STRATEGIC ALTERNATIVES

Types of Strategies and basic terms connected with strategy and resources, it is necessary to know details of important organizational strategies. It is necessary to know details of important organizational strategies. Organizational strategies are such strategies that are made at board level – which is an apex body of directors and head by CEO/MD. Hence they may be regarded as corporate strategies. They are directional to their nature and hence decide the direction to which a firm grows.

Such strategies are crucial for organizations because, the organization’s future operations, future prospects are fully dependent on them. They decide the objectives, decide the products/services and their quality, decide the capital and financial requirements, decide the total sequences of how a firm has to perform. Thus, the study of organizational strategies is very important. As they also govern all functional strategies like strategies for production, marketing, packing, transportation etc, directly they are regarded as master strategies.

Although there are many organization strategies, important among them could be classified into

1. Organization modification strategies: They ultimately modify the organizational structure including the hierarchy, staffing objectives and capital of the company. 
2. Functional modification strategies: They do not necessarily alter the organizational structure. But they do bring about functional modifications with or without capital restructuring. These two categories are discussed in detail with important types of strategies are discussed in details with important types of strategies under each category.

ORGANISATION MODIFICATION STRATEGIES

As the name itself suggests, such strategies are developed and adopted when organizational modifications are principally agreed policy of a corporate body. Although all such strategies are growth oriented, such strategies may include objectives other than growth, Such additional objectives may be technical collaborations, logistic convenience, expansion of capital base etc. Adopting such organizational modification strategies is considered to be a highly pragmatic approach with a clear term advantages.

STRUCTURE OF ORGANISATION

An organization may have simple stage, functional stage, divisional stage, declining stage and mortality stage. But, first three are the most important from the point of strategic management. Factors differentiating these three stages of organization are depicted. The corporate strategies discussed here are aimed at increase growth associated with additional objectives the technical collaboration. But they bring about major restructuring of organization in one of the following ways.

1. They may push the organization from stage I to stage II or stage II to stage III. 
2. They may require the restructuring of objectives. 
3. They may alter the method and persons making strategic decisions. 
4. They may bring about capital restructuring. 
5. They may change the staffing pattern to include supervisory managerial staff to increase the control and assessment. 
6. They may alter the ownership patterns.

MERGERS

Merger is a process involving establishment of a single corporate body by merging resources and technological of two different bodies performing competitive or cooperative business in the same industry. The merger is designed for growth.

The strategy to merge and form a new corporate require situations like

1. The companies of equal size in terms of sizes, profits, orders, assets etc. 
2. Two companies may be competitive and merger acts as a platform to overcome the competitive problems. 
3. Two companies may be cooperative in their business and merger will solemnity and consolidate their cooperation. 
4. Two companies are of same industry 
5. Two companies enjoy same/partially same board of directors 
6. Two companies require consolidation in terms of assets, market, and manpower. 

Merger involves MOU (Mutual of Understanding) statement and official authentication to declare that earlier entities are no more in existence and the shares/assets/liabilities/technologies/manpower and all other resources of two companies stand merged into a new legal entity,. Usually the name given to the new company consist of two parts indicating the names of two earlier companies Ex. HP , Compaq.

The functional and organizational modifications brought about by mergers methods.

a. Instead of two boards the new company will have one board of directors generally drawn up from earlier two boards.

b. In divisional structure of organizations, the division of similar activities are merges to have common objective common control, common process, common marketing etc.

c. The listing in stock exchange will have to be changed suitably and both the earlier names lose their status. New company is listed with its new name. Appropriate share certificates are issued by collecting and canceling share certificates of old companies.

d. The new company may choose to have different activities under separate division on may decide to have more simple functional structure with department for each function.

e. The staff reorganization is done according to their competence and specialization so that new company gets best output of their works.

f. After a brief transitional period, the new company with adopt functional policies like policy for marketing, pricing policy, production policy as well as various strategies required to implement new policies. Strength and weaknesses of earlier two companies are always considered as basis for formation of new polices and strategies.

g. If earlier two companies had the branches the new company may retain them as it is or wind them up of shift them to new locations.

h. Physical shifting of fixed assets, machineries and even manpower are seldom done with mergers. The supervisory and working staffs are usually retained in the same place with similar duties. Middle and top level reorganization may become necessary.

ADVANTAGES

1. Increased consolidation of resources (capital, manpower) 
2. Increased market coverage and market share as well as increased competitive position. 
3. The goodwill in the market is usually not hampered as the new company retains names of both the companies. Further the service, sale and brand image of earlier two companies are undisturbed to retain the goodwill. 
4. The new company will enjoy the neutralization of competitive forces, technological superiority and round capital base.

DISADVANTAGES

1. Frequent mergers lead to inconsistencies in strategy formulation and implementation. 
2. The liabilities and bad debts are automatically transferred to new company inviting the formation of new strategies. 
3. Usually the mergers result in discussion of their share prices in stock market (in case of limited companies) resulting in many stock related consequences. 
4. Re-organization of staffing after the merger may reduce their morale unless morale boosting is done by new corporate body.

JOINT VENTURES

Joint venture is a cooperative business activity formed by two or more separate organizations for strategic purpose that creates an independent business entry and allocates the ownership, operational responsibility financial risk and rewards to each member – while preserving their separate identity and autonomy.

Joint ventures are popular sources of growth in corporate sector because of flexibility features. Generally, joint ventures are popularly adopted to exploit a new opportunity by matching two or more different capabilities of concerned companies. For example capital base of one company – technological base of other; marketing network of one company – production capacity of other etc.

Joint ventures are extremely popular in international business, because of financial and politics legal constraints in working through joint ventures are minimum as compared to other methods.

FEATURES OF JOINT VENTURES

They are meant to be temporary but sometimes continued long.

A part of company, or a part of business activity may enter joint ventures without affecting other parts.

Legal or physical merging of facilities, assets are not a part of joint ventures

Two or more physical merging of facilities assets are not a part or more of joint ventures

Two or more companies work for a particular project/market/product/period of time in joint venture without involvement of other parts of corporate bodies.

Marketing finance, control of other functional strategies are usually formed and executed jointly after a mutual consent.

ADVANTAGES

1. Joint venture are highly flexible and can be formed I any manner the involved companies required them. 
2. Minimum legal formality and statutory constraints 
3. Flexibility offers great liberty to the partners to operate more efficiently for a specific objective. 
4. Brings in growth of both companies if joint venture succeeds. Otherwise, it is less risky due to easy dismantling.

DISADVANTAGES

1. Conflict with partner companies may result in stalemate. In such event, the investments are struck up besides loss of market and good will. 
2. Loss of control over operations and function as they are not under taken by common strategies. 
3. Lower profits in the initial stages 
4. Technology transfer to the technologically weak partner.

ACQUISITION

It is an important method of corporate growth wherein a company acquires all the assets, shares liabilities of other company. Acquisitions will normally lead to extinction of weak company and continuance of business in the name of the strong company. Acquisitions are very popular in international transactions, as a foreign investor finds it safe to run the company under his control rather than any other method of growth.

FEATURES OF ACQUISITION

Usually acquisition takes place between bigger corporate body with stronger asset base and smaller corporate body with weaker structure. Acquisition are made for specific objectives like capital investment corporate growth, market coverage, new products or technology addition. Acquisition may or may not lead to change in the name of company. This is convenient from the angles of good will stock rates etc.

ADVANTAGES

1. Synergistic benefits can be added. If the company acquires a firm with complementary product lines. 
2. If the product lines of two companies are same, the competitive position of acquiring company improves substantially. 
3. Less risky, especially for international investors. 
4. Readymade infrastructure market, production, staff of old company is available for acquiring company.

DISADVANTAGES

1. Technological competence achieved by a smaller company may be acquired by new company. It may be used as strength if not competitive to its own products or discarded as weakness if competitive to its original products. 
2. Multi product companies and multi business companies cannot be acquired easily due to many legal, practical and strategic constraints. 
3. Frequent change in the ownership may erode market creditability – as the corporate culture and rules change as ownership changes

TAKEOVER

Takeovers are in no way different than acquisitions except following:

1. Acquisitions are done through negotiation, but generally take over are done tacitly at stock exchange level maybe against the wishes of company being taken over. 
2. Take over usually taken place between rival companies to consolidate competitive position. But acquisition can be undertaken by any companies. 
3. Take over usually results in discontinuation of corporate strategies, policies of company taken over, whereas acquisition may lead to continuation of good policies and strategies of company acquired. 
4. Acquisition may lead to technological transfer, that take over is generally made for market advantage than technological advantages.

NETWORKING:

In recent years more radical organization structure called network structure has emerged. Such network structure of organizations has been called as virtual organization because, it is composed of series of project groups of collaborations linked constantly changing non hierarchical cobweb like network. Network stage of organization is typically characterized by virtual elimination of in home business function by out sourcing almost all its activities. But, the project groups who handle these activities are linked to network. The important features of network structure of an organization are:

1. It is useful when an environment of a firm is unstable and is expected to remain so 
2. Instead of salaried employees it may enter into contract with specialized people for specific project or definite length of firm. 
3. Long term contracts with suppliers and distributors replace services that the company could provide for itself through vertical integration. 
4. Electronic market and sophisticated information systems reduce the transaction cost of market place, thus justifying a buy over a make decision. 
5. Rather than being located in a single building or area, an organization’s business function are scattered worldwide or nationwide. 
6. The organization is only a shell, with a small headquarters acting as a broker electronically connected to some completely owned division partially owned subsidiaries and other independent companies. 
7. In the ultimate form, the network organization is a series of independent firms or business units linked together by computers in an information system that designs, produce and markets a product or service.

ADVANTAGES OF NETWORK STRUCTURE

1. Increased flexibility 
2. Adaptability to cope up with rapid technological change and shifting patterns of international trade 
3. Possibilities of concentrating on distinctive competencies 
4. Reduced capital cost 
5. Easy and timely execution of work

DISADVANTAGE OF NETWORK STRUCTURE

1. Network is inherently, unstable and therefore network structure becomes an unstable structure 
2. Numerous potential partners executing the work can be source of trouble 
3. Company may fail to achieve synergy of combining activities as different supplies/distribution has no mutual contacts.

FUNCTION MODIFICATION STRATEGIES

As compared to organization modification strategies, function modification strategies are strategies for a specific functional objective and hence they are not directional in nature. Such strategies are adopted either within the organizational set up of a company or adopted between companies in loose temporary arrangement. At no case they involve change in structure of organization.

CAPACITY EXPANSION

This is typical growth, strategy implemented internally without involvement of any other corporate body. It typically refers to expansion of production base. The capacity expansion involves large capital expenditure as it involves establishment of new factories or acquiring new machineries for expanding production in the existing factories. The strategy for capacity expansion is usually adopted in the following situations:

1. Company enjoys good competitive position in the market and it share of market have possibilities of growth.

2. Company has invisible surplus funds

3. Demand for products is high enough to remain unsatisfied to present capacity of production unit.

4. When quality related marketing is promoted with great dynamism especially in international market, capacity expansion become imperative as it facilities production of high quality product for specific segment of market.

Most of growing firms with manufacture as their principal activity will undertake strategies for capacity expansion. Usually such strategies are planned and implemented on long term bases.

CONSORTIA

It is a loose partnership between companies in similar/allied industries who pool their resources to gain a benefit that is too expensive to develop alone. It is a temporary arrangement for specific purpose to attain the benefit of joint working.

Consortia are usually taken up by shared participation in the activity. For e.g. Consortia of loans by participating banks. The purpose for making consortium may vary from situation to situation. They may be:

1. R and D activity: wherein research facility and expertise are jointly used to develop some new product facility which could not have been done individually 
2. Loaning: Financial institution can join to make a consortium loan to distribute the risk and interests. 
3. Development: A development project may be planned developed and executed by consortia of companies specialized to specific filed of their own. 

Consortia are short lived weak arrangement with distant alliance character. The partners in consortia would like to work and invest together for specific period and specific purpose but not share their course competencies. Their parent organizations remain intact and unaffected with their own goals – not in any way connected with consortium.

Many infrastructural development project in India like airports, bridges, roads are taken up by consortia of Indian and foreign companies. Many valued corporate customer enjoy consortium of loan from several bankers.

FRANCHISING

It is an agreement under which a company grants right to other company to open a retail store/office using the name and operating system of the company granting the right. Company that grants right is called Franchiser Company and the company that uses its name is called franchisee. In exchange of right granted on them, franchisee pays fixed percentage of its sales as a royalty to franchiser.

Franchising is a functional arrangement to promote the marketing in more places at a time without any financial commitment in the part of franchiser. Franchising is especially suitable for service providers like logistic, education, training, booking etc. The pre-requisite of success of franchising to the good will enjoyed by franchiser in the market. Offering the name and operating system to some other company or a strategy to sell their goodwill. Franchiser, on his part will have to invest and run the retail outlet in the name of franchiser.

Franchising is successful to following situations:

1. Company tries to sell its services at many places simultaneously without being actually present. 
2. It is economically not feasible to open up the offices at so many places to promote their sales. 
3. Franchisees can manage their office at much cheaper cost than what would have costed to franchiser, had they opened their offices in such place.

SUBCONTRACTING

Sub contracting is mainly concerned with sourcing the work to outside organization/individuals who would have necessary expertise, time and facility to undertake such work. Subcontracting is adopted its functional strategy to improve/regulate the production an organization.

Necessity to sub-contract a work arises due to

• Paucity of time to meet the demand in the stipulated schedule. 
• Shortage of installed capacity in comparison with order received. 
• Availability of idle capacity outside the organization 
• Cost of production in house to costlier than out sourcing.

Subcontracting is the most common method to increase the production and meet the demand in time in industries such as garments, steel furniture and many other mass production industries. It is necessary to know when sub contracting can be adopted and when it should be discouraged. In certain situation, sub contracting is so cost effective and convenient that in house production is less attractive and less cost effective than production through sub contracting. Of course, there are some limitations in use of sub contracting.

• Raw materials required to be supplied to sub contractors gradually increase as number of sub contractors increase. Adequate availability of raw materials must be ensured. 
• The sub contractors tend to ignore the quality of produce and ultimately the reputation of company is at stake when such products are sold. 
• Uniformity of standards is difficult to be maintained when sub-contracting is extensively used. Because, different sub contractors adopt different procedures or work on different machines. 
• As sub contractors can be from various background they are not expected to adopt common strategies to achieve the objectives a company. Their sole objective is profit. 
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LICENSING

Licensing is an arrangement, wherein a company licenses other company’s (usually in other countries) to produce and/or sell a product developed by it. It is adopted as functional strategy to improve the sales/or production of company. For example, toiletry companies like Colgate, Palmolive manufacture under license from their principals.

An important feature of licensing arrangement is that licensor (license issuing company) does not invest any capital/materials/staff and he only offers the know how to the licensee (license receiving company). License produce the product at his own cost and market it in the name of licensor or licensee (depending upon the provisions of agreement), In turn the licensee pays an overriding license fee annually to licensee for the technical expertise.

Licensing arrangement is successful in following situation:

• When licensor has mass appealing formula in a consumer good production, but is not able to utilize it over a wider geographical area due to limited installed capacity or limited capital.
• The technology bring offered by licensor is un limitable and licensor olds a global patent over it use.
• The name of licensor is popular enough to bring a sufficiently good demand for the products sold by licensee.

Licensing arrangement is useful only in few industries because:

The return over R and D investment is very less under licensing arrangement, as the licensee is free to fix up his own market rates. The return would be more, had the licensor produced the products directly. Licensor always runs risk that the licensee can imitate the technology and become a competitor in long run.