Question

Discuss in detail as you can the following questions/statements with Strategic Management/policy.

1-What are the characteristics of any company's core values for business success?

2-Why is it important for organizational leaders to understand the environment before formulating business strategies?

3- Using the BCG matrix to assess the business performance. what would you do when the business is labeled a "Dog"?

4- Discuss the "Synergy Concept" in management during the implementation of strategic initiatives for any organization of your choice.

Answer 1

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ANSWER TO Q1.

The characteristics of any company's core values for business success are as follows-

• Accountability – Acknowledging and assuming responsibility for actions, products, decisions, and policies. It can be applied to both individual accountability on the part of employees and accountability of the company as a whole.
• Balance – Taking a proactive stand to create and maintain a healthy work-life balance for workers.
• Commitment – Committing to great product, service, and other initiatives that impact lives within and outside the organization.
• Community –Contributing to society and demonstrating corporate social responsibility.
• Diversity – respecting the diversity and giving the best of composition. Establishing an employee equity program.
• Empowerment – Encouraging employees to take initiative and give the best. Adopting an error-embracing environment to empower employees to lead and make decisions.
• Innovation – Pursuing new creative ideas that have the potential to change the world.
• Integrity – Acting with honesty and honor without compromising the truth
• Ownership – Taking care of the company and customers as they were one’s own.
• Safety – ensuring the health and safety of employees and going beyond the legal requirements to provide an accident-free workplace.

ANSWER TO Q.2

It is very important for organizational leaders to understand the environment before formulating business strategies due to the following reasons-

1. Optimum use of resources:

Proper environmental assessment helps to make optimum utilisation of scare human, natural and capital resources. Systematic analyses of business environment helps the firm to reduce wastage and make optimum use of available resources, without understanding the internal and external environment resources cannot be used in an effective manner.

2. Competitive Analysis:

A competitive analysis involves looking at those that compete in the market place, and using information about the competitors to identify where organisational strengths are relative to those competitors. One of the principles for becoming competitive is to leverage one’s strengths with respect to competitors, and minimise the weaknesses.

3. Strategic Planning Goals:

Once we established a vision, mission and role, and done internal and external scans, we should have enough information to set goals for the period that our strategic plan covers. Goals in strategic planning can be either result oriented, or process oriented, although, it’s probably better to have results oriented goals.

4. Identification of strength:

Strength of the business firm means capacity of the firm to gain advantage over its competitors. Analysis of internal business environment helps to identify strength of the firm. After identifying the strength, the firm must try to consolidate or maximise its strength by further improvement in its existing plans, policies and resources.

5. Identification of weakness:

Weakness of the firm means limitations of the firm. Monitoring internal environment helps to identify not only the strength but also the weakness of the firm. A firm may be strong in certain areas but may be weak in some other areas. For further growth and expansion, the weakness should be identified so as to correct them as soon as possible.

6 .Identification of opportunities:

Environmental analyses helps to identify the opportunities in the market. The firm should make every possible effort to grab the opportunities as and when they come.

7. Identification of threat:

Business is subject to threat from competitors and various factors. Environmental analyses help them to identify threat from the external environment. Early identification of threat is always beneficial as it helps to diffuse off some threat.

8. Survival and growth:

Systematic analyses of business environment help the firm to maximise their strength, minimise the weakness, grab the opportunities and diffuse threats. This enables the firm to survive and grow in the competitive business world.

ANSWER TO Q.3

The dogs in the BCG Matrix are products at the end of the product lifecycle, or products that have had to compete against the competition. The margins are low, the market share is low and the market barely grows or even shrinks. The company will no longer invest in marketing. Many companies will choose not to produce the product at all. An example that can be considered as a ‘Dog’ in the BCG Matrix is the plasma TV from Philips.

Dogs are units with low market share in a mature, slow-growing industry. These units typically “break even”, generating barely enough cash to maintain the business’s market share, and depress a profitable company’s return on assets ratio. Because of this, Dogs can turn out to be cash traps, tying up company funds for long periods of time. For this reason, they are prime candidates for divestiture.

Dogs should be divested once short-time harvesting has been maximised. The usual marketing advice here is to aim to remove any Dogs from the company’s product portfolio as they are a drain on resources, due to low or negative cash returns. Unless a Dog has some other strategic aim, it should be liquidated if there are fewer prospects for it to gain market share.

Potential Strategies can be as follows-

Retrenchment, divestiture, liquidation.

ANSWER TO Q.4

The pursuit of synergy is practiced by most businesses in the world. The boardrooms are full of brainstorms about ways to collaborate more effectively. Cross-business teams are set up to develop key account plans, coordinate product development, and proliferate best practices. Synergy is the concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts. Synergy is a term that is most commonly used in the context of mergers, acquisitions, strategic partnership, joint venture, franchise etc. The reasoning behind strategic alliance is generally given is that two separate companies together create more value compared to being on an individual stand. Synergy is also explained as 1+1=3.

Three important considerations should be taken into account:

• The company must be willing to take the risk and vigilantly make investments to benefit fully from the merger as the competitors and the industry take heed quickly

• To reduce and diversify risk, multiple bets must be made, in order to narrow down to the one that will prove fruitful

• The management of the acquiring firm must learn to be resilient, patient and be able to adopt to the change owing to ever-changing business dynamics in the industry.

Stages involved in any SYNERY CONCEPT by management:

Phase 1: Pre-acquisition review: this would include self assessment of the acquiring company with regards to the need for M&A, ascertain the valuation (undervalued is the key) and chalk out the growth plan through the target.

Phase 2: Search and screen targets: This would include searching for the possible apt takeover candidates. This process is mainly to scan for a good strategic fit for the acquiring company.

Phase 3: Investigate and valuation of the target: Once the appropriate company is shortlisted through primary screening, detailed analysis of the target company has to be done. This is also referred to as due diligence.

Phase 4: Acquire the target through negotiations: Once the target company is selected, the next step is to start negotiations to come to consensus for a negotiated merger or a bear hug. This brings both the companies to agree mutually to the deal for the long term working of the M&A.

Phase 5:Post merger integration: If all the above steps fall in place, there is a formal announcement of the agreement of merger by both the participating companies.

Case Study 1: Sun Pharmaceuticals acquires Ranbaxy:

The deal has been completed: The companies have got the approval of merger from different authorities.

This is a classic example of a share swap deal. As per the deal, Ranbaxy shareholders will get four shares of Sun Pharma for every five shares held by them, leading to 16.4% dilution in the equity capital of Sun Pharma (total equity value is USD3.2bn and the deal size is USD4bn (valuing Ranbaxy at 2.2 times last 12 months sales).

Reason for the acquisition: This is a good acquisition for Sun Pharma as it will help the company to fill in its therapeutic gaps in the US, get better access to emerging markets and also strengthen its presence in the domestic market. Sun Pharma will also become the number one generic company in the dermatology space. (currently in the third position in US) through this merger.

Objectives of the M&A:

• Sun Pharma enters into newer markets by filling in the gaps in the offerings of the company, through the acquired company

• Boosting of products offering of Sun Pharma creating more visibility and market share in the industry

• Turnaround of a distressed business from the perspective of Ranbaxy

Case Study 2: CMC merges with TCS:

This is an example where there is a merger in the same industry (horizontal). It was done to consolidate the IT businesses. The objective of this merger, as indicated by the management of CMC, was that the amalgamation will enable TCS to consolidate CMC’s operations into a single company with rationalised structure, enhanced reach, greater financial strength and flexibility. Further it also indicated that, it will aid in achieving economies of scale, more focused operational efforts, standardisation and simplification of business processes and productivity improvements.