity capital of another firm against the wishes of the acquired firm Such take overs are common in companies where the stake of the promoters are very less

Take over code

The take over code,1997- the SEBI has introduced a regulatory framework for take overs in 1997 This is formed in a view to check the evil effects of hostile takeovers Amended take over code 2002- is an amended version of 1997 code It bridges certain gaps which acquirers of target companies have exploited to their own personal gain

Cooperative strategies
Cooperative strategies are logical and timely response to rapid and intense and rapid changes in economic activity,technology and globalisation Apart from alliances in the same country cross border alliances have also become popular Strategic alliances come in 3 basic types; joint ventures,strategic alliances and consortia

 1.Joint ventures(kogut)- are special case of consolidation where two or more companies form a temporary partnership for a special purpose Once the purpose is achieved the joint venture is terminated with all the profits distributed or loses recovered from its members A JV can take place betweeni,two firms in one industry ii,two firms across different industries iii, an indian company and a foreign company in india iv,indian company and a foregin company v,an indian co. and a foregin co.in a third country

 2.Equity strategic alliances- in this case partners own different percentages of equity in a new venture Many foreign direct investments are completed through equity strategic alliances such as those by japanese and US companies in india Equity strategic alliances are more effective at transferring know how between firms because they are close to hierarchical control

 3.Consortia- can be defined as large interlocking relationships,cross holdings and equity stakes between businesses of anindustry,there are 2 forms a,Multipartner consortia- are multipartner alliances intended to share an underlying technology One of the known european consortium is air bus industries which brings together 4 european aerospace firms from britian,france,ger and spain

 b, cross-holding consortia-two important features of it are building long term focus and gaining technological advantage The supplier-buyer relationships helps members stabilize their production volume All of them can pool resources and make huge fixed cost investments in key technologies

Reasons for strategic alliances

1.New market entry- aim at helping players speed up market entry Big drug firms usully cross-license their new drugs to one another Help the alliance partners to reduce the fixed costs of R&D and global distribution Nestle and coke have partnered to gain access to each others distribution network

 2.Define future industry standards- it can help defining emerging industry standards or new products Canon has become the worlds largest supplier of engines that power laser printers Joining hands with HP,IBM and others canon ensures over 60% of worlds laser printers use a canon engine

 3.Learn and apply new technologiescompanies use alliances to learn or to gain access to new technologies IBM has teamed up with motorola and toshiba to enhance its semiconductor manufacturing capabilities From motorola IBM learns how to design new products for emerging wireless technologies

 Fill gaps in product line-companies use the alliances route to fill gaps in their product line Ford formed an alliance with Nissan motors to build new generation mini vans The alliance with Mazda helped ford to make the ford escort In turn Mazda has learned from ford how to build the fords popular line of recreational vehicles

Risks and costs of alliances

1.iincompatibility of partner- over the years,technologies,market coditions,consumer tastes etc are bound to change Growing incompatibility in developing strategies and objectives may lead to a serious rift between alliance partners The joint venture between godrej soaps and P&G india illustrates this

o 2.Risk of knowledge/ skills drain-firms taking part in a strategic alliance must carefully identify and isolate what types of skills can be safely shared o This is important specially for industries that are converging o The firm which has access to latest skills and knowlede would run the risk of giving more insight in to its knowledge base

 3.Risk of dependence- alliance can make a firm too dependent on its partner Partner having critical skills starts exercising a high degree of control over the dependent firm When piaggio pulled out of the joint venture,LML witnessed a steep fall in scooter sales

Strategy implementation and functional strategies

Successful strategy implementation requires support,discipline,motivation and hardwork from all managers and employees Requires suitable organisation structure to translate ideas in to concrete action plans Creating a fit between a firms goals and its other activities proves to be a tough exercise

 The mckinseys 7-s framework 1.strategy- set of decisions or actions to attain sustainable competitive advantage 2.structure- org. chart and associated information, reporting structure&how tasks are divided and integrated 3.systems- daily flow of activites,core processes and support systems

4.style- How mangers spend time collectively and what are their priorities 5.staff-How companies develop employees and shape basic values 6.Shared values- commonly held beliefs , mindsets leading to corporate culture 7.skills- an organisations dominant capabilities and competencies

Issues in strategy implementation

1.The successful implementation requires an effective organisation 2.Employees should know their actions and to interrelate the actions of others 3.Structural framework essential for the roles of management and employees 4.Service of talented and capable leaders are required to translate corporate vision in to reality

5.The leaders should not sacrifice ethical and social values 6.Functional plans and policies need to be formulated carefully and implemented with employee support 7.Helps employees to find solutions to several operational issues 8.The political factors than come in the way of effective implementation of strategies

Strategy evaluation and control

Strategic evaluation and control constitute the final step in strategic management process The main aim of strategic control is to find out whether strategy moves in the desired direction The techniques available for exercising control are 1.Strategic control- is based on assumptions based on environmental and organisational factors It serves as a warning system for facilitating continous evaluation There are 4 types of strategic control

 a.Premise control- monitors regularly whether the assumptions underlying a strategy generated during generation is valid during implementation Premises are expected environments in which the strategy is likely to operate If the assumptions are not valid,there is a need to make it effective The assumptions are related to two types of factors such as environment and industry

b.Implementation control- implementation of strategy results in generation of projects, programmes and plans During the stage of implementation the plans,programmes and projects undergo incremental changes Monitoring strategic thrust involves dividing broad actions in to narrow specific actions Milestone review is the critical points in strategy implementation

 c.Strategic surveillance- is aimed at generalised and overarching control to control a broad range of events inside and outside the company These events could threaten the course of a firms strategy Strategic survelliance involves some form of general monitoring of multiple information sources Provides ongoing broad based survelliance in all daily operations

 d.special alert control- is undertaken to assess the impact of any major environmental event Such events may be technlological innovation, sudden eruption of war,sudden increase in petroleum prices etc Such occurrences trigger an immediate and intense reassesssment of strategy in the light of sudden and unexpected events

Strategy and technology management

Role of management- importance of technology and innovation should be emphasised by the top management and also direction Environmental scanning: 1.External scanning- companies like motorola has a sophisticated well developed scanning system with respect to technology development 2.Impact of stake holders on innovation- such as customers,suppliers and distributors sometimes provide new directions for product improvement

3.Lead users- lead users are companies organisations and individuals that are well ahead of market trends 4.Market research- BMW&P&G used market research in a fruitful manner But too much emphasis of customer driven research will prevent companies from evolving innovative products

5.New product experimentation- is yet another method to test the potential of new products 6.Internal scanning- studying the internal environment if the organisation has got necessary resources,encourages risk taking and new ideas 7.Resource allocation issues- in global competition companies allocate a specific percentage of sales proceeds to the R&D budget

R&D strategies
Strategy formulation-the following questions are raised in strategy formulation 1.Is the firm a leader or follower in respect of R&D strategy? 2.Should we develop indigenous technology? 3.Or should we go for technology outsourcing? 4.What should be the mix of basic and applied research?

 Outsourcing of technology- will be suitable under the following conditions 1.The technology is of low significance to competitive advantage 2.The supplier has proprietary technology 3.The suppliers technology is easy to adopt with the present system 4.The technology development needs expertise 5.The technology development needs new resources and new people