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Strategic Management





S.No Contents Page No.
1.c Introduction 2
2. Strategic Alliances 4
3. Mergers and Acquisitions 8
4. Diversification 18
5. Restructuring 23
6. Retrenchment 26
7. Making strategy work- Overcoming the 31
obstacles to effective execution

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Strategy is about a focused effort at all levels of the business on how to win in the
marketplace. This should clearly translate to the functional and managerial level of the
business to inform incremental effort, initiative prioritization, and resource allocation.
When done effectively, the ability to rally thousands of employees around a common
strategic direction becomes a point of competitive differentiation.

The organizations that effectively bring corporate strategies to life share a few common

c  c c c    Itǯs just as important to decide what you will not do or
stop doing as what you will start doing. The output of "stop doing" sessions can be as
simple as not running an internal report that you arenǯt sure anyone is reading. Or it can be
as mission-critical as which markets you wonǯt focus on because the revenue generated is
dilutive to margin or merely not aligned with your long-term vision.

c  c  c c  c  c   By definition, strategy should be
controversial. Many leaders over-value alignment, wanting everyone to agree on what the
business should do. If everyone agrees, itǯs likely not that controversial and may not
provide a competitive advantage. Leaders should not expect everyone on the senior team
to agree, but that they will support the decisions once they are made. The leadership teams
who truly understand this reality have created planning processes and cultural
environments that foster intense debate and disagreement.
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The balanced scorecard that measures involuntary turnover and yield is a look back at the
health of an organization. Strategy, however, is a look forward into uncertainty, the
workout plan for the future.

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 cConsider how much time goes into building the strategic plan. It is believed that
if goals are developed based on the strategy and are cascaded through the organization,
everyone will be rowing in the same strategic direction. This belief assumes that the
employees who are responsible for executing the strategy understand it and have the
capabilities to execute it. The most effective organizations continually communicate the

corporate strategy, assess the organizational capabilities to execute it, and develop training
programs to bridge capability gaps.

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 c   c People should spend time assessing the competition, identifying
emerging trends, or meeting with customers. This knowledge is the Dzraw materialdz for
strategy creation. Ironically, this is the low-hanging fruit in many organizations; itǯs just a
matter of allocating time at the leadership level. Without the raw materials of a strategy
that come from being curious and informed about the marketplace, changing customers,
and the competition, itǯs impossible to create a viable winning strategy.



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A strategic alliance is when two or more businesses join together for a set period of time.
The businesses, usually, are not in direct competition, but have similar products or services
that are directed toward the same target audience.
Alliance means "cooperation between groups that produces better results that can be
gained from a transaction. Because competitive markets keep improving what you can get
from transactions, an alliance must stay ahead of the market by making continuous
Strategic alliance is a primary form of cooperative strategies. "A strategic alliance is a
partnership between firms whereby resources, capabilities, and core competences are
combined to pursue mutual interests."
Alliances can be structured in various ways, depending on their purpose. Non equity
strategic alliances, equity strategic alliances, and joint ventures are the three basic types of
strategic alliances.

{c  c   is a strategic alliance in which two or more firms create a legally
independent company to share some of their resources and capabilities to develop a
competitive advantage.
{c & c   c  is an alliance in which two or more firms own different
percentages of the company they have formed by combining some of their resources
and capabilities to create a competitive advantage.
{c & c   c  is an alliance in which two or more firms develop a
contractual-relationship to share some of their unique resources and capabilities to
create a competitive advantage.

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In the new economy, strategic alliances enable business to gain competitive advantage
through access to a partner's resources, including markets, technologies, capital and
Teaming up with others adds complementary resources and capabilities, enabling
participants to grow and expand more quickly and efficiently. Especially fast-growing
companies rely heavily on alliances to extend their technical and operational resources. In
the process, they save time and boost productivity by not having to develop their own, from
scratch. They are thus freed to concentrate on innovation and their core business.
Many fast-growth technology companies use strategic alliances to benefit from more-
established channels of distribution, marketing, or brand reputation of bigger, better-
known players. However, more-traditional businesses tend to enter alliances for reasons

such as geographic expansion, cost reduction, manufacturing, and other supply-chain
As global markets open up and competition grows, midsize companies need to be
increasingly creative about how and with whom they align themselves to go to the market.

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Toshiba firmly believes that a single company cannot dominate any technology or business
by itself. Toshibaǯs approach is to develop relationships with different partners for
different technologies. Strategic alliances form a key element of Toshibaǯs corporate
strategy. They helped the company to become one of the leading players in the global
electronics industry.
In early 1990s Toshiba signed a coproduction agreement for light bulb filaments with GE.
Jack Welch, the legendary former CEO of GE, was a Toshibaǯs admirer. According to him, a
phone call to Japan was enough to sort out problems if and when they arise, in no time.
Since then, Toshiba formed various partnerships, technology licensing agreements and
joint ventures. Toshibaǯs alliance partners include Apple Computers, Ericsson, GE, IBM,
Microsoft, Motorola, National Semi Conductor, Samsung, Siemens, Sun Microsystems and
Toshiba formed an alliance with Apple Computer to develop multimedia computer
products. Appleǯs strength lay in software technology, while Toshiba contributed its
manufacturing expertise. Toshiba created a similar tie-up with Microsoft for hand held
computer systems.
In semiconductors, Toshiba, IBM and Siemens came together to pool different types of
skills. Toshiba was strong in etching, IBM in lithography and Siemens in engineering. The
understanding among the partners was limited to research. For commercial production
and marketing the partners decided to be on their own.
In flash memory, Toshiba formed alliances with IBM and National Semi Conductor.
Toshibaǯs alliance with Motorola has helped it become a world leader in the production of
memory chips.
The tie-up with IBM has enabled Toshiba to become a worldǯs largest supplier of color flat
panel displays for notebooks.
Toshiba believes in a flexible approach because some tension is natural in business
partnerships, some of which may also sour over time. Toshiba executives believe that the
relationship between the company and its partner should be like friends, not like that of a
married couple. Toshiba senior management is often directly involved in the management
of strategic alliances. This helps in building personal equations and resolving conflicts.

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The name DzSuzukidz is the most popular surname in Japan and the brand name of the most
popular car in India. Suzuki has a market share of 55.6% in the compact and midsize car
market in India, whose middle class, car purchasing public, accounts for 200-300 million of
the countryǯs 1.15 billion people.
For a long time, Indians have used bicycle rickshaws or autorickshaws for daily
transportation. The word Dzrickshawdz originates from the Japanese word jinrikisha, which
literally means Dzhuman-powered The fact that Suzuki is now practically
synonymous with automobile in India suggests how close the relationship between the two
countries can be.
Indeed, India and Japan are natural allies. Their strategic interests are almost perfectly
aligned, and each shares a desire to stabilize and preserve Asiaǯs balance of power. So it is
no surprise that Japan is pushing to develop closer economic and strategic ties with India.
Suzuki Motor Corp. first entered the Indian market in 1982, when it started a joint venture
with Maruti Udyog Ltd, an Indian state-owned firm. Despite many ups and downsȄand
fierce competition from other major automobile manufacturers, including the Indian giant
Tata Motors LtdȄSuzuki succeeded in establishing its brand as Indiaǯs Dzpeopleǯs
Currently, Maruti Suzuki India Ltd has at least 4,000 employees and a nationwide sales
network of 337 dealers with 8,600 salespersons. The company is planning to build a new
factory in 2011, with a production capacity of 300,000 cars per year for a market expected
to reach two million in sales this year.
The reason why Suzuki entered the Indian market is clear. Suzuki chose an untapped
market while Japanǯs bigger auto makersȄToyota, Nissan, and HondaȄengaged in fierce
competition within Japan. Osamu Suzuki, CEO and COO of the company (and a grandson-in-
law of its founder), is a creative decision-maker, a maverick who considers himself an Dzold
man in a mom-and-pop companydz that concentrated most of its resources on producing
motorcycles and light motor vehicles. Yet when he decided to diversify and focus on India,
many criticized him as being reckless, because India was so unfamiliar to Japanese
companies. Indeed, while there are currently at least 19,000 Japanese companies in the
Chinese market, there are only about 260 in India.
Suzukiǯs decision to enter the Indian market turned out to be a resoundingly wise choice.
Japanǯs population peaked in 2004 and is now falling, while its younger generations show
diminishing interest in automobiles. In the past, young Japanese were proud of their
knowledge about cars, and every teenage boy knew which model would attract the most
girls. Today, however, Japanese driving schools suffer from a fall-off in students, which
cannot be explained solely by declining population.
India ǯs population, on the other hand, is increasing dramatically in the absence of a one-
child policy, such as exists in China. It makes sense, then, that Japanese companies should
head to the expanding Indian market.

Doing so, moreover, makes geo-strategic sense as well, with successive Japanese
governments increasingly regarding India as a vital diplomatic and political partner. For
example, in August 2007, then prime minister Shinzo Abe headed a big delegation to India,
followed by an official visit in December by current Prime Minister Yukio Hatoyama.
The DzStrategic and Global Partnership between Japan and India,dz established in 2006, rests
on the recognition that Japan and India share common values and interests, as they are the
two major entrenched democratic countries in Asia. These shared values distinguish the
Japan-India relationship from Japanǯs relationship with China. The growing congruence of
strategic interests led to the 2008 Japan-India security agreement, a significant milestone
in building a stable geopolitical order in Asia.
A constellation of Asian democracies linked by strategic cooperation and common interests
is becoming critical to ensuring equilibrium at a time when Asiaǯs security challenges are
mounting due to the shift in global economic and political power from west to east. The
emerging Japan-India partnership looks like a necessary foundation for pan-Asian security
in the 21st century.
The key point today is that the governments in both India and Japan are keen on
developing their strategic consensus about Asiaǯs future, a fact underscored by the many
bilateral discussions between defence and military officials of both countries that are
taking place. These discussions include joint initiatives on maritime security,
counterterrorism, weapons proliferation, disaster prevention and management, and energy
More is needed. India and Japan should, for example, jointly develop new defence
capacities. Today, India and Japan cooperate on missile defence in partnership with Israel
and the US. Bilateral efforts should also be launched to develop other defence technologies.
Suzukiǯs joint venture in India suggests that cooperation in high-tech manufacturing is
eminently possible.
Suzukiǯs success is a powerful precedent not only for other Japanese companies that are
looking at the Indian market, but also for further deepening cooperation between the two
countries. Osamu Suzuki may not be willing to share all of the secrets of his success with
his competitors, but they and Japanese diplomats should be studying the Suzuki method.
Japanǯs economy and Asian security depend on its replication.



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Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate
finance world. Every day, Wall Street investment bankers arrange M&A transactions, which
bring separate companies together to form larger ones. When they're not creating big
companies from smaller ones, corporate finance deals do the reverse and break up
companies through   ,   or   c  .
Not surprisingly, these actions often make the news. Deals can be worth hundreds of
millions, or even billions, of dollars. They can dictate the fortunes of the companies
involved for years to come. For a *, leading an M&A can represent the highlight of a
whole career. And it is no wonder we hear about so many of these transactions; they
happen all the time. Next time you flip open the newspaperǯs business section, odds are
good that at least one headline will announce some kind of M&A transaction.

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This rationale is particularly alluring to companies when times are tough. Strong
companies will act to buy other companies to create a more competitive, cost-efficient
company. The companies will come together hoping to gain a greater market share or to
achieve greater efficiency. Because of these potential benefits, target companies will often
agree to be purchased when they know they cannot survive alone.

When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition. From a legal point of view, the target company ceases to
exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the same
size, agree to go forward as a single new company rather than remain separately owned
and operated. This kind of action is more precisely referred to as a "merger of equals." Both
companies' stocks are surrendered and new company stock is issued in its place. For
example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a
new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm to
proclaim that the action is a merger of equals, even if it's technically an acquisition. Being
bought out often carries negative connotations, therefore, by describing the deal as a
merger, deal makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining together is
in the best interest of both of their companies. But when the deal is unfriendly - that is,
when the target company does not want to be purchased - it is always regarded as an

Whether a purchase is considered a merger or an acquisition really depends on whether

the purchase is friendly or hostile and how it is announced. In other words, the real
difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders. c
Synergy is the magic force that allows for enhanced cost efficiencies of the new business.
Synergy takes the form of revenue enhancement and cost savings. By merging, the
companies hope to benefit from the following:

{c c   c  As every employee knows, mergers tend to mean job losses.
Consider all the money saved from reducing the number of staff members from
accounting, marketing and other departments. Job cuts will also include the former
CEO, who typically leaves with a compensation package.
{c   cc  c Yes, size matters. Whether it's purchasing stationery or a new
corporate IT system, a bigger company placing the orders can save more on costs.
Mergers also translate into improved purchasing power to buy equipment or office
supplies - when placing larger orders, companies have a greater ability to negotiate
prices with their suppliers.
{c à& c c  c To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge.
{c ë c  c  c c   c   c  Companies buy companies to
reach new markets and grow revenues and earnings. A merge may expand two
companies' marketing and distribution, giving them new sales opportunities. A
merger can also improve a company's standing in the investment community: bigger
firms often have an easier time raising capital than smaller ones.
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From the perspective of business structures, there is a whole host of different mergers.
Here are a few types, distinguished by the relationship between the two companies that are

{c Ë ) c   c- Two companies that are in direct competition and share the
same product lines and markets.
{c    c  c- A customer and company or a supplier and company. Think of a
cone supplier merging with an ice cream maker.
{c $  c  c Two companies that sell the same products in different
{c x  c  ccTwo companies selling different but related products
in the same market.
{c     - Two companies that have no common business areas.

There are two types of mergers that are distinguished by how the merger is financed. Each
has certain implications for the companies involved and for investors:

{c x   c $  c  As the name suggests, this kind of merger occurs when one

company purchases another. The purchase is made with cash or through the issue of
some kind of debt instrument; the sale is taxable.
Acquiring companies often prefer this type of merger because it can provide them
with a tax benefit. Acquired assets can be written-up to the actual purchase price,
and the difference between the book value and the purchase price of the assets
can depreciate annually, reducing taxes payable by the acquiring company. We will
discuss this further in part four of this tutorial.
{c    c $  c  With this merger, a brand new company is formed and
both companies are bought and combined under the new entity. The tax terms are
the same as those of a purchase merger.
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An acquisition may be only slightly different from a merger. In fact, it may be different in
name only. Like mergers, acquisitions are actions through which companies seek
economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all
acquisitions involve one firm purchasing another - there is no exchange of stock
or consolidation as a new company. Acquisitions are often congenial, and all parties feel
satisfied with the deal. Other times, acquisitions are more hostile.

In an acquisition, as in some of the merger deals we discuss above, a company can buy
another company with cash, stock or a combination of the two. Another possibility, which
is common in smaller deals, is for one company to acquire all the assets of another
company. Company X buys all of Company Y's assets for cash, which means that Company Y
will have only cash (and debt, if they had debt before). Of course, Company Y becomes

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merely a shell and will eventually liquidate or enter another area of business.

Another type of acquisition is a reverse merger, a deal that enables a private company to
get publicly-listed in a relatively short time period. A reverse merger occurs when a private
company that has strong prospects and is eager to raise financing buys a publicly-listed
shell company, usually one with no business and limited assets. The private company
reverse merges into the public company, and together they become an entirely new
public corporation with tradable shares.

Regardless of their category or structure, all mergers and acquisitions have one common
goal: they are all meant to create synergy that makes the value of the combined companies
greater than the sum of the two parts. The success of a merger or acquisition depends
on whether this synergy is achieved.

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Investors in a company that are aiming to take over another one must determine whether
the purchase will be beneficial to them. In order to do so, they must ask themselves how
much the company being acquired is really worth.
Naturally, both sides of an M&A deal will have different ideas about the worth of a target
company: its seller will tend to value the company at as high of a price as possible, while
the buyer will try to get the lowest price that he can.

There are, however, many legitimate ways to value companies. The most common method
is to look at comparable companies in an industry, but deal makers employ a variety of
other methods and tools when assessing a target company. Here are just a few of them:

{c   c +  c The following are two examples of the many comparative
metrics on which acquiring companies may base their offers:

¬c Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring
company makes an offer that is a multiple of the earnings of the target
company. Looking at the P/E for all the stocks within the same industry
group will give the acquiring company good guidance for what the target's
P/E multiple should be.

¬c Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring

company makes an offer as a multiple of the revenues, again, while being
aware of the price-to-sales ratio of other companies in the industry.

{c + c ccIn a few cases, acquisitions are based on the cost of replacing
the target company. For simplicity's sake, suppose the value of a company is simply
the sum of all its equipment and staffing costs. The acquiring company can literally
order the target to sell at that price, or it will create a competitor for the same cost.
Naturally, it takes a long time to assemble good management, acquire property and
get the right equipment. This method of establishing a price certainly wouldn't make
much sense in a service industry where the key assets - people and ideas - are hard
to value and develop.
{c % c c‰  c,%‰-c - A key valuation tool in M&A, discounted cash flow
analysis determines a company's current value according to its estimated future
cash flows. Forecasted free cash flows (net income + depreciation/amortization -
capital expenditures - change in working capital) are discounted to a present value
using the company's weighted average costs of capital (WACC). Admittedly, DCF is
tricky to get right, but few tools can rival this valuation method.

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For the most part, acquiring companies nearly always pay a substantial premium on the
stock market value of the companies they buy. The justification for doing so nearly
always boils down to the notion of synergy; a merger benefits shareholders when a
company's post-merger share price increases by the value of potential synergy.

Let's face it, it would be highly unlikely for rational owners to sell if they would benefit
more by not selling. That means buyers will need to pay a premium if they hope to
acquire the company, regardless of what pre-merger valuation tells them. For sellers,
that premium represents their company's future prospects. For buyers, the premium
represents part of the post-merger synergy they expect can be achieved. The following
equation offers a good way to think about synergy and how to determine whether a
deal makes sense. The equation solves for the minimum required synergy:

In other words, the success of a merger is measured by whether the value of the buyer
is enhanced by the action. However, the practical constraints of mergers, which we
discuss in part five, often prevent the expected benefits from being fully achieved.

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When the CEO and top managers of a company decide that they want to do a merger or
acquisition, they start with a  c  . The process typically begins with the
acquiring company carefully and discreetly buying up shares in the target company,
or building a position. Once the acquiring company starts to purchase shares in the
open market, it is restricted to buying 5% of the total   c   before it
must file with the . In the filing, the company must formally declare how many
shares it owns and whether it intends to buy the company or keep the shares purely as
an investment. Working with financial advisors and investment bankers, the acquiring
company will arrive at an overall price that it's willing to pay for its target in cash,
shares or both. The tender offer is then frequently advertised in the business press,
stating the offer price and the deadline by which the shareholders in the target
company must accept (or reject) it.

Once the tender offer has been made, the target company can do one of several
à        - If the target firm's top managers and shareholders are happy
with the terms of the transaction, they will go ahead with the deal.
- The tender offer price may not be high enough for the target
company's shareholders to accept, or the specific terms of the deal may not be attractive. In
a merger, there may be much at stake for the management of the target - their jobs, in
particular. If they're not satisfied with the terms laid out in the tender offer, the target's
management may try to work out more agreeable terms that let them keep their jobs or,
even better, send them off with a nice, big compensation package.
Not surprisingly, highly sought-after target companies that are the object of several bidders
will have greater latitude for negotiation. Furthermore, managers have more negotiating
power if they can show that they are crucial to the merger's future success.
  ©   Ȃ A poison pill scheme can be
triggered by a target company when a hostile suitor acquires a predetermined percentage
of company stock. To execute its defense, the target company grants all shareholders -
except the acquiring company - options to buy additional stock at a dramatic discount. This
dilutes the acquiring company's share and intercepts its control of the company.

   - As an alternative, the target company's management may seek out a
friendlier potential acquiring company, or white knight. If a white knight is found, it will
offer an equal or higher price for the shares than the hostile bidder.
Mergers and acquisitions can face scrutiny from regulatory bodies. For example, if the two
biggest long-distance companies in the U.S., AT&T and Sprint, wanted to merge, the deal
would require approval from the Federal Communications Commission (FCC). The FCC
would probably regard a merger of the two giants as the creation of a monopoly or, at the
very least, a threat to competition in the industry.

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Finally, once the target company agrees to the tender offer and regulatory requirements
are met, the merger deal will be executed by means of some transaction. In a merger in
which one company buys another, the acquiring company will pay for the target company's
shares with cash, stock or both.
A cash-for-stock transaction is fairly straightforward: target company shareholders receive
a cash payment for each share purchased. This transaction is treated as a taxable sale of the
shares of the target company.
If the transaction is made with stock instead of cash, then it's not taxable. There is simply
an exchange of share certificates. The desire to steer clear of the tax man explains why so
many M&A deals are carried out as stock-for-stock transactions.
When a company is purchased with stock, new shares from the acquiring company's stock
are issued directly to the target company's shareholders, or the new shares are sent to a
broker who manages them for target company shareholders. The shareholders of the target
company are only taxed when they sell their new shares.
When the deal is closed, investors usually receive a new stock in their portfolios - the
acquiring company's expanded stock. Sometimes investors will get new stock identifying a
new corporate entity that is created by the M&A deal.

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As mergers capture the imagination of many investors and companies, the idea of getting
smaller might seem counterintuitive. But corporate break-ups, or   , can be very
attractive options for companies and their shareholders.

The rationale behind a  ,   c  or   is that "the parts are greater
than the whole." These corporate restructuring techniques, which involve the separation of
a business unit or subsidiary from the parent, can help a company raise additional equity
funds. A break-up can also boost a company's valuation by providing powerful incentives to
the people who work in the separating unit, and help the parent's management to focus on
core operations.
Most importantly, shareholders get better information about the business unit because it
issues separate financial statements. This is particularly useful when a company's
traditional line of business differs from the separated business unit. With separate financial
disclosure, investors are better equipped to gauge the value of the parent corporation. The
parent company might attract more investors and, ultimately, more capital.

Also, separating a subsidiary from its parent can reduce internal competition for corporate
funds. For investors, that's great news: it curbs the kind of negative internal wrangling that
can compromise the unity and productivity of a company.

For employees of the new separate entity, there is a publicly traded stock to motivate and
reward them. c   in the parent often provide little incentive to subsidiary
managers, especially because their efforts are buried in the firm's overall performance.


That said, de-merged firms are likely to be substantially smaller than their parents,
possibly making it harder to tap credit markets and costlier finance that may be affordable
only for larger companies. And the smaller size of the firm may mean it has less
representation on major  , making it more difficult to attract interest from
institutional investors.

Meanwhile, there are the extra costs that the parts of the business face if separated. When a
firm divides itself into smaller units, it may be losing the   that it had as a larger
entity. For instance, the division of expenses such as marketing, administration and
   c c   (R&D) into different business units may cause redundant
costs without increasing overall revenues.

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There are several restructuring methods: doing an outright sell-off, doing an equity carve-
out, spinning off a unit to existing shareholders or issuing tracking stock. Each has
advantages and disadvantages for companies and investors. All of these deals are quite
{c  *
A sell-off, also known as a     , is the outright sale of a company subsidiary.
Normally, sell-offs are done because the subsidiary doesn't fit into the parent
company's core strategy. The market may be     the combined
businesses due to a lack of synergy between the parent and subsidiary. As a result,
management and the board decide that the subsidiary is better off under different
ownership. c
{c & c * c
More and more companies are using equity carve-outs to boost shareholder value. A
parent firm makes a subsidiary public through an    c  c   (IPO) of
shares, amounting to a partial sell-off. A new publicly-listed company is created, but
the parent keeps a controlling stake in the newly traded subsidiary.

A carve-out is a strategic avenue a parent firm may take when one of its subsidiaries
is growing faster and carrying higher valuations than other businesses owned by the
parent. A carve-out generates cash because shares in the subsidiary are sold to the

public, but the issue also unlocks the value of the subsidiary unit and enhances the
parent's shareholder value.
A spinoff occurs when a subsidiary becomes an independent entity. The parent firm
distributes shares of the subsidiary to its shareholders through a c   .
Since this transaction is a dividend distribution, no cash is generated. Thus, spinoffs
are unlikely to be used when a firm needs to finance growth or deals. Like the carve-
out, the subsidiary becomes a separate legal entity with a distinct management and
A tracking stock is a special type of stock issued by a publicly held company to track
the value of one segment of that company. The stock allows the different segments
of the company to be valued differently by investors.

Historical trends show that roughly two thirds of big mergers will disappoint on their own
terms, which means they will lose value on the stock market. The motivations that drive
mergers can be flawed and efficiencies from   cc   may prove elusive.c
{c ‰  cë  c
cFor starters, a booming stock market encourages mergers, which can spell trouble. Deals
done with highly rated stock as currency are easy and cheap, but the strategic thinking
behind them may be easy and cheap too.
c*   cc$ c cÎ 
Coping with a merger can make top managers spread their time too thinly and neglect their
core business, spelling doom. Too often, potential difficulties seem trivial to managers
caught up in the thrill of the big deal.
The chances for success are further hampered if the corporate cultures of the companies
are very different. When a company is acquired, the decision is typically based on product
or market synergies, but cultural differences are often ignored.
More insight into the failure of mergers is found in the highly acclaimed study from
McKinsey, a global consultancy. The study concludes that companies often focus too
intently on cutting costs following mergers, while revenues, and ultimately, profits, suffer.
Merging companies can focus on integration and cost-cutting so much that they neglect
day-to-day business, thereby prompting nervous customers to flee. This loss of revenue
momentum is one reason so many mergers fail to create value for shareholders.

rc $/ c$0àc c c111 c

+c 2 c x    c x   c

 c , c  c

1 2000  : America Online

cÎ  164,747
Inc. (AOL)w45w65

2 2000 7 cÎ  Plc.   ( c 75,961

d  Plc.

3 2004 Royal Dutch Petroleum Shell Transport & 74,559

Co. Trading Co

4 2006 à
Inc.w85w95 d  Corporation 72,671

5 2001   Corporation à

Broadband & 72,041
Internet Svcs

6 2009 x ) Inc. Wyeth 68,000

7 2000 : Nortel Networks 59,974


8 2002 Pfizer Inc. Pharmacia Corporation 59,515

9 2004 JP Morgan Chase & Cow15 Bank One Corp 58,761

10 2008 ë Inc. Anheuser-Busch 52,000

Companies, Inc


Product diversification, a primary form of corporate level strategies, concerns the scope of
the markets and industries in which the firm competes as well as Dzhow managers buy,
create and sell different businesses to match skills and strengths with opportunities
presented to the Successful diversification is expected to reduce variability in the
firmǯs profitability as earnings are generated from different businesses. Because firms incur
development and monitoring costs when diversifying, the ideal portfolio of businesses
balances diversificationǯs costs and benefits. CEOs and their top level management teams
are responsible for determining the ideal portfolio of their company.

rc * cc cc    c

{c * c  cc    c
   : 95% or more of revenue comes from a single business.
   : Between 70% and 95% of revenue comes from a single business.

{c $ cc  c  c

Related constrained: less than 70% of revenue comes from the dominant business, and all
businesses share product, technological and distribution linkages.
Related linked (mixed related & unrelated): less than 70% of revenue comes from the
dominant business, and there are only limited links between businesses.
{c  c  c  cc    
Unrelated: Less than 70% of revenue comes from the dominant business, and there are no
common links between businesses.

Related Both operational

constrained and corporate
-  Ë c
diversification relatedness

Unrelated Related linked
diversification diversification


Low High
  c   .c
c c cccccccccccccccccccccccccccc
  c c  c c  c

rc   cà cc  c    c
Ôc Reap    

 benefits of

c Skills transfer

c Lower costs

c Common brand name usage

c Stronger competitive capabilities

 investor   over a broader base

Ôc Preserves 
  in its business activities

Ôc Achieve  
 greater than the sum of what individual
businesses can earn operating independently

rc + c    cc  c


 ccan result from related diversification if opportunities exist to

c Ú related activities into a single operation and    

c *  
 use of firmǯs 


c Conduct related value chain activities in a 

 to create


rc 3  c    c

Involves diversifying into businesses with
-No strategic fit
-No meaningful value chain relationships
-No unifying strategic theme

Basic approach- diversifies into any industry where potential exists to realize good
financial results.
While industry attractiveness and cost of entry tests are important, better off test is

rc +  c c    c

{c  c  c    c
c Economies of scope (related diversification)c
{c Sharing activities
{c Transferring core competencies
c Market power (related diversification)
{c Blocking competitors through multipoint competition
{c Vertical integration
c Financial economies (unrelated diversification)
{c Efficient internal capital allocation
{c Business restructuring

{c  c  c    c

c Anti trust regulation
c Tax laws
c Low performance
c Uncertain future cash flows
c Risk reduction for firms
c Tangible resources
c Intangible resources

{c  c  c%    c

c Diversifying managerial employment risk
c Increasing managerial compensation

rc àc cc%    .cë


The case, "ITC's Diversification Strategy" gives an overview of ITC's diversification into
related and unrelated areas in recent years. The case presents an overview of the cigarette
industry in India and gives a detailed account of the areas in which ITC has diversified. The
competition that ITC is going to face in each of the segments it has diversified into is also

In February 2001, the Government of India (GoI) announced a ban on advertising by

cigarette companies and restrictions on the sale and consumption of tobacco products. The
proposed Tobacco Products (Prohibition of Advertisement and Regulation) Bill 2001
prohibits smoking in public places and the sale of tobacco products to people under the age
of 18. According to the Bill, no tobacco related business would be allowed to advertise in
any type of media. In fact, the number of cigarettes sold declined between 1997 and 2002,
and major cigarette companies saw a decline in sales volumes. The declining sales of
cigarettes, the proposed ban on advertising, the increasing anti-tobacco campaigns and the
experience in developed countries seemed to suggest that tobacco would no longer be a

G c
profitable business in the future. Consequently, ITC decided to diversify into non tobacco

ITC made its first foray into a non-tobacco business long back in the 1970s, when it entered
the hotel industry
‰ cc

ITC made its entry into the branded & packaged Foods business in August 2001 with the
launch of the Kitchens of India brand. A more broad-based entry has been made since June
2002 with brand launches in the Confectionery, Staples and Snack Foods segments.
Kitchens of India, Aashirvaad, Sunfeast, mint-o Candyman, Bingo.

*   c+ cc

ITCǯs Lifestyle Retailing Business Division has established a nationwide retailing presence
through its Wills Lifestyle chain of exclusive specialty stores.

 c0c  cx  c

ITC made its entry into the stationery business in 2002 with its premium range of
notebooks, followed in the year 2003 with the more popular range to augment its offering.
ITC's stationery Brands are marketed as "Classmate" and "Paperkraft", with Classmate
addressing the needs of school goers and Paperkraft targeted towards college students and

à  cc
As part of ITC's business strategy of creating multiple drivers of growth in the FMCG sector,
the Company commenced marketing Agarbattis (incense sticks) sourced from small-scale
and cottage units in 2003c

Ë cc

ITC entered the hotels business in 1975 with the acquisition of a hotel in Chennai, which
was then rechristened ITC Chola. Since then the ITC-Welcomgroup brand has become
synonymous with Indian hospitality. With over 90 hotels in 77 destinations.

x cc
ITC's Packaging & Printing Business is the country's largest convertor of paperboard into
packaging. It converts over 50,000 tonnes of paper and paperboard per annum into a
variety of value-added packaging solutions for the food & beverage, personal products,
cigarette, liquor, cellular phone and IT packaging industries.

Segement Dominance Revenue% PBIT%
Cigarettes 70% share 77 87

Paperboard & Packaging board Ȃ 7 10

Packaging No. 1 in Asia
Agri Ȃ Business One of the largest 4
exporters from
India 4 5
ITC Group ranks (7)
FMCG (Others) No. 2 4

20% share of
greeting cards
ǮAashrivaadǯ atta is
No.1 in branded

In 2001, ITC invested around Rs. 5 billion in its non-tobacco businesses. This investment
was expected to increase to Rs 20 billion in the next five years.

By May 2002, there were 44 Lifestyle stores in India. The gross turnover from these stores
was over Rs. 200 million, but due to their heavy start up costs, they were still not
considered profitable. Expressions greeting cards, which were sold through 10,000 outlets
in 180 Indian cities, were yet to bring in revenues. According to company reports, losses
are on the rise in its branded garments, greeting cards and packaged foods ventures. Losses
in businesses such as 'Aashirvad' wheat flour, Expressions greeting cards and Wills
Lifestyle accounted for five per cent of pre-tax profits in 2002 and continue to be higher
than the revenue generated by them. If losses continue to rise over the next few quarters, it
may adversely effect the overall profit growth.


Restructuring is a strategy through which a firm changes its set of businesses or its
financial structure. Companies use this strategy when there is change in their external or
internal environments. Opportunities may sometimes emerge in the external environment,
which are attractive to the diversified firm in light of its core competencies. In such cases,
Restructuring may be useful to position the firm to create more value for its stakeholders.

 cc+   c   .c
1.c Downsizing
2.c Downscoping
3.c Leveraged buy-outs

%  ) .cc
Downsizing refers to reducing the overall size and operating costs of a company, most
directly through a reduction in the total number of employees. When the market is tight,
downsizing is extremely common, as companies fight to survive in a hostile climate while
competing with other companies in the same sector. For employees, downsizing can be
very unnerving and upsetting. Downsizing was once thought to be an indicator of
organisational decline but now it is widely recognized as a restructuring strategy. The
difference between downsizing and decline is that downsizing is intentional or voluntary
whereas decline is involuntary phenomenon. c

There are several reasons to engage in downsizing. The primary reason is to make the daily
operations of a business more efficient. For example, a company may be able to replace
assembly line employees with machines which will be quicker and less prone to error. In
addition, downsizing increases profits by reducing the overall overhead of a business. In
other instances, a company may decide to shut down an entire division.

In some cases, it becomes apparent that a business has too many employees. This may be
because there has been a decline in demand for the company's services, or because a
company is running more smoothly and efficiently than it once was.

  cc%  ) c

Ë x  used the downsizing strategy very innovatively by implementing a so-

 in which all employees were asked to take one day off without pay
every two weeks until business revenue increased.

c x conducted a layoff of 10,500 employees in the mid-1990s. In the years that
followed Scott was unable to introduce any new products and saw a dramatic decrease in
profitability, until it was eventually bought out by competitor Kimberly-Clark.
%   .c
Downscoping refers to divestiture, spin-off, or some other means of eliminating businesses
that are unrelated to the firmǯs core businesses. Downscoping is defined as a set of actions
that causes a firm to strategically refocus on its core businesses. Thus, Downscoping has
more positive effect on firmǯs performance than downsizing.
A firm that downscopes also often downsizes simultaneously. Such a firm becomes smaller
by reducing the diversity of the business in the portfolio. By focusing on its core businesses,
the firm can be managed more effectively by the top management.

  cc%   c

à c  c   decided to refocus on its air-conditioning systems and
service business through its flagship brand line, Trane. It accomplished this by splitting into
3 businesses and spinning-off its vehicle control systems business into publicly traded
company, Wabco and selling off business focused on bath and fixtures. This was necessary
because the bath and fixtures business was underperforming compared to other two

c 7  also restructured itself using Downscoping strategy. At one time Tata group
had over 250 businesses. As the policies of Indian government changed, Tata decided to
become a more focussed company and brought down the number of businesses from 250
to 91.
* cd .c
Leveraged Buyout is a restructuring strategy whereby a party buys a firmǯs entire asset in
order to take the firm public. Once the transaction is completed, the companyǯs stock is no
longer available to trade publicly.
Leveraged Buyout refers to the acquisition of another company using a significant
amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the
assets of the company being acquired are used as collateral for the loans in addition to the
assets of the acquiring company. The purpose of leveraged buyouts is to allow companies
to make large acquisitions without having to commit a lot of capital.


*d*ccËàcë. One of the largest LBOs on record was the acquisition of HCA Inc in 2006
     ! Ú"# $% &
 ! Ú"%
 '  *  . The three
companies paid around $33 billion for the acquisition.


rc +  c .c

Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an
organization's operations. Retrenchment is also a reduction of expenditures in order to
become financially stable. It is a pullback or a withdrawal from offering some current
products or serving some markets.
Retrenchment strategy can be considered as a response to decline in industry and markets.
The factors leading to decline can be external (such as new organisational form, new
technology, saturation of demand, changing needs and preference of customers etc) or
internal (inappropriate strategies, ineffective top management, high cost etc.).

 cc+  c .c
1.c Turnaround strategy
2.c Divestment strategy
3.c Liquidation strategy

  c  .c
Retrenchment can be done either internally or externally. For internal retrenchment to
take place, emphasis is laid on improving internal efficiency. This is the operating
turnaround strategy. In contrast strategic turnaround is more serious form of external
Retrenchment and may lead to divestiture or liquidation.
Turnaround strategy involves reversing the negative trends and turning around the
organisation to profitability.
Persistent negative cash flows, negative profits, declining market share, high employee
turnover, mismanagement, uncompetitive product etc are the indicators which show that
turnaround strategies are needed if organisation has to survive.


There are three ways to manage turnaround:
1.c The existing chief executive and management team handles the entire turnaround
strategy, with the advisory support of a specialist external consultant. This type of
strategy is rarely used because banks, financial institutions and other lenders lose
faith in current management of the company.
2.c In second method, the existing team withdraws temporarily and executive
consultants and turnaround specialist are hired by banks and financial institution to
turnaround the company. After the turnaround is complete, the original
management resumes its position. This type of strategy is also rarely used.

3.c The third method involves replacement of existing team with new team or merging
of sick organisation with healthy one.

When a CEO is replaced by another, the new incumbent can follow two types of
1.c Surgical approach:
It involves tough attitude and pattern of action followed is roughly the
same everywhere.
2.c Non-surgical/ humane approach:
It involves understanding problems, eliciting opinions, adopting a
conciliatory attitude and coming to negotiated settlements among different factions.
  cc  c  c
{c à  c$ c*, an Indian textile company was established by the Lalbhai group in
1931 and was producing cotton textiles. In 1986, Arvind Mills decided to focus on
denim and target the international market. The company formed several
international tie-ups for technology and marketing, but Arvind Mills was faced with
issues such as the oversupply of denim, rising cotton prices and the rise in
preference for other garment material. In spite of several failures, Arvind Mills made
a turnaround and became the third largest denim manufacturer in the world.
{c dË*: The Company was started with the objective of producing power generating
equipments and virtually enjoyed monopoly. But as the years went by because of
the inability of the State Electricity Boards and private sector to set up new
power plants, its capacity utilisation fell down tremendously. To offset this
depression, BHEL ventured into Telecommunications, Metropolitan
Transportation and Defence production. Due to this timely diversification, BHEL
is now one of the rare profit making PSUs
{c Ë$
was formed to manufacture machine tools with a foreign collaborator. After
nearly a decade of operation, it decided to diversify into Watch industry. The
effect of this diversification was felt only after 5-7 years when the main business of
HMT crashed and the company started incurring losses. The watch division came to
the rescue and it generated cash profits to keep the company going.

%  c .c
Divestment is a form of retrenchment strategy used by businesses when they downsize the
scope of their business activities. Divestment usually involves eliminating a portion of a
business. Firms may elect to sell, close, or spin-off a strategic business unit, major operating
division, or product line. This move often is the final decision to eliminate unrelated,
unprofitable, or unmanageable operations. c

+  cc%  .

Portfolio models such as the Boston Consulting Group (BCG) Model or General Electric's
Business Screen can be used to identify operations in need of divestment. For example,
products or business operations identified as "dogs" in the BCG Model are prime
candidates for divestment.

{c Market Share too small: Firms may divest when their market share is too small for
them to be competitive or when the market is too small to provide the expected
rates of return.
{c Availability of Better Alternatives: Firms may also decide to divest because they see
better investment opportunities. Organizations have limited resources. They are
often able to divert resources from a marginally profitable line of business to one
where the same resources can be used to achieve a greater rate of return.
{c Need For Increased Investment: Firms sometimes reach a point where continuing to
maintain an operation is going to require large investments in equipment,
advertising, research and development, and so forth to remain viable. Rather than
invest the monetary and management resources, firms may elect to divest that
portion of the business.
{c Lack of Strategic Fit: A common reason for divesting is that the acquired business is
not consistent with the image and strategies of the firm. This can be the result of
acquiring a diversified business. It may also result from decisions to restructure and
refocus the existing business.
{c Legal Pressures to Divest: Firms may be forced to divest operations to avoid
penalties for restraint of trade. Service Corporation Inc., a large funeral home chain
acquired so many of its competitors in some areas that it created a regional
monopoly. The Federal Trade Commission required the firm to divest some of its
operations to avoid charges of restraint of trade.

à   cc  .c

An organization may choose to divest in two ways:
{c A part of company is divested by spinning it off as a financially and managerially
independent company, with parent company retaining or not retaining the partial
{c Organization can sell a unit outright. A buyer is found who considers the divested
unit as a strategic fit.

  cc  c  c

{c %  c c
*$*.c Tata group is a highly-diversified entity with a range of
businesses under its fold. They identified their noncore businesses for divestment.
TOMCO was divested and sold to Hindustan Levers as soaps and detergents was
not considered a core business for the Tatas.
{c %  cc 
. ǮVST Natural Productsǯ, the food business company of ǮVSTǯ,
the tobacco firm, was divested to the ǮGlobal Green Companyǯ of the ǮThapar
groupǯ. The reasons for divestment were: non availability of raw materials and
inadequate working capital infusion. ǮVSTǯ, the parent company, could not invest
more as it was itself running under a loss.

* &  c .c

Liquidation strategy is considered most extreme and unattractive as it involves closing
down a firm and selling its assets. It is considered as a last resort because it leads to serious
consequences such as loss of employment for workers and other employees, termination of
opportunities where a firm could pursue any future activities, and stigma of failure.

x c &  c

A liquidation strategyccan be unpleasant as a strategic alternative but when a dead business
is more than alive, it is a good proposition. When liquidation is evident or imminent, a
liquidation plan is desirable. Planned liquidation would involve a systematic plan to reap
maximum benefits for the organization and its shareholders through the process of
* c  cc &  c
Under the companies act, 1956, liquidation is termed as winding-up. The act defines it as a
process by whereby companyǯs life is ended and its properties administered for the benefit
of its creditors and members, at the end of winding up a company will have no assets or
liabilities. When the affairs of a company are completely wound up, the dissolution of the
company takes place. On dissolution, the companyǯs name is struck off from the register of
the company and its legal personality as a corporation comes to an end.
Liquidation or winding-up can be done in 3 ways:
1.c Compulsory winding up under an act of court
2.c Voluntary winding up
3.c Voluntary winding up under the supervision of court

  cc* &  c  c

{c Punjab wireless systems (Punwire) was put under liquidation under the orders of
the Punjab and Haryana high courts on a private petition, owing to companyǯs
inability to discharge it debts and liabilities.
{c Digital publishing solutions private limited went in for a voluntary liquidation. It
was previously known as Versaware Technologies India Ltd. and was a 100 percent
subsidiary of Versaware inc., US. Versaware also had a similar business in Israel.
That didnǯt prevent it from going to liquidation.

u c
 Î më 

Formulating strategy is a difficult task. Making strategy workȄexecuting or implementing
it throughout the organizationȄis even more difficult"

{c x  c c  c  c   Strategy formulation and
implementation are 

, distinguishable parts of the strategic management process.
Logically, implementation follows formulation; one cannot implement something until that
something exists. But formulation and implementation are also      , part of an
overall process of planning-executing-adapting. This interdependence suggests that  

 *  + improves the probability of execution success. Not involving
those responsible for execution in the planning process threatens knowledge transfer,
commitment to sought-after outcomes, and the entire implementation process.
{c  c  c   The successful implementation of strategy takes more time
than its formulation. This can challenge managersǯ attention to execution details. The longer
time frame can also detract from managersǯ attention to strategic goals. Controls must be set
to provide feedback and keep management abreast of external Dzshocksdz and changes. The
process of execution must be dynamic and adaptive, responding to unanticipated events. This
imperative challenges managers responsible for execution.
{c  c   c c   Strategy implementation always involves more
people than strategy formulation. This presents problems. Communication down the
organization or across different functions becomes a challenge. Making sure that processes
throughout the organization support strategy execution efforts can be problematical in a large
organization. Linking strategic objectives with the day-to-day objectives at different
organizational levels and locations becomes a challenging task. The larger the number of
people involved, the greater the challenge to execute strategy effectively.
{c  c  c   c  c   c  c     c  
Another problem is that some top-level managers believe strategy implementation is Dzbelow
them,dz something best left to lower-level employees. This view holds that one group of
managers does innovative, challenging work (planning), and then Dzhands off the balldz to
lower-levels for execution. If things go awry, the problem is placed squarely at the feet of the
Dzdoers,dz who somehow couldnǯt implement a perfectly sound and viable plan.
{c $ c  c c     Execution often involves changeȄin structure,
incentives, controls, people, objectives, responsibilities and change can be threatening. The
importance of managing change well is clearly important for effective strategy

implementation. The inability to manage change and reduce resistance to new
implementation decisions or actions can spell disaster for execution efforts.
{c *  c   c    They include    

execution activities and decisions that are not clear;  )  
 among key
functions or divisions;   

 ; and not having   
  to shape execution activities and decisions.

m ! "!

Critical Issues in Making Strategy Work

{c Having an Implementation Model to Guide Execution Thoughts and Actions

{c Remembering that Sound Strategy Comes First
{c Structure is Important to Successful Implementation
{c Care Must be Taken to Translate Strategic Objectives into Short-term Operating
{c Clear Responsibility and Accountability are a Must for Effective Execution
{c Reward the Right ThingsȄUse Incentives to Support Execution Processes and
{c Ensure the Development of Appropriate Capabilities and Managerial Skills to Make
Strategy Work
{c Focus on Managing Change

3 cc   c  cc 

Managers need and benefit from a logical model to guide execution decisions and actions.
Without guidelines, execution becomes a labyrinth. Without guidance, individuals do the
things they  are important, often resulting in uncoordinated, divergent, even
conflicting decisions and actions.

{c 7c  c  c  . Effective execution is impossible if strategies are
flawed. Figure above begins with corporate strategy, which is concerned with the entire
organization and focuses on areas such as portfolio management, diversification, and
resource allocations across the businesses or operating units that make up the total
enterprise. Business strategy is also shown in the figure. At the business level, strategy
focuses on products, services, and how to compete in a given industry or market segment.
What must be stressed additionally is that    
 . Business strategy and corporate strategy are
interdependentȄeach effects and is affected by the other.

c c c   . Figure shows that the         
 . To see this relationship, consider the age-old
structural issue of centralization-decentralization. Over time, a corporation creates or
acquires the businesses that make up the organization. Some corporate acquisitions
become relatively independent, decentralized units competing in different industries. Yet
there usually are activities or functions that cut across businesses and allow for
centralization, reduced duplication of resources, and the scale economies so often sought
by corporate management. Different businesses must be sufficiently independent to
respond quickly to competitorsǯ actions and customer needs. Yet they canǯt be so
independent as to create an unnecessary duplication of resources and destroy all chances
for synergies or scale economies across businesses. The corporation, then, must create the
right balance of centralization and decentralization to achieve its strategic goals.

{c c  c   . The integration components refer to the      



   . In a previous
example, corporations employed centralized functions that allowed for scale economies
and low costs of duplication across business units. To achieve these benefits, the work of
the centralized units must be shared by decentralized businesses. The coordination or
integration of functional expertise and knowledge laterally, across units relying on that
expertise, is absolutely essential to the efficiency or market-related goals of the

{c The same is true within businesses where different functions must be coordinated
to serve customers or gain advantage in a particular market or industry segment. People in
different functions often see the world differently: R&D, marketing, and manufacturing, for
example, usually have different goals, performance metrics, and time frames for decision
making. Coordinating these diverse units to achieve common goals can be difficult. Still, this
coordination is needed and various methods are availableȄe.g. teams, integrating roles,
matrix structuresȄto share knowledge and improve communication across the diverse
functions. So, too, in geographically dispersed companies, where achieving global
coordination to serve business needs while simultaneously accounting for country or

regional differences is necessary for the execution of a global strategy. Integration
mechanisms and structures (e.g. a coordinated global matrix) are again important.

{c ë  c  c c   c /  c Business strategy must be

translated into short-term operating objectives or metrics in order to execute the strategy.
To achieve strategic objectives, an organization must develop    

.  that relate logically to strategy and how the organization plans to compete. Key
issues, elements, and needs of strategy must be translated into objectives, action plans, and
Dzscorecardsdz and this translation is an integral and vital part of the execution process.
Performance appraisal and measurement of strategic progress simply cannot function
without the existence of these  


{c    c      c c  . Managers cannot create

coordination mechanisms or integrate strategic and short-term operating objectives if job
responsibilities and accountability are unclear. Ú

vital to making strategy work.

{c %  c c   cc  cThe picture of strategy execution is

not yet complete because the creation of strategy, objectives, structure, accountabilities,
and coordinating mechanisms is not sufficient to ensure that individuals will embrace the
goals of the organization.      



      , " Execution will suffer if people are rewarded for doing the wrong
things. Execution will fail when no one has skin in the game. Feedback on performance is
also needed so the organization can evaluate whether the right things are indeed being
accomplished in the strategy execution process.c

What is required for successful strategy implementation is the careful development of

incentives and controls, the last component of the model. On one hand, incentives motivate
or guide performance and support the key aspects of the strategy-execution model.
Controls, in turn, provide timely and valid feedback about organizational performance so
that change and adaptation become a routine part of the implementation effort. Controls
allow for the revision of execution-related factors if desired goals are not being met.

{c $ c  . Making the necessary changes in the process of execution and
overcoming resistance to them is the last step on the road to strategic success. This step
requires unerring attention to detail, a focus on objectives, measurement of performance,
and a strong commitment to the execution task at hand. Managing change is difficult, but
successful execution depends on it.