Internal new ventures

WELCOME

By,

MAHALAKSHMI S( TL) RAJENDRA SHIVA

SHANKAR CHARAN RAJ VASAVI

TITANS

QUESTIONS1. Is there any way in which Xerox might have been able to add value to financial services operations if acquired in early 1980’s? if not, why do you think the company persued this strategy?

2. Do you think that the interests of Xerox’s share-holders are best served with the disinvestment of Xerox’s financial services business?

Building ANDRestructuring the

Corporation

Acquisitions involves buying an existing business.

Internal new ventures involves starting a new business from scratch.

Joint ventures involve starting a new business from scratch with the assistance of a partner.

ACQUISITIONS VERSUS NEW VENTURES AS ENTRY STRATEGIES.

Choice between acquisition and internal new venturing is influenced by the following factors:

1. Entry barrier.2. Relatedness of new business to existing

operations.3. Competitive speed and development costs of

the two entry modes.4. Risk involved in different entry modes.5. Industrial life cycle factors.

EXAMPLES OF ACQUISITIONS:Tata acquired Corus. HP acquisition DEC.Times Group Acquired Virgin Radio.

ONGC acquired Imperial Energy.

Guidelines For Successful Acquisition:

Screening

Bidding Strategy

Integration

Why Acquisitions Fail:

Integration

Over Estimating the Economic Benefits

Expenses of Acquisition

Inadequate Preacquisition Screening

INTERNAL NEW VENTURESTo execute corporate-level strategies when a

company has a set of valuable competencies in its existing businesses that can be leveraged to enter the new business area.

When entering a newly emerging or embryonic industry.

INTERNAL NEW VENTURES-PITFALLSScale of entry

Large-scale entry is initially more than small-scale entry, but it brings higher returns in the long run. Failing to realize their anticipated benefits.

As per a survey by McKinskey & Co. “acquisitions destroy than create value”

SCALE OF ENTRY, PROFITABILITY, AND CASH FLOW

PITFALLS Commercialization

Technological possibilities should not overshadow market needs and opportunities

Poor implementationDemands on cash flowClear strategic objectives are neededAnticipating time and costs

GUIDELINES FOR SUCCESSFUL INTERNAL NEW VENTURING

Research aimed at advancing basic science and technology.

Development research aimed at finding and refining commercial applications for the technology.

Foster close links between R&D and marketing; between R&D and manufacturing.

Project is selected, management needs to monitor progress of venture.

Selection process for choosing only the ventures that demonstrate the greatest probability of commercial success.

Examples of Internal New Venture

Gillette. Co ‘s successful diversification of felt-tip pens.

John Degree diversified into snowmobiles.

JOINT VENTURES AS AN ENTRY STRATEGYTeaming with another company that has

complementary skills and assets may increase the probability of success

Helps avoid the risks and costs of building a new operation up from the ground floor

JOINT VENTURE-PITFALLS Requires the sharing of profits if the new

business succeedsVenture partners must share control; conflicts

on how to run the joint venture can cause failure

Conflict over how to run the joint venture can tear it apart and result in business failure

Examples Of Joint Ventures:Sony-Ericsson is a joint venture by the

Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson .

Virgin Mobile India Limited is a joint venture between Tata Tele service and Richard Branson's Service Group.

RESTRUCTURING Reducing the scope of the company by exiting business areas Why restructure?

– Diversification discount: investors see highly diversified companies as less attractive

Complexity and lack of transparency in financial statements

Too much diversification or for the wrong reasons

– Response to failed acquisitions – Innovations have diminished the advantages of

vertical integration or diversification

RESTRUCTURING STRATEGIES Exit strategies

1. Divestment

(A)Spinoff: selling off business unit to independent investors

ex: timber products company Weyerhaeuser spun off its paragon brand to independent investors. (B)Selling to another company ex: Glidden paint sold to Imperial chemicals Industry. (C)Management buyout (MBO)

2. Harvest 3. Liquidation

TURNAROUND STRATEGYStrategies adopted by companies take to

turnaround the troubled business areas.Causes for corporate DeclinePoor Management.Over Expansion.Inadequate Financial controls.High Costs. New Competition.Unforeseen Demand shifts.Organizational Inertia.

ELEMENTS FOR SUCCESSFUL TRUNAROUNDChanging the leadershipRedefining the Strategic FocusAssets Sales and ClosuresImproving ProfitabilityAcquisitions

PORTFOLIO PLANNINGDefining and evaluating strategic business units.

Comparing strategic business units.

Strategic implications.

PROBLEM WITH PORTFOLIO PLANNINGThe planning process is reasonable but

simplistic in nature.The connection between the relative market

share and the cost savings is not as straightforward as suggested.

Low-growth industries can be very competitive.

None of the portfolio planning techniques pay attention to the source of value creation from diversification.

THANKS TO ALL