Stategic management

Product proliferation occurs when organizations market many variations of the same products. This can be done through different colour combinations, product sizes and different product uses. This produces diversity for the firm as it is able to capture its sizable portion of the market. However, it can also be considered that marketing so many new products leads to economic resources being wasted; the consumer becomes confused and mistakes are made in the purchase of products. Crest and Colgate each have more than 35 types of toothpaste and Head & Shoulders dandruff shampoo has 15 different varieties. Moreover, product proliferation is not restricted to the supermarket, as companies like Goodyear Tire & Rubber, Gillette, and Eastman Kodak have all recently increased the lengthof their product lines Product line proliferation is also particularly evident in technologically dynamic industries such as personal computers; for example, in 1992 there were over 2,000 different PC models available in the market.

A Cost leadership strategy: is based on the concept that you can produce and market a good quality product or service at a lower cost than your competitors. These low costs should translate to profit margins that are higher than the industry average. Some of the conditions that should exist to support a cost leadership strategy include an on-going availability of operating capital, good process engineering skills, close management of labor, products designed for ease of manufacturing and low cost distribution. Cost leadership is a concept developed by Michael Porter, The cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve). Product bundling is a marketing strategy that involves offering several products for sale as one combined product. This strategy is very common in the software business (for example: bundle a word processor, a spreadsheet, and a database into a single office suite), in the cable television industry (for example, basic cable in the United States generally offers many channels at one price), and in the fast food industry in which multiple items are combined into a complete meal.

Bundling is most successful when:

There are economies of scale in production, There are economies of scope in distribution, Marginal costs of bundling are low. production set-up costs are high, Customer acquisition costs are high. Consumers appreciate the resulting simplification of the purchase

decision and benefit from the joint performance of the combined product.

Consumers have heterogeneous demands and such demands for different parts of the bundle product are inversely correlated.

Economies of scope are cost advantages that result when firms provide a variety of products rather than specializing in the production or delivery of a single output For example, McDonalds can produce both hamburgers and French fries at a lower average cost than what it would cost two separate firms to produce the same goods. This is because McDonalds hamburgers and French fries share the use of food storage, preparation facilities, and so forth during production.

Another example is a company such as Proctor & Gamble, which produces hundreds of products from razors to toothpaste. They can afford to hire expensive graphic designers and marketing experts who will use their skills across the product lines. Because the costs are spread out, this lowers the average total cost of production for each product.

Methods of Achieving Economies of Scope: Flexible manufacturing system, related diversification,, linked supply chain. Ie: raw material suppliers, other vendors, manufacturers, wholesalers, distributors, retailers, and consumers often bring about economies of scope,

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Multidivisional (M-Form) – Structure – Composed of operating divisions where each division represents a separate business or profit center and the top corporate officer delegates responsibility for day-to-day operations and business-unit strategy to division managers.

Advantages of Multidivisional Structures

The multidivisional structure, with its clear division of labour between the corporate managers and the managers of each product division, should increase the overall effectiveness of the of the company.

Division managers can be given sufficient autonomy and freedom to manage the day-to-day operations of their business and create their own organizational structure to suit their specific products and markets.

At the same time, corporate managers can avoid getting into the details of divisional operations and can focus on long-term planning for the entire company and determining how each of the divisions fit into the company’s overall strategic goals and objectives.

Since corporate managers are not involved in the day-to-day operations of the product divisions .

Corporate managers have higher level of control and create processes and systems for objectively tracking and evaluating the profitability and overall performance of the product divisions ,determine how additional capital should be invested and provide remedial measures for performance problems and inefficiencies.

Since each product division in a multidivisional structure will be its own profit center, and thus can be easily evaluated to determine profitability and performance against objective budgetary goals given by the corporate management team.

since the divisions in a multidivisional structure are essentially self-contained business units it becomes much easier to identify how the activities of individual managers and employees impact “bottom line” performance and this tends to improve morale and increase enthusiasm within the workforce

Disadvantages of Multidivisional Structures Too much centralization deprives division managers of the

flexibility and independence can damage the performance of

the divisions that corporate managers not directly involved with a particular issue or problem.

the resulting competition between the divisions can be healthy up to a point, there is a real possibility that rivalries will eventually become so intense that divisions cease to cooperate with one another by sharing resources and transferring information regarding innovations in technology and business processes.

Another potential problem associated with transfer of technology, products and components between the product divisions is establishing a fair “transfer price”. The “seller” will want to maximize its return on investment by obtaining the highest price possible; however, this approach often unfairly penalizes another division.“

The corporate managers may be assigned the task of setting and enforcing transfer pricing based on objectively verifiable costs plus a fixed and predetermined profit margin.

A multidivisional structure can be quite costly to establish and operate. There is entirely new layer of management personnel and staff at the corporate headquarters level that must be funded.

In addition, the need to duplicate functional resources within each division creates a serious risk of inefficiency and redundancy .

While one of the main responsibilities of the corporate managers in the multidivisional structure is overseeing the activities of the product divisions, there will inevitably be communications problems caused by the very tall hierarchical structure. Bottlenecks may arise when decisions are required from corporate headquarters and delays in getting approvals back to the divisions.

The Value Chain concept by Michael Porter1985

Porter defined value as the amount buyers are willing to pay for what a firm provides.

Creating value is ultimately what organizations are all about in business.

We measure value by a number of metrics each of which is used in the right context.

1.Financial measures (revenues/profits)2.Stock price -Shareholders value3.Innovation - number of new patents4.Balance score card(Nolan & Norton)5.EVA Economic Value Added by (Stern & Stewart)

The interdependent processes/network of activities connected by linkages that generate value, and the resulting demand and funds flows that are created.

When the system is managed carefully, the linkages can be a vital source of competitive advantage

The value chain analysis essentially entails the linkage of two areas.

Firstly, the organisations’ activities with its main functional parts.

Then the assessment of the contribution of each part in the overall added value of the business

In order to conduct the value chain analysis, the company is split into primary and support activities.

Primary activities or primary value adding activities are those that are related with production,

while support activities or overhead activities are those that provide the background necessary for the effectiveness and efficiency of the

firm. such as human resource management.

Primary activities

Include:

Inbound logistics

These are the activities concerned with receiving the materials from

suppliers, storing these externally sourced materials, and handling

them within the firm.

Operations

These are the activities related to the production of products and

services.

This area can be split into more departments in certain companies. For

example, the operations in case of a hotel would include reception,

room service etc.

Outbound logistics

These are all the activities concerned with distributing the final

product and/or service to the customers.

For example, in case of a hotel this activity would entail the ways of

bringing customers to the hotel.

Marketing and sales

This functional area essentially analyses the needs and wants of

customers and their awareness of the company’s products and

services. Marketing tools are advertising, sales promotions etc.

Service

There is often a need to provide services like pre-installation or after-

sales service before or after the sale of the product or service.

Support activities

The support activities of a company include the following:

Procurement

This function is responsible for purchasing the materials that are

necessary for the company’s operations,

to obtain the highest quality goods at the lowest prices.

Human Resource Management

This is a function concerned with recruiting, training, motivating and

rewarding the workforce of the company. Human resources are

becoming an important way of attaining sustainable competitive

advantage.

Technology Development

This is an area that is concerned with technological innovation,

training and knowledge that is crucial for most companies today in

order to survive.

Firm Infrastructure

This includes planning and control systems, such as finance,

accounting, and corporate strategy etc.

Supply chain management 1.(SCM) is the process of optimizing the shipment of goods and services from supplier to customer.

2.Today’s supply chains for mid and large companies span the globe, with suppliers and partners in multiple countries and multiple time zones.

3.As such, the use of quality supply chain management software is critical to success.

4. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured.

5. Managing the chain of events in this process is what is known as supply chain management.

6.The first step is obtaining a customer order, followed by production, storage and distribution of products and supplies to the customer site.

6.Customer satisfaction is paramount.

7.Included in supply chain process are customer orders, order processing, inventory, scheduling, transportation, storage, and customer service.

8. A necessity in coordinating all these activities is the information service network.

9.Key to the success of a supply chain is the speed in which these activities can be accomplished

10. The realization that customer needs and customer satisfaction are the very reasons for the network.

11.The decisions associated with supply chain management cover both the long-term and short-term.

12.Strategic decisions deal with corporate policies, and look at overall design and supply chain structure.

13.Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place.

14.Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities.

1.Reduced inventories,

2. lower operating costs,

3. product availability and customer satisfaction are all benefits which grow out of effective supply chain management.

There are six key elements to a supply chain:

Production Supply Inventory Location

Transportation, and Information

Strategic leadership

A strategy is a set of related actions that managers take to increase their company’s performance. It is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain competitive advantage . For most companies achieving superior performance relative to their competitors is the ultimate challenge.

There is competitive advantage when a company’s profitability is greater than the average profitability of all other companies in the industry and who are competing for the same customers.

Competitive advantage is when a company implements a strategy competitors are unable to duplicate or find too costly to try to imitate.

A company has sustainable competitive advantage when its products /services are Valuable, rare, costly to imitate, and non substitutable.

Average returns: are returns in excess of what an investor expects to earn from other investments with a similar amount of risk.

Risk: is an investor’s uncertainty about economic gains or losses that will result from a particular investment.

Strategic leadership is about how effectively to manage a company’s strategy making process to create a competitive advantage .

Strategic making process is process by which managers select and then implement a set of strategies that aim to achieve competitive advantage.

Strategic leadership is concerned with managing the strategic making process to increase the performance of a company and thereby increasing the value of the enterprise to its owners and shareholders .

Maximizing shareholders value;Is the ultimate goal :reasons.1.Share holders provide risk capital that can not be recovered if the company goes bankrupt.2. Shareholders are the legal owners of the company and therefore their share represent and generate profit.

Share holders value comes from two sources; capital appreciation and Dividend payment To maximize shareholder’s value managers must formulate and implement strategies that enable their comapnny to outperform their rivals. Higher the profitability greater the competitive advantage. Managers pursue strategies to make a company unique and different from other companies.Business model Manager’s conception of how a set of strategies their company can pursue and mesh together into a congruent whole and enable the company to achieve competitive advantage.They are

Characteristics of strategic leaders :

1.The vision eloquence and consistency:

The key difference between a leader and a strategic leader is that the strategic leader has a well-defined vision for the future. He has a clear picture of what the company will be like in five years? Some call it a vision, others call it a strategic positioning statement, but whatever you call it, a strategic leader knows where his people are going. Bill gates :His vision –a windows based PC on every desk. Windows based software will be found on every computing device.Jack Welch GE should be first or second on every business.

Jawaharlal Nehru : An enlightened modern IndiaMartin Luther King: I have a dream

A strategic leader needs to be able to communicate their vision in order for others to sign up for the journey and understand their role in it. That also means that the vision needs to be motivational with clear responsibilities and expectations set for all involved.

2. Articulation of their business model. Their mental model. How various strategies fit together into a congruent whole.Sam Walton of their business model. Walmart Discount Store, Walmart Super centre, Sam club, Walmart Neighbourhood Market, Walmex, Wal-Mart International.3. Commitment:

Walt Disney By words and action sincere to his workers.Died 14 days before the Disney land opened.

4. Well informed:

Develop network of formal and informal sources. Ray Kroc of McDonald had the unconventional way of collecting information. Visited restaurants incognito, obtained firsthand information on the needs of customers and from every source.5. Willling to delegate power:

As overloaded with responsibilities. And to empower subordinates .But had control key decisions.

6. Astute use of power

(discerning, intelligent, clever, cunning, shrewd, crafty) According to Edward Wrapp Effective leaders are very astute in their use of power.

They play power game with skill, and attempt to build consensus. Act as members of the coalition, appear democratic and get things done through intelligent use of power. Power comes from controlling resources that are important to the organization. Like knowledge, position, budgets, money To use astute of power one need not to be a CEO.He can be in any level in the organization.

7. Emotional intelligent: (Emotional intelligence is the innate potential to feel, use, communicate, recognize, remember, describe, identify, learn from, manage, understand and explain emotions)By Daniel GolemanA bundle of psychological attributes likeSelf awareness, Self regulation, Motivation, Empathy Identification with and understanding of another's situation, feelings, and motive)Social skills.

EQ" represents a relative measure of a person's healthy or unhealthy development of their innate emotional intelligence. 8. They balance the present with the future

In making resource and operational decisions, especially when planning investments in capital, including technology and management (or “getting the right seats on the bus,” as Collins says) at every level.

9. Works to influence not dominate:

Another key point to remember is that strategic leadership works best when the leader is able to use influence, not dominance, to rally the troops. If no one wants to follow, perhaps the vision needs some re-examination. Jack Welsh wrote that “engaging people’s hearts and minds is the key to everything.”

10. To manage through tough times as well as good times.

In fact, Herb Kelleher, one of Southwest’s founders has been quoted as saying, “Manage in good times, so the company can do well in bad times.” So far at least, they are the only airline that hasn’t had to resort to charging for checked baggage.

11.Their ability to anticipate and manage through chaos,

which is becoming the norm. Many say, “Why plan, when everything changes?” The key to a good plan is that you know where you are going long-term, but you can change the road that gets you there in the short-term, if necessary. (Not unlike a detour during the oh-so-common summer road construction!)

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“Strategic decision making”

Strategic decisions are

1.Rare:

2.Broad scale

3.Consequential:

4. Directive:

5.Surrounded by uncertainties

6.Set the standard.

Barriers to Strategic decisions:

1.Rate of environment , its change volatility

2.Unpredictability

3.Intricacy, complexity

4.Vagueness of current situation and potential outcomes

Mintzberg‘s model (three approaches.)

Entrepreneurial mode:

Made by by one powerful individual. Focus is on opportunities, problems are secondary. Strategy is guided by the founder’s own vision of direction. Examples. AOL- Steve Case was the driving force behind ‘America Online’ and a leading business pioneer of the Internet boom of the 1990s. Case worked briefly for both Proctor & Gamble and PepsiCo With Case at the helm, AOL became one of the biggest success stories of the dot-com era, introducing millions of Americans to the Internet through its non-technical, user-friendly interface. (AOL's audio greeting of "You've got mail!" was so popular that it became the title of a 1998 movie starring Tom Hanks and Meg Ryan.) AOL's stock price doubled again and again, turning the company into a new media giant and making Case both famous and wealthy. He masterminded AOL's merger with media giant Time Warner in 2001 in a deal valued at over $160 billion. Mukesh Ambani helped the company in recent years when it was scaling up rapidly in energy, retail, petrochemicals or special economic zones. Now, there is a realisation that the group must move partially from the “ entrepreneurial mode” to the “planning mode” where practices are institutionalised. on a day-to-day basis. This “mission mode” helped the company in recent years when it was scaling up rapidly in energy, retail, petrochemicals or special economic zones.

Adaptive mode; Some times referred to as “muddling through ”This decision making is characterised by reactive solutions to existing problems rather than a proactive search for ne opportunities.

Wipro Infotech introduced the customised Personal computers in response to Dell computers entering Indian market.

Planning mode: This decision making mode involves systematic gathering of appropriate information of situation and analysis, generation of feasible alternatives and rational selection of right strategy.

Entry of MNCs made Maruthi Suzuki to come up with new models and discard/slow own production of old models.

CEO Carly Florina of (HP) Hewlett-Packard carefully studied computer communication industries and decided to become move from instrumentation and computer hard-ware business to a customer focused and integrated provider of information appliances,highly reliable information technologyinfrastructure and electronic commerce service.

Logical incrementalism fourth mode by Quinn.

Viewed as a sysnthesis of the planning, adaptive and a lesser extent the entrepreneurial modes.

Offensive /Defensive Strategies - considering strategic options from a competitor rather than customer orientation is referred to as competitive marketing strategy. Kotler and Singh identified five offensive and six defensive strategies – these are named after military strategies.

Offensive warfare

1. Frontal attack – This is the direct, head on attack meeting competitors with the same product line, price, promotion, etc. Because attack is on the enemy’s strengths rather than weakness it is considered the most risky and least advised strategy.2. Flanking attack – The aim here is to engage competitors in those

products markets where they are weak or have no presence at all. Its overreaching goal is to build a position from which to launch, an attack on the battlefield later.3. Encirclement attack – Multi pronged attack aimed at diluting the defenders ability to retaliate in strength. The attacker stands ready to block the competitor no matter which way he turns the product market. Product proliferation supplying different types of the same product to the market. Market encirclement consists of expanding the products into all segments and distribution channels.4. Bypass attack – This is the most indirect form of competitive strategy as it avoids confrontation by moving into new and as yet uncontested fields. Three type of bypass are possible; develop new products, diversify into unrelated products or diversify into new geographical markets.5. Guerilla warfare – Less ambitious in scope, this involves making small attacks in different locations whilst remaining mobile. Such attacks take several forms. The aim is to destabilize the competitor by small attacks.

Defensive warfare

1. Position defence – static defence of a current position, retaining current product markets by consolidating resources within existing areas. Exclusive reliance on a position defence effectively means that a business is a sitting target for competition.2. Mobile defence – A high degree of mobility prevents the attackers chances of localizing the defence and accumulating its forces for a decisive battle. A business should seek market development, product development and diversification to create a stronger base.3. Pre-emptive defence – Attack is the best form of defence. Pre-emptive defence is launched in a segment where an attack is anticipated instead of moving into related or new segments.4. Flank position defence – This is used to occupy a position of potential future importance in order to deny that position to an opponent. Leaders need to develop and hold secondary markets to prevent competitors from using them as a spring board into the primary market.5. Counter offensive defence – This is attacking where the company

is being attacked. This requires immediate response to any competitor entering a segment or initiating new moves.6. Strategic withdrawal. Withdrawal It might be the right decision to cease producing a product and/ or to pull out of a market completely. This is a hard decision for managers to take if they have invested or if the decision involves redundancies.Exit barriers make this difficult.a. Cost barriers include redundancy costs, the difficulty of selling assets.b. Managers might fail to grasp the principles of opportunity costingc. Political barriers includes government attitudesd. Marketing considerations may delay withdrawale. Psychology – managers hate to admit failure

Reasons for exit a The company’s business may be buying firms turning them around and selling them at a profit.b. Resource limitations mean that less profitable businesses have to be abandoned. A business might be sold to a competitor or occasionally to management.c. A company may be forced to close because of insolvency.d. Change of competitive strategy.e. Decline in attractiveness of the market.f. Funds can earn more elsewhere.

Horizontal Integration: are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other. The principal objective :is to achieve economies of scale in the production procedure through carrying off duplication of installations, services and functions, widening the line of products, decrease in working capital and fixed assets investment, getting rid of competition, minimizing the advertising expenses, enhancing the market capability and to get more dominance on the market.

Examples of horizontal mergers: 1.The formation of Brook Bond Lipton India Ltd. through the merger of Lipton India and Brook Bond . 2 .Bank of Mathura with ICICI (Industrial Credit and Investment

corporation of India) Bank. 3. The merger of BSES (Bombay Suburban Electric Supply) Ltd. with Orissa Power Supply Company 4. The merger of ACC (erstwhile Associated Cement Companies Ltd.) with Damodar Cement5. Blue star with Iris logic,6. Mahindra&Mahindra and Trade & Financial of Arab emirites,

Advantages of Horizontal Merger: 1.Reducing costs by economies of scale : large scale integration allows to spread Fixed cost over large volume . Therefore, the merged company can derive the benefits of economies of scale. The maximum use of plant facilities can be done by the merged company, which will lead to a decrease in the average expenses of the production.

2. Increasing value of products by differentiation: by product bundling offering a bundle of products. Air tel: Mobile service, telemedia service, land lines phone, Enterprise services, provider of SMs service, voice mail, Miss all alerts, Black berry 8800 smart phone on the , launch of iphone, IBM to offer end to end managed service, Tie up wit Wipro, TCS for telecom service, Virtela global service provider, Eg.World Com in 1983-2001 customers switched over to World com. Eg. Sord perfect world No.1 in word processing category Microsoft was 2 or 3 , Lotus was the best selling spread sheet, Harvard graphics was best selling presentation program Microsoft in 1990 offered different software programs, Word processor, spread sheet , presentation software all in one achieved superior value. Single provider.

3. Cross selling: A company tries to leverage its relationship with customers by acquiring additional product categories. Eg.Financial service Customers prefer single providers. Checking accounts, mortgage, insurance policies , investment services as Banks like IDBI, ICICI , HDFC are doing 4.Managing rivalry: helps eliminate excess capacity which leads to price war instead tacit coordination ( but without communication it is

illegal. Dell tried to gain market share. Compaq when was taken over by HP 5. increasing bargaining power over suppliers. And if other things are equal the price can be increased. Limitations of Horizontal interation:Due to cuture differencesGovt restrictions.

Vertical Integration: Nineteenth century steel tycoon Andrew Carnegie introduced the idea of vertical integration. The Indian petrochemical giant Reliance Industries is a great example of vertical integration in modern business. Reliance's backward integration from textiles into polyester fibres and further into petrochemicals was started by Mukesh Ambani. Reliance has entered the oil and natural gas sector, along with retail sector. Reliance now has a complete vertical product portfolio from oil and gas production, refining, petrochemicals, synthetic garments and retail outlets.

Vertical integration is integration along a supply chain. For example, if a retailer starts manufacturing the products it sells, it is increasing its level of vertical integration. Vertical integration may be backward or forward. For example, a car company that is expanding into tire manufacturing. A company such as this is often referred to as vertically integrated. vertical integration is the consolidation of upstream (suppliers) and/or downstream (customers) components of the value chain into a common ownership structure. Costs, market differentiation, and other business issues are impacted by the extent of vertical integration. Vertical integration focused on expanding downstream activity is called forward integration. Vertical integration focused on expanding upstream activity is called backward integration.

The advantages of vertical integration 1.Lower transaction cost: this comes due to inter transactions between subsidiary companies who usually have a central management and a central communication system which is cheaper to use.

2. High certainty of Quality: this comes about since the subsidiary companies have a common quality control system as such they produce standard products as such the companies are sure of their products' quality.3. Ability to monopolise the market:This type of situation will start from the production of raw materials all the way to production, then distribution. This will assist the company to control all the lines of business 4.Improves supply chain coordination.5. Provide more opportunities to differentiate by means of more control.6. Capture upstream , downstream profit margins.7. Increase entry barriers to potential competitors if the firm can gain access to scarce raw materials8. Gain access to down stream distribution channels that would otherwise be inaccessible.9. Lead to expansion of core competencies.Disadvantages: 1. Higher Monetory and Organisational Costs. This can be brought about by a company having a big organisational structure which leads to higher cost for managing such a structure. 2.Lacks Capacity balancing issues. For example –the firm may need to build excess upstream capacity to ensure that its down stream operations have sufficient supply of under all demand conditions.

3. Potentially higher costs due to low efficiencies resulting from lack of suppliers competition.4. Developing new core Competencies may compromise existing competencies.5. Increased bureaucratic costs. 6. In addition to the new activity places the firm in competition with another player with whom it needs to cooperate. The firm may be viewed as competitor. 7. If supply of components is greater than that required by the parent company then either production will have to be reduced (redundancies, industrial action etc) or the surplus will have to be sold to rival firms.

8.Customer choice may be restricted if the parent company insists on only its products being offered for sale (brewery - note current affairs on the Monopoly's Commission investigation into breweries.) ==========================================

Synergy: Basically it means that the whole is greater than the sum of its parts. If synergy is where the sum of the parts is greater than the whole, then negative synergy would be where the sum of the parts is less than the sum of the parts. .

1. Operating synergy when two firms combine their resources and efforts, they will be able to produce better results than they were producing as separate entities because of savings various types of operating costs. In a vertical merger, a firm may either combine with its supplier   of input (backward integration) and/or with its customers (forward integration). Such merger facilitates better coordination and administration of the different stages of business stages of business operations-purchasing, manufacturing and marketing –eliminates the need for bargaining (with suppliers and/or customers), An example of a merger resulting in operating economies is the merger of Sundaram Clayton Ltd. (SCL) with TVS-Suzuki Ltd. (TSL).By this merger, TSL became the second largest producer of two –wheelers after Bajaj. The main objective motivation for the takeover was TSL’s need to tide over its different market situation through increased volume of production. It needed a large manufacturing bas to reduce its production costs. Large amount of funds would have been required for creating additional production capacity. SCL also needed to upgrade its technology and increase its production. SCL’s and TCL’s plants were closely located which added to their advantages. The combined company has also been enabled to share the common R&D facilities.

Advantages: Economies of scale, Economies of vertical integration, complementary resources and elimination of inefficiency.

2. Financial synergy Financial synergy refers to increase in the value of the firm that accrues to the combined firm from financial factors.

There are many ways in which a merger can result into financial synergy and benefit. A merger may help in:

Eliminating financial constraint Deployment surplus cash Enhancing debt capacity Lowering the financial costs Better credit worthiness

RP Goenka’s ceat tyres sold off its type cord division to Shriram Fibers Ltd. in 1996 and also transfer’s its fiber glass division to FGL Ltd., another group company to achieve financial synergies.

3. Managerial synergy is possible when a new business venture faces strategic, organizational or operating problems which are similar to problems that the management has dealt with in the past. One of the potential gains of merger is an increase in managerial effectiveness. This may occur if the existing management team, which is performing poorly, is replaced by a more effective management team. Often a firm, plagued with managerial inadequacies, can gain immensely from the superior management that is likely to emerge as a sequel to the merger. Another allied benefit of a merger may be in the form of greater congruence between the interests of the managers and the shareholders.

A common argument for creating a favorable environment for mergers is that it imposes a certain discipline on the management. If lackluster performance renders a firm more vulnerable to potential acquisition, existing managers will strive continually to improve their performance.

4 . Sales synergy which occurs when different products use common distribution channels, common sales administration, or common warehousing. These synergies occurs when merged organization can benefit from common distribution channels, sales administration, advertising, sales promotion and warehousing.

The Industrial Credit and Investment Corporation of India Ltd. (ICICI) acquired Tobaco Company, ITC. Classic and Anagram

Finance to obtain quick access to a well dispersed distribution networkMichael porter. “sharing has the potential to reduce cost if the cost of a value activity is driven by economies of scale, learning or the pattern of capacity utilization”.

GE-MC KANSY 9 CELL MATRIX

GE-Mc Kansy 9 Cell Matrix

Description of the Model

The General Electric Company, with the aid of the Boston Consulting Group and McKinsey and Company, pioneered the nine cell strategic business screen illustrated here. The circle on the matrix represents your enterprise. Both axes are divided into three segments, yielding nine cells. The nine cells are grouped into three zones: The Green Zone consists of the three cells in the upper left corner. If your enterprise falls in this zone you are

in a favourable position with relatively attractive growth opportunities. This indicates a "green light" to invest in this product/service. The yellow zone Yellow Zone consists of the three diagonal cells from the lower left to the upper right. A position in the yellow zone is viewed as having medium attractiveness. Management must therefore exercise caution when making additional investments in this product/service. The suggested strategy is to seek to maintain share rather than growing or reducing share. The Red Zone consists of the three cells in the lower right corner. A position in the red zone is not attractive. The suggested strategy is that management should begin to make plans to exit the industry. Characterize Your EnterpriseThe vertical axis represents the industry attractiveness. The expert system will position your enterprise on the chart based upon your description of:

bargaining power of the buyers bargaining power of the suppliers internal rivalry the threat of new entrants the threat of substitutes

The horizontal axis represents the firm's competitive strength or ability to compete in the industry. It includes an analysis of:

the value and quality of the offering market share staying power experience

You can trace through the supporting analysis and its conclusions, adjusting your input until you are satisfied your description accurately characterizes your enterprise.

Transfer pricing :Charges, prices made by one business unit to another business unit of the same company or related companies for services or for supplying raw material or goods or use of properties This is a significant and problematic transaction since:1. It may cause conflict in fixing a fair price.2. It could be a source of bureaucratic cost. 3.The concerned units have to settle various taxes to the government.4. Each division /unit intends to increase price of its resources and skills and thereby their profitability. Govt of India has introduced introduced law of transfer pricing in 2001 through sections 92A to 92F of the Indian Income tax Act, 1961 which guides computation of the transfer price and suggests detailed documentation procedures.Strategic control: is different from traditional organizational control which seeks only to compare the actual results against a standard expected targets and that is after some years.

But strategic control is tracking strategy as a form of steering control, as it is implemented, in guiding efforts to see 1. Are we moving in the proper direction? 2. How are we performing? There are four types of strategic controls.Premise control: is designed to check systematically and continuous whether or not the premises set during the planning and implementation process are still valid

Implementation control: is designed to assess whether the overall strategy result associated with incremental steps and actions that implement overall strategy.

Strategic surveillance: It is designed to monitor a broad range of events inside and outside the company to threaten the course of firm's strategy.

Special alert control: is the need to thoroughly and often rapidly reconsider the firm's basic strategy based on a sudden unexpected event.