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    CORPORATE STRATEGY

    CORPORATE

    STRATEGY

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    CORPORATE STRATEGY

    CHAPTER1

    Meaning of corporate strategy

    CORPORATE STRATEGY is the direction an organization takes with the

    objective of achieving business success in the ong ter!" Recent a##roaches have focused on

    the need for co!#anies to ada#t to and antici#ate changes in the business environ!ent$ i"e" a

    fe%ibe strateg&" The deveo#!ent of a cor#orate strateg& invoves estabishing the #ur#ose

    and sco#e of the organization's activities and the nature of the business it is in$ taking the

    environ!ent in which it o#erates$ its #osition in the !arket#ace$ and the co!#etition it faces

    into consideration( !ost ti!es ana&zed through a S)OT ana&sis"

    Cor#orate strateg& is the seection and deveo#!ent of the !arkets *or

    industries+ in which a fir! co!#etes" Therefore$ cor#orate strateg& deas with what

    industries *or !arkets+ a fir! seeks to co!#ete in" ,usiness eve strategies *ow cost$

    differentiation$ and focus+ that were discussed ast cha#ter are -O) a fir! co!#etes in a

    singe !arket or industr&" Therefore$ cor#orate strateg& and business strateg& describe ver&

    different issues .. be carefu not to confuse the!"

    /nike business eve strateg&$ work on cor#orate strateg& fra!eworks is not

    near& as advanced or we done" 0ost e!#hasis is on describing cor#orate strateg&"

    1escribing cor#orate strateg& invoves two #ri!ar& di!ensions$ vertica integration$ where

    fir!s engage in activities that were for!er& done b& their bu&ers or su##iers and

    diversification where the& enter additiona !arkets" )hie that often gets a ot of attention$

    2-ow diversified is the fir!34 is not rea& that i!#ortant for understanding wh& fir!

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    CORPORATE STRATEGY

    #erfor!ance differs" )hat rea& aows cor#orate strateg& to resut in su#erior fir!

    #erfor!ance are what 56 ca the 2buiding bocks of cor#orate strateg&4 . sharing resources$

    transferring co!#etencies$ and creating s#ecific assets"

    Organizations are facing e%citing and d&na!ic chaenges in the 78st centur&"

    5n the gobaized business$ co!#anies re9uire strategic thinking and on& b& evoving good

    cor#orate strategies can the& beco!e strategica& co!#etitive" A sustained or sustainabe

    co!#etitive advantage occurs when fir! i!#e!ents a vaue : creating strateg& of which

    other co!#anies are unabe to du#icate the benefits or find it too cost& to initiate" Cor#orate

    strateg& incudes the co!!it!ents$ decisions and actions re9uired for a fir! to achieve

    strategic co!#etitiveness and earn above average returns" The goas of cor#orate strateg& are

    chaenging not on& for arge fir!s ike 0icrosoft but aso for s!a oca co!#uter retai

    outets or even dr& ceaners"

    0intzberg has identified the ; P6s of strateg&" Strateg& coud be a #an$ a

    #attern$ a #osition$ a #o&$ or a #ers#ective"

    8" A #an$ a 2how do 5 get there4

    7" A #attern$ in consistent actions over ti!e

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    CORPORATE STRATEGY

    INDIAS TOP TEN STRATEGISTS

    Name of tecompany

    Position in tein!"stry

    5nfos&sTechnoogies

    8

    Reiance 5ndustries 7

    )i#ro ever =

    0aruti /d&og ;

    1r" Redd&6s>aboratories

    ?

    -1@C ,ank

    Bet Airwa&s

    5C5C5 ,ankD

    Ranba%&>aboratories

    8

    4

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    CORPORATE STRATEGY

    Descri#ing Corporate Strategy

    There are two basic descri#tive di!ensions of cor#orate strateg&$ how

    diversified and how vertica& integrated an organization is" 5t !a& be he#fu to think of both

    of these di!ensions as a continuu!"

    Di$ersification occurs when a fir! enters a new industr& or !arket" Bust ike

    when we discussed Porter's @ive @orces$ the definition of an industr& or !arket is critica&

    i!#ortant" There are for!a cassification codes$ the Forth A!erican 5ndustria Cassification

    S&ste! *#revious& Standard 5ndustria Cassification codes : see bo% in e%terna ana&sis+$

    for tr&ing to cassif& a industries in an econo!&" -owever$ for our #ur#oses the FA5CS is

    not ver& usefu" -owever$ it is critica when doing &our ana&sis to carefu& define industries

    in describing fir! diversification" @or e%a!#e$ was Coca.Coa's !ove fro! carbonated

    beverages into botted water an instance of diversification3 1e#ending on how &ou define the

    industr&$ it coud be &es or no"

    -ow diversified a fir! is can be deter!ined b& what #ortion of its saes are

    derived fro! different !arkets" The arger a #ercentage of saes are derived fro! different

    !arketsindustries the !ore diversified the fir! can be said to be" A wide range of abes can

    be a##ied to the eve of a fir!'s diversification fro! singe business *D;H of saes fro! one

    industr&+$ do!inant business *H fro! one industr&+ to diversified *ess than H fro! an&

    one industr&+")hie singe business fir!s are usua& found in fast !oving$ ra#id& evoving

    industries where there is a need to focus$ there are e%ce#tions" )iia! )rige&$ the chewing

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    CORPORATE STRATEGY

    gu! !anufacturer$ is #erha#s the !ost fa!ous singe business fir!" -owever$ !ost arge

    fir!s engage in so!e diversification" Reated vs" /nreated" 1iversification can be either

    reated or unreated"

    The ke& issue here is if the o#erations of the fir! in the new industr& share

    so!e ink in with the fir!'s e%isting vaue chain" 5s there so!e vaue adding activit& that can

    be shared3 @or e%a!#e$ is there a #roduction faciit&$ a distribution network$ or a !arketing

    co!#etence that both can use3 -istorica& it was thought that reated diversification woud

    be better than unreated diversification" -owever$ the coordination costs of reated

    diversification a##ear to consu!e a ot of the e%#ected benefits" Therefore$ whie !ost fir!s

    see! to engage in reated diversification its benefits are on& sight&$ if at a$ better than

    unreated"

    %ertica& integration occurs when a fir! takes on activities that were for!a&

    done b& others on its behaf" 5n a wa&$ vertica integration is just a s#ecia case of

    diversification$ a fir! is diversif&ing into either its su##iers' or its bu&ers' industries" @or

    e%a!#e if a co!#an& starts to !ake co!#onents for its #roducts on its own or if it starts to

    distribute #roducts direct& to custo!ers it is engaged in vertica integration" @ord 0otor

    Co!#an& under -enr& @ord was e%tre!e& vertica& integrated going so far at one ti!e as

    to own the iron ore !ines that fueed its stee !is that fed its auto!obie asse!b&

    o#erations"

    -owever$ recent& vertica integration has faen out of favor in #reference to

    contract !anufacturing and outsourcing" 5n fact$ outsourcing$ the o##osite of vertica

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    CORPORATE STRATEGY

    integration$ has beco!e so co!!on that su##& chain !anage!ent has beco!e an i!#ortant

    area of stud&" 5t wi be interesting to see how the e%#ansion of the internet creates

    o##ortunities for fir!s to vertica& integrate downstrea! into direct distribution"

    A fir!'s eve of vertica integration can be !odeed using an industr& *rather

    than a fir!+ vaue chain" An industr& vaue chain !odes a the significant vaue adding

    ste#s that occur in an industr& fro! the !ost basic raw !aterias to the fina consu!ers" The

    !ore of these activities a fir! enco!#asses the !ore vertica& integrated it is" A fir! that

    enters activities to its eft on the industr& vaue chain$ re#acing a su##ier$ is said to be

    vertica& integrating Iu#strea!I" A fir! entering activities to its right$ su##anting a bu&er$

    is said to be !oving Idownstrea!I" So continuing the historica @ord e%a!#e$ @ord bu&ing

    coa !ines woud be u#strea! whie hi! bu&ing a deaershi# woud be downstrea! vertica

    integration" Jertica integration entais coordination *bureaucratic+ costs just ike reated

    diversification" @or e%a!#e$ a !ajor issue for vertica& integrated fir!s is transfer #rices$

    what shoud one #art of the fir! charge another3 @urther!ore$ a vertica& integrated fir!

    faces greater technoogica risk and de!and uncertaint&" 5n !an& wa&s vertica integration is

    a ot ike financia everage$ when ti!es are good$ the&6re ver& good as the fir! #rofits a

    aong the vaue chain$ but when the& go bad$ it's corres#onding& bad a aong the vaue

    chain"

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    CORPORATE STRATEGY

    'y Corporate Strategy(

    Strategic !anage!ent is basica& needed for ever& organization and it offers

    severa benefits"

    8"/niversaK

    Strateg& refers to a co!#e% web of thoughts$ ideas$ insights$ e%#eriences$

    goas$ e%#ertise$ !e!ories$ #erce#tions$ and e%#ectations that #rovides genera guidance for

    s#ecific actions in #ursuit of #articuar ends" Fations have$ in the !anage!ent of their

    nationa #oicies$ found it necessar& to evove strategies that adjust and correate #oitica$

    econo!ic$ technoogica$ and #s&choogica factors$ aong with !iitar& ee!ents" ,e it

    !anage!ent of nationa #oices$ internationa reations$ or even of a ga!e on the #a&fied$ it

    #rovides us with the #referred #ath that we shoud take for the journe& that we actua& !ake"

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    CORPORATE STRATEGY

    7" Lee#ing #ace with changing environ!entK

    The #resent da& environ!ent is so d&na!ic and fast changing thus !aking it

    ver& difficut for an& !odern business enter#rise to o#erate" ,ecause of uncertainties$ threats

    and constraints$ the business cor#oration are under great #ressure and are tr&ing to find out

    the wa&s and !eans for their heath& surviva" /nder such circu!stances$ the on& ast resort

    is to !ake the best use of strategic !anage!ent which can he# the cor#orate !anage!ent to

    e%#ore the #ossibe o##ortunities and at the sa!e ti!e to achieve an o#ti!u! eve of

    efficienc& b& !ini!izing the e%#ected threats"

    ever >td"$ reaized that !ere& b& !erging with

    co!#anies ike >ak!e$ 0ik food$ Ponds$ ,rooke bond$ >i#ton etc which !ake fast !oving

    consu!er goods aone wi not !ake it !arket eader but venturing into retaiing wi he# it

    rea# heav& #rofits" Then e!erged its retai giant 20argin @ree6 which is the !arket eader in

    states ike Leraa" Si!iar&$ the R"P" Goenka Grou# and the 0urugu##a grou# reaized that

    !ere takeovers do not he# and there is a need to re#osition their #roducts and reengineer

    their brands" The strateg& worked"

    =" Cear sense of strategic vision and shar#er focus on goas and objectivesK

    Ever& fir! co!#eting in an industr& has a strateg&$ because strateg& refers to

    how a given objective wi be achieved" MStrateg&6 defines what it is we want to achieve and

    charts ourcourse in the !arket #ace( it is the basis for the estabish!ent of a business fir!(

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    CORPORATE STRATEGY

    and it is a basic re9uire!ent for a fir! to survive and to sustain itsef in toda&6s changing

    environ!ent broviding vision and encouraging to define !ission"

    ;"0otivating e!#o&eesK

    One shoud note that the abor efficienc& and o&at& towards !anage!ent can

    be e%#ected on& in an organization that o#erates under strategic !anage!ent" Ever&

    guidance as to what to do$ when and how to do and b& who! etc$ is given to ever& e!#o&ee"

    This !akes the! !ore confident and free to #erfor! their tasks without an& hesitation"

    >abor efficienc& and their o&at& which resuts into industria #eace and good returns are the

    resuts of broad.based #oicies ado#ted b& the strategic !anage!ent

    ?" Strengthening 1ecision.0akingK

    /nder strategic !anage!ent$ the first ste# to be taken is to identif& the

    objectives of the business concern" -ence a cor#oration organized under the basic #rinci#es

    of strategic !anage!ent wi find a s!ooth saiing due to effective decision.!aking" This

    #oints out the need for strategic !anage!ent"

    " Efficient and effective wa& of i!#e!enting actions for resutsK

    Strateg& #rovides a cear understanding of #ur#ose$ objectives and standards

    of #erfor!ance to e!#o&ees at a eves and in a functiona areas" Thereb& it !akes

    i!#e!entation ver& s!ooth aowing for !a%i!u! har!on& and s&nchron&" As a resut$ the

    e%#ected resuts are obtained !ore efficient& and econo!ica&"

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    CORPORATE STRATEGY

    " 5!#roved understanding of interna and e%terna environ!ents of businessK

    Strateg& for!uation re9uires continuous observation and understanding of

    environ!enta variabes and cassif&ing the! as o##ortunities and threats" 5t aso invoves

    knowing whether the threats are serious or casua and o##ortunities are worth& or !argina"

    As such strateg& #rovides for a better understanding of environ!ent"

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    )e$e&s of strategy

    A tica business fir! shoud consider three tes of strategies$ which for! a

    hierarch&K

    8" Cor#orate strateg& : )hich describes a co!#an&6s overa direction towards growth b&

    !anaging business and #roduct ines3 These incude stabiit&$ growth and retrench!ent"

    @or e%a!#e$ Coco coa$ 5nc"$ has foowed the growth strateg& b& ac9uisition"

    5t has ac9uired oca botting units to e!erge as the !arket eader"

    7" ,usiness strateg& . /sua& occurs at business unit or #roduct eve e!#hasizing the

    i!#rove!ent of co!#etitive #osition of a fir!6s #roducts or services in an industr& or !arket

    seg!ent served b& that business unit" ,usiness strateg& fas in the in the rea! of cor#orate

    strateg&"

    @or e%a!#e$ A##e Co!#uters uses a differentiation co!#etitive strateg& that

    e!#hasizes innovative #roduct with creative design" 5n contrast$ AFN Grinda&s !erged with

    Standard Chartered ,ank to e!erge co!#etitive&"

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    CORPORATE STRATEGY

    @or e%a!#e$ Procter and Ga!be s#ends huge a!ounts on advertising to

    create custo!er de!and"

    =" O#erating strateg& . These are concerned with how the co!#onent #arts of an organization

    deiver effective& the cor#orate$ business and functiona .eve strategies in ter!s of

    resources$ #rocesses and #eo#e" The& are at de#art!enta eve and set #eriodic short.ter!

    targets for acco!#ish!ent"

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    CORPORATE STRATEGY

    CHAPTER *

    Te +enefits of Corporate Strategy, Te +"i&!ing +&oc-s of Corporate A!$antage

    A *we DH+ cor#orate strateg& is !otivated b& what we' ter! the three

    buiding bocks of cor#orate strateg&K shared resources$ transferred co!#etencies$ and the

    creation of s#ecific assets" )hie there are !an& #ossibe reasons given for things ike

    diversification$ the& can a!ost a be traced back to one of these three !otivations"

    Saring reso"rcesis taking so!ething an organization aread& has and using

    it in a new industr&" @or e%a!#e$ )a.0art #unking down one.hour #hoto abs in its stores

    is an e%a!#e of sharing a resource" )0T aread& has stores *a resource+ ocated a over the

    countr&" Adding this service is si!#& a !atter of sharing its e%isting resource" Econo!ies of

    sco#e$ efficiencies *i"e" cost reduction+ gained due to the breath of one's goodsservices$ is a

    funda!enta e%a!#e of sharing resources"

    Transferring competencies,is taking so!ething that an organization is good

    at and using it in a new industr&" The !ost fa!ous e%a!#e of this of a ti!e was -enr&

    @ord and his !ass #roductionasse!b& ine techni9ues" Toda& @ord is !ost fa!ous for cars$

    however @ord took his ideas and a##ied the! to far! e9ui#!ent$ arge trucks$ and even

    air#anes So!e of these businesses re!ain to this da& as &ou can sti find @ord far!

    e9ui#!ent"

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    CORPORATE STRATEGY

    Specific Assets, 0uch !ore co!#e% is the idea of s#ecific assets" S#ecific

    assets are assets that have a !uch ower vaue in their ne%t best use OR to their ne%t best

    user"

    A great e%a!#e of a s#ecific asset !ight be a te%tbook for a coege course" 5t

    has great vaue if &ou are a coege student in that course$ but it doesn't have !an& aternate

    uses$ e"g" firestarter$ and few #eo#e other than a coege student taking that course woud #a&

    a ot of !one& for it" Therefore$ it is a s#ecific asset" Co!!on e%a!#es of s#ecific assets are

    things ike unifor!s and #i#eines" 5t !a& be he#fu to think of s#ecific assets as assets that

    have been custo!ized" This is because b& custo!izing so!ething it fre9uent& beco!es

    !ore vauabe to the #erson or fir! who did the custo!izing but ess vauabe to ever&one

    ese" S#ecific assets are i!#ortant for cor#orate strateg& for two reasons" @irst$ if &ou don't

    own the s#ecific asset it #robab& wi not get created at a" After a @ord is not ike& to

    ever #roduce a car in &our schoo6s coor sche!e with &our !ascot #ainted on the hood" 5f

    &ou want one$ &ou6 have to have it done &oursef" Second$ &ou fre9uent& want to own

    s#ecific assets so that &ou are not Ihed u#I b& an o##ortunistic #artner" -od u# can occur

    when the #rovider of a s#ecific asset decides to withhod it fro! &ou at a critica ti!e" @or

    e%a!#e$ what if &ou rented &our te%tbook fro! !e rather than owned it3 5 !ight have an

    incentive to increase the renta rate right before the e%a! when &ou needed the book the

    !ost" You !ight be abe to take !e to court and win for vioation of contract$ but b& then the

    test is ong #ast" You6 have to #a& !& higher rent" This is what econo!ists !ean when the&

    refer to 2hod u#"4 A great iustration of the buiding bocks co!es fro! Back )ech6s

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    CORPORATE STRATEGY

    !anageria evauation s&ste! at GE . #robab& the !ost diversified arge co!#an& in the

    /"S"

    The centra focus of the s&ste! was the divisiona director's abiit& to

    recognize$ deveo#$ and S-ARE the taent of their e%ecutives" 5f so!eone had so!eone who

    was rea& good at soving #robe! Q that another division had$ then the& were e%#ected to

    reassign that #erson to the other division" This further encouraged e!#o&ees to devote

    the!seves to earning about GE and doing a great job$ the& knew good work woud be

    rewarded" This is a cassic e%a!#e of wh& sharing resources$ transferring co!#etencies$ and

    getting #eo#e to invest in s#ecific assets *es#ecia& i!#ortant for organizationa knowedge+

    is i!#ortant for the !anage!ent and ongoing success of diversified cor#orations"

    0anageria attention shoud be #aid to these three factors on an ongoing basis$ not just at the

    ti!e a diversification or vertica integration decision is !ade"

    Therefore$ in order for a cor#orate strategic decision to he# resut in a

    sustained co!#etitive advantage for a fir! the benefits fro! the shared resources$ transferred

    co!#etencies$ and s#ecific assets !ust be greater than the integration and bureaucratic costs

    of #erfor!ing the function interna&" -owever$ this eads to an interesting 9uestion$ what

    about fir!s that have #ursued co!#ete& unreated diversification &et have #erfor!ed 9uite

    we3 )hie these are rather rare$ e%a!#es of these fir!s have incuded -anson Trust and

    #resent da& ,erkshire -athawa& *,RL+" )hat !a& have ha##ened is that these fir!s wind

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    CORPORATE STRATEGY

    u# e!bod&ing a contro or resource aocation function *#erha#s ca#ita+ that is su#erior to

    what their co!#onent fir!s coud do individua&" @or e%a!#e$ )arren ,uffett often targets

    ac9uisitions on the foundation of taking awa& the current CEO's headaches of deaing with

    boards and reguators and etting the CEO get back to focusing on running the co!#an& that

    the& ove" This of course is just a transferred co!#etenc& on the #art of ,RL that takes over

    cor#orate governance concerns of the CEO" )arren ,uffett's e%ce#tiona ski in investing

    coud aso be a transferred co!#etenc& and his co!#an&'s e%ceent credit rating a shared

    resource"

    'arning on MatricesK 5nitia&$ consuting grou#s and !anagers atte!#ted to dea with the

    co!#e% chaenges of cor#orate strateg& through I!atrices"I The !atrices$ e"g" ,oston

    Consuting Grou# *Stars$ Probe! Chidren$ Cash Cows$ and 1ogs+$ &ou often see associated

    with cor#orate strateg& can be great e%terna ana&sis toos and visua aids" -owever$ since

    the& don't te &ou how to share resources$ transfer co!#etencies$ or create s#ecific assets$

    the& are I!ost& worthessI for e%#aining wh& fir! #erfor!ance differs"

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    CORPORATE STRATEGY

    CHAPTER .

    Types of corporate &e$e& strategy

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    CORPORATE STRATEGY

    MERGER AND AC/0ISITION

    Mergers an! ac"isitions*abbreviated M2A+ are both an as#ect of cor#orate

    strateg&$ cor#orate finance and !anage!ent deaing with the bu&ing$ seing$ dividing and

    co!bining of different co!#aniesand si!iar entities that can he# an enter#rise grow

    ra#id& in its sector or ocation of origin$ or a new fied or new ocation$ without creating a

    subsidiar&$ other chid entit& or using a joint venture"

    The distinction between a I!ergerI and an Iac9uisitionI has beco!e

    increasing& burred in various res#ects *#articuar& in ter!s of the uti!ate econo!ic

    outco!e+$ athough it has not co!#ete& disa##eared in a situations" @ro! a ega #oint of

    view$ a mergeris a ega consoidation of two co!#anies into one entit&$ whereas

    an ac"isition occurs when one co!#an& takes over another and co!#ete& estabishes

    itsef as the new owner *in which case the target co!#an& sti e%ists as an inde#endent ega

    entit& controed b& the ac9uirer+" Either structure can resut in the econo!ic and financia

    consoidation of the two entities" 5n #ractice$ a dea that is an ac9uisition for ega #ur#oses

    !a& be eu#he!istica&caed a Imerger of e"a&sI if both CEOs agree that joining together

    is in the best interest of both of their co!#anies$ whie when the dea is unfriend& *that is$

    when the target co!#an& does not want to be #urchased+ it is a!ost awa&s regarded as an

    Iac9uisitionI"

    19

    http://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Companieshttp://en.wikipedia.org/wiki/Business_organizationhttp://en.wikipedia.org/wiki/Euphemismhttp://en.wikipedia.org/wiki/Companieshttp://en.wikipedia.org/wiki/Business_organizationhttp://en.wikipedia.org/wiki/Euphemismhttp://en.wikipedia.org/wiki/Management
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    CORPORATE STRATEGY

    Reasons for merger strategy,

    13 O#erationa efficienc&K 5t enabes the #ooing of resources and strea!ining of

    o#erations$ thereb&$ resuting in i!#roved o#erationa efficiencies"

    *3 Econo!ies of scaeK The !erged entit& enjo&s econo!ies of arge scae of #roduction"

    0erger$ therefore$ i!#roves the overa co!#etitiveness"

    .3 -e#s to face the co!#etitionK due to econo!ies of arge scae #roduction and

    distribution$ the for! is in #osition to offer not on& better 9uait& of goods and

    services$ but aso at better #rices$ and therefore$ it can effective& face co!#etition in

    the !arket"

    43 Ta% advantageK 0erger can be used as effective source of ta% #anning$ es#ecia&$

    when one of the !erged entities was having accu!uated osses" 5n such a case$ it can

    resut in severa ta% saving for the !erged entit&

    53 Growth rateK 0erger can #rovide o##ortunities for faster growth rate than can be

    achieved through interna sources" This is because( !erger offers advantages in

    severa areas such as !arketing$ #roduction$ finance$ research and deveo#!ent and

    so on" The o#erationa advantages of various functiona areas can bring faster growth

    rate to ther !erged entit&"

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    CORPORATE STRATEGY

    TA6EO%ER

    )hen an ac9uiring co!#an& !akes a bid for a target co!#an&" 5f the takeover

    goes through$ the ac9uiring co!#an& beco!es res#onsibe for a of the target co!#an&6s

    o#erations$ hodings and debt" )hen the target is a #ubic& traded co!#an&$ the ac9uiring

    co!#an& wi !ake an offer for a of the target6s outstanding shares"

    A takeover is virtua& the sa!e as an ac9uisition$ e%ce#t that 2takeover4 has a

    negative connotation$ indicating the target does not wish to be #urchased" )h& woud one

    co!#an& want to bu& another co!#an& against that co!#anies wi3 The bidder !ight be

    seeking to increase its !arket share or to achieve econo!ies of scae that wi he# it reduce

    its costs and thereb& increase its #rofits" Co!#anies that !ake attractive takeover targets

    incude those that have a uni9ue niche in a #articuar #roduct or service$ s!a co!#anies

    with viabe #roducts or services but insufficient financing$ a si!iar co!#an& in cose

    geogra#hic #ro%i!it& where co!bining forces coud i!#rove efficienc& and otherwise viabe

    co!#anies that are #a&ing too !uch for debt that coud be refinanced at a ower cost if a

    arger co!#an& with better credit took over"

    Takeover can he# a fir! to enter a new business without the advantages of

    gestation or set.u# ti!es" @oreign 0FCs !a& take over e%isting units in the overseas

    !arkets so as to faciitate eas& entr& in the overseas !arkets"

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    CORPORATE STRATEGY

    7OINT %ENT0RE

    A business agree!ent between two different co!#anies to work together to

    achieve s#ecific goas" /nike a !erger or ac9uisition$ a strategic joint venture does not have

    to be #er!anent$ and it offers co!#anies the benefits of !aintaining their inde#endence and

    identities as individua co!#anies whie offsetting one or !ore weaknesses with another

    co!#an&'s strengths" A strategic joint venture !a& aso be caed a Istrategic #artnershi#"I

    A joint venture takes #ace when two #arties co!e together to take on one

    #roject" 5n a joint venture$ both #arties are e9ua& invested in the #roject in ter!s of !one&$

    ti!e$ and effort to buid on the origina conce#t" )hie joint ventures are genera& s!a

    #rojects$ !ajor cor#orations aso use this !ethod in order to diversif&" A joint venture can

    ensure the success of s!aer #rojects for those that are just starting in the business word or

    for estabished cor#orations" Since the cost of starting new #rojects is genera& high$ a joint

    venture aows both #arties to share the burden of the #roject$ as we as the resuting #rofits

    Reasons for joint venture strategy:

    1. Joint ventures are suitable for large projects wit uge capital

    reuir!ents an" of long gestation.2. Joint venture brings in s#nergetic e$ect. %is is "ur to te co!bine"

    e$ort of te parties to te joint venture.

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    CORPORATE STRATEGY

    3. Joint venture ensures opti!u! use of available resources. &ll te

    resources ' u!an (nancial an" p#sical resources are put to best

    possible use.

    4. Joint venture is a !eto" of saring ig business ris) a!ong

    parties to te joint venture.

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    CORPORATE STRATEGY

    DI%ERSI8ICATION

    Di$ersification is a cor#orate strateg& to increase saes vou!e fro! new

    #roducts and new !arkets" 1iversification can be e%#anding into a new seg!ent of an

    industr& that the business is aread& in$ or investing in a #ro!ising business outside of the

    sco#e of the e%isting business"

    Product diversification invoves addition of new #roducts to e%isting #roducts

    either being !anufactured or being !arketed" E%#ansion of the e%isting #roduct ine with

    reated #roducts is one such !ethod ado#ted b& !an& businesses" Adding tooth brushes to

    tooth #aste or tooth #owders or !outhwash under the sa!e brand or under different brands

    ai!ed at different seg!ents is one wa& of diversification" These are either brand e%tensions

    or #roduct e%tensions to increase the vou!e of saes and the nu!ber of custo!ers"

    Reasons for !i$ersification,

    8" S#reading of RisksK diversification enabes to s#read the risks" A fir! o#erating in one

    #roduct and in one !arket is e%#osed to high risks of oss" This is because( the oss in

    one area can be co!#ensated fro! the #rofit fro! another area"7" 5!#rove cor#orate i!ageK The fir! serves to cross section of consu!ers in the

    !arket" Thus it can bring na!e and goodwi in the fir!$

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    CORPORATE STRATEGY

    DISI%ESTMENT

    This strateg& invoves dro##ing so!e of the #roducts$ !arkets of functions"

    The dro##ing of activities or business can be attained either through sae or i9uidation"

    There are severa reasons for ado#ting divest!ent strateg&"

    8" )ithdrawa of obsoete #roductsK obsoete #roducts$ which do not generate ade9uate

    returns to the fir!$ !a& be divested" for e%a!#e$ ,ajaj Auto have discontinued its

    scooters unit$ and Son& withdrawn its )ak!an fro! the !arket"2. Probe! of !is!atchK A business that has been ac9uired b& the fir! !a& #rove to be

    a !is!atch with the e%isting business and therefore$ such business !a& be difficut to

    integrate with e%isting business of the co!#an&"

    )I/0IDATION

    )i"i!ationis the #rocess b& which a co!#an&*or #art of a co!#an&+ is

    brought to an end$ and the assets and #ro#ert& of the co!#an& redistributed" >i9uidation is

    aso so!eti!es referred to as winding.u# or dissoution$ athough dissoution technica&

    refers to the ast stage of i9uidation" The #rocess of i9uidation aso arises when custo!s$

    an authorit&or agenc&in a countr&res#onsibe for coecting and safeguarding custo!s

    duties$ deter!ines the fina co!#utation or ascertain!ent of the duties or drawback accruing

    on an entr&"

    27

    http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Dissolution_(law)http://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/Authorityhttp://en.wikipedia.org/wiki/Government_agencyhttp://en.wikipedia.org/wiki/Government_agencyhttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Duty_(economics)http://en.wikipedia.org/wiki/Duty_(economics)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Dissolution_(law)http://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/Authorityhttp://en.wikipedia.org/wiki/Government_agencyhttp://en.wikipedia.org/wiki/Countryhttp://en.wikipedia.org/wiki/Duty_(economics)http://en.wikipedia.org/wiki/Duty_(economics)
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    CORPORATE STRATEGY

    )hen a business or fir! is ter!inated or bankru#t$ its assets are sod and the #roceeds

    #a& creditors" An& eftovers are distributed to sharehoders"

    An& transaction that offsets or coses out a ong or short #osition

    Reasons for &i"i!ation,

    8" )hen a fir! continuous& suffers osses$ and a efforts to !ake it #rofitabe again

    have faied"

    7" )hen a fir! has accu!uated osses and so!e other fir! offer better #rice$ then it

    !akes sense to se the unit"

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    CORPORATE STRATEGY

    RE)ATIONSHIP +ET'EEN

    INTERNATIONA) STRATEG9 AND CORPORATE STRATEG9

    Cor#orate strateg&

    Cor#orate strateg& detai action to gain a co!#etitive advantage through the

    seection and !anage!ent of the !i% of businesses co!#eting in a severa industries or

    #roduct !arket"

    1eveo#ing and i!#e!enting !uti business strategies !a& be necessar& for

    effective use of a e%cess resources$ ca#abiities and core co!#etencies that have vaue

    across severa businesses"

    The !ain objective of a cor#orate strateg& is to enhance strategic

    co!#etitiveness$ and earn good returns" The #ri!ar& a##roach to cor#orate eve strateg&

    is diversification" The fir!s diversif& when the& have e%cess resource ca#abiities and

    core co!#etencies that have !uti#e uses"

    5nternationa strateg&

    1uring the ast decade of the 7

    th

    centur&$ !an& barriers to internationa trade fe and a

    nu!ber of fir! begun #ursuing goba strategies to gain a co!#etitive advantages"

    -owever$ so!e industries benefit !ore fro! gobaization than do others$ and so!e

    nations have co!#etitive advantage over other nations in certain industries"

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    CORPORATE STRATEGY

    CHAPTER4

    MERGER AND A/0ISITION O8 PATNI AND IGATE

    Patni Co!#uter S&ste!s >i!ited was incor#orated as Patni Co!#uter

    S&ste!s Private >i!ited on @ebruar& 8$ 8D under the Co!#anies Act$ 8D;?" 5n 8D$ b&

    virtue of Section =i!ited *PCS1P+ for the sae

    and !arketing of co!#uter e9ui#!ent and hardware !aintenance" 5n 8D$ the Co!#an&

    #ro!oted PCS 1ata Genera 5ndia *PCS1G+$ a joint venture with The 1ata Genera

    Cor#oration$ /SA$ for the !anufacture and !aintenance of co!#uter hardware" 5n 8DD=$ the

    na!e of PCS1P was changed to PCS 5ndustries >i!ited *PCS5>+ and PCS1G was !erged

    into PCS5>" Since 8DD=$ the Co!#an& has been entire& focused on software e%#orts" 5n

    8DDD$ the shares of PCS5> hed b& the Co!#an& and other non.o#erating assets were de.

    !erged into other grou# co!#anies and the Co!#an& e!erged as a focused 5T services

    co!#an&" Patni Co!#uter S&ste!s >i!ited is a se#arate entit& fro! PCS 5ndustries >i!ited$

    which is a grou# co!#an&"

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    CORPORATE STRATEGY

    7=

    .Co!es out with 5nitia Pubic Offering *5PO+ of 8$7=$ e9uit& shares in the #rice of Rs

    7eve ; of the Ca#abiit& 0aturit& 0ode 5ntegration *C005 SES) version

    8"8+ for a its deveo#!ent centers in 0u!bai Favi 0u!bai after a rigorous !onth.ong

    SCA0P5 assess!ent b& LP0G$ 5ndia

    .5nks 0O/ with the ,ira 5nstitute of Technoog& Science ,5TS$ Piani to offer

    educationa #rogra!!es to Patni e!#o&ees through the ',5TS off.ca!#us 1istance

    >earning Coaborative Progra!!es' sche!e"

    7;

    .Patni Co!#uter S&ste!s wins awards for e%ceence in cor#orate #erfor!ance"

    .Patni Co!#uter S&ste!s a##oints >oek Jan 1en ,oog as director"

    .Patni Co!#uter aunches 1efined ,PO Service for 5nsurance Carriers"

    .Patni Co!#uter aunches >ife Few ,usiness STP Soution"

    7?

    .Patni Co!#uter wins significant !uti.services teeco! dea fro! /L's argest inde#endent

    retaier of !obie co!!unications

    .Patni Co!#uter S&ste!s gets C5O 8 award

    .0ercer -R in BJ with Patni Co!#

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    CORPORATE STRATEGY

    .Patni join hands with E5S>

    7

    .Patni wins Goden Peacock Award 7 for Training E%ceence

    .Patni Co!#uter ac9uires >ife Sciences Services Co!#an& Taratec for U 7 !iion

    .Patni Co!#uter ac9uires Teeco!s Consuting S#eciaist >ogan.Orviss 5nternationa

    .Patni inks 0o/ with ,5TS Piani

    .Patni to ac9uire /S.based Taratec

    7

    .Patni sets u# green ,PO centre in Foida

    .Patni Co!#uter ties u# with Schinder

    .Patni achieves god certified #artner status in 0icrosoft #artner #rogra!

    7D

    . Patni Co!#uter S&ste!s a##ointed Jija& 0ehra as E%ecutive Jice.President and head of

    business verticas"

    .Patni Co!#uter S&ste!s receives '5T su##ier of the &ear' award

    .Patni Co!#uters o#ens new E0EA head9uarters to drive growth for outsourced 5T and

    ,PO services"

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    CORPORATE STRATEGY

    A $ie: on IGATE

    TeK Pubic

    Traded asK FAS1AVK 5GTE

    5ndustr&K 5nfor!ation technoog& and Services

    @oundedK 8DD? 8

    -ead9uartersK Caifornia$ /nited States

    Area servedK )ordwide

    Le& #eo#eK Ashok Je!uri *Chief E%ecutive Officer+7

    RevenueK 5ncrease /SU 8"8; biion *78

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    CORPORATE STRATEGY

    INTROD0CTION

    8" 5ntroduction

    iGATE is an acron&! for Iintegrated Genera Aviation Training Environ!ent"I

    5t is integrated$ !eaning that a re9uired digita devices$ hardware co!#onents and

    software interface as an integra #art of one s&ste!" This is not a new conce#t as oder

    anaogue eectro!echanica trainers !anufactured in the 's and 's were #owered b& a

    singe eectrica source"

    The uni9ueness is that iGATE trainers with their digita co!#onents co!bine

    severa new technoogies to #rovide a si!uator with state.of.the.art fight d&na!ics for

    severa tes of aircraft$ and other training ca#abiities at a singe training station" A

    station that can be used on a deskto# or used in an encosed cock#it environ!ent"

    iGATE Cor#oration *5GTEK/S+ is a FAS1AV.isted$ /S.incor#orated

    outsourcing co!#an& with the !ajorit& of its o#erations in 5ndia and !ost of its

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    CORPORATE STRATEGY

    business #rocess outsourcing *,PO+ services" 5t is head9uartered in @re!ont$ Caifornia$

    /SA"

    Custo!ers incude co!#anies in banking financia services( insurance

    heathcare( ife sciences( !anufacturing$ retai$ distribution ogistics( !edia$

    entertain!ent$ eisure trave( co!!unication$ energ& utiities( federa govern!ent(

    and inde#endent software vendors across the A!ericas$ Euro#e. 0idde East.Africa

    *E0EA+ and Asia.Pacific"

    Patni Co!#uter S&ste!s >td" *Patni+$ incor#oratedin 8D$ is a eading 5T

    consuting services andbusiness soutions #rovider based in 5ndia"The!ajorit& of the

    services offered incude those inthe do!ains of insurance$ !anufacturing$ retai$teeco!$

    etc" Patni has a strong tea! of over87$; #rofessionas$ with 7< saes and

    !arketingoffices across the gobe and !uti#e offshoredeveo#!ent centres across eight

    cities in 5ndia"The business #rocesses at Patni are in co!#iancewith Si% Sig!a and ,S

    DD"The co!#an& has been accredited with the 5SO D8K7certification and is

    assessed at SE5.C005 eve ; and P.C00 eve

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    CORPORATE STRATEGY

    cent in 7< to D"8 #er cent in 7; "beside" Patni is isted on the ,o!ba& StockE%change

    and the Fationa Stock E%change"

    iGATE green buiding Foida

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    CORPORATE STRATEGY

    HISTOR9

    iGATE Goba Soutions >td" was estabished in 8DD

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    CORPORATE STRATEGY

    OPERATIONS

    The tica iGATE custo!er is a @ortune 8 enter#rise in thebanking$

    insurance$ financia !arkets$ !anufacturing$ retai orteeco! industries"iGATE's

    offerings s#an high.end consuting$ custo! 5T soutionsdeveo#!ent incuding ERP

    i!#e!entation$ data !anage!entservices$ and business #rocess outsourcing"Since

    iGATE is an integrated technoog& and o#erations co!#an&$its strateg& and #rocess

    consutants$ technoog& e%#erts and do!aine%#erts work in tande! to deveo# o#ti!a

    soutions to addresscients' needs"

    @or e%a!#e$ co!!unication withcusto!ers is estabished in such a wa& that

    there is awa&s a fa back #ath whichbeco!es o#erationa$ shoud the #ri!ar&

    connectivit& fai" Si!iar&$ iGATE's faciitiesin ,angaore and Foida have buit.in

    redundanc& and are designed to serve as co!#e!entar& business continuit& Centre sin

    the event of a disaster" 5GATE has a we.defined ,usiness Continuit& and 1isaster

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    CORPORATE STRATEGY

    Recover& Pan*,CP 1RP+ which are !anaged b& an actionabe Crisis 0anage!ent

    Pan and tested to address a business continuit& needs" The ,CP 1RP strategies are

    integrated with the Vuait& 0anage!ent s&ste!s to ensure high 9uait& and !ini!a

    during #roject initiation and re9uire!ents gathering stage and runs through the ifeti!e of

    the #roject" 5GATE aso invests a ot of effort in foreseeing #erceived and rea ee!ents of

    risk and has !eticuous #ans in #ace forei!inating$ !itigating$ and !ini!izingthe

    i!#act of risk at a eves" ,eing ocatedout of !ore than four centers in 5ndia$ iGATE

    has buit suitabe redundancies toensure co!#ete s&ste! u#ti!e and#ro!#t disaster

    !anage!ent"

    0ERG5FG

    After the ac9uisition of Patni Co!#uter S&ste!s in 788$ it started the

    !erging #rocess and changed its na!e to iGATE Patni" 5t was changed to iGATE again

    on 0a&$ 787" After breaking into the biion doar cub . he#ed b& the 788 Patni

    ac9uisition . iGate ed b& for!er 5nfos&s e%ecutive Phaneesh has been #ursuing an

    aggressive strateg& to change outsourcing industr&'s traditiona !ode of charging for

    ti!e and effort" 5nstead$ 0urth& wants to charge for outco!es deivered$ thus sharing

    greater risk with cients"

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    CORPORATE STRATEGY

    iGATE Patni Profi&e,

    iGATE Patni herads the beginning of a new era b& bringing together two

    co!#anies : iGATE and Patni" ,etween the two$ we #rovide fu.s#ectru! consuting$

    technoog& and business #rocess outsourcing$ and #roduct engineering services" 5n a

    crowded and intense& co!#etitive !arket#ace for such offerings$ we have buit a

    re#utation and core differentiating attribute around our uni9ue ,usiness Outco!es.based

    !ode" Ar!ed with over three decades of 5T Services e%#erience and our distinctive

    #hioso#h& of MAccountabe for Cients6 ,usiness6 #owered b& the iTOPS *5ntegrated

    Technoog& and O#erations+ #atfor!$ our !uti.ocation goba organization consistent&

    deivers effective soutions to over

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    CORPORATE STRATEGY

    Our custo!er foot#rint s#ans across verticas ikeK banking financia

    services( insurance heathcare( ife sciences( !anufacturing$ retai$ distribution

    ogistics( !edia$ entertain!ent$ eisure trave( co!!unication$ energ& utiities(

    #ubic sector( and inde#endent software vendors"

    A diversified$ we.trained and !otivated taent #oo of 7? #eo#e works

    cohesive& to deiver soutions based around a !ature goba deiver& !ode to cients

    across the A!ericas$ Euro#e. 0idde East.Africa *E0EA+ and Asia.Pacific" 1es#ite the

    reach and goba.s#anning ca#abiities of our deiver& centers$ we are arge enough to be

    resourcefu and s!a enough to be fe%ibe$ !aking us one of the !ost d&na!ic and

    high& ada#tabe 5T service giants"

    Our co!#rehensive #ortfoio of services incudes a##ication deveo#!ent and

    !anage!ent$ verification vaidation$ enter#rise a##ication soutions$ infrastructure

    !anage!ent$ custo!er interaction services business #rocess outsourcing$ #roduct

    engineering services$ and business technoog& consuting"

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    CORPORATE STRATEGY

    'y iGATE Erase Patni(

    -owever$ a !ore sur#rising !ove has recent& trans#ired with iGATE Patni

    deeting the ast fives etters of its na!e to ca itsef si!#& 2iGATE4" )hie &ou can

    understand Qero% #referring their !ore fa!ous and recognized brand to ACS$ and the

    #rocure!ent gu&s si!#& wanted to sound se%ier$ it6s curious wh& iGATE woud dro# the

    fa!ous Patni brand bare& a &ear after its !erger" You woud have thought the esser.

    known iGATE eadershi# woud #refer to !aintain the egendar& technoog& services

    brand founded b& three brothers$ Farendra Patni$ Gajendra Patni and Ashok Patni$ in

    8D3

    So we asked -fS6 5T services guru$ ,rian Robinson to discuss wh&"""

    This !onth iGATE Cor# announced that it had raised an additiona

    U7?; !iion to bu&.out the re!aining sharehoders of Patni stock and to deist Patni

    fro! the 5ndian bourse" 0ore i!#ortant&$ the co!#an& wi ike& re!ove the Patni

    na!e fro! its future go.to.!arket and branding strategies"

    This co!es on the hees of what !ust have been a ong &ear for the

    organization" You wi ike& reca that iGATE announced its intent to take a !ajorit&

    stake in Patni in ear& 788" At the ti!e$ industr& and financia ana&sts were u# in ar!sK

    revenues and ke& cients were at risk$ attrition was a concern$ and divergent cutures

    !ight not find e9ua footing" )e first wrote about the ac9uisition in Banuar& of 788" )e

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    CORPORATE STRATEGY

    then co!#eted a

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    7" EgoKiGATE is known to be an aggressive grou# of !anagers" The& set high

    standards for the!seves and their cients$ and this attitude co!es right fro! the to#"

    Phaneesh 0urth&$ CEO$ has done what !an& in the industr& thought was i!#ossibeK

    ac9uire a arger service #rovider b& evering u# his baance sheet" The strateg& has

    worked so far : iGATE Patni has sur#assed the biion doar revenue threshod" -is

    tea! sti has a ot of work to do$ but first he wants to ce!ent his roe as eader"

    .3 +"siness strategy,

    5n order to reach the 78 target$ !anage!ent wi need to integrate the

    two deiver& organizations" The co!#an& coud chose to do this whie !anaging a

    dua.brand" )e think this o#tion woud si!#& confuse both cients and interna

    !anage!ent" The better choice woud be to integrate the co!#an& under one brand

    reducing the associated co!#e%it&$ ti!e and resources" 0oreover$ working a singe

    brand wi give !anage!ent the runwa& the& need to evove the co!#anies co!bined

    strengths into new vaue #ro#ositions and services"

    So!e #undits 9uestion wh& iGATE woud retire the Patni na!e"

    @ounded b& three Patni brothers$ the co!#an& is one of the forefathers of an industr& that

    has he#ed transfor! 5ndia" 0oreover$ the co!#an& has an outstanding re#utation for

    consistent service deiver& to its cients" ,oth are 9uaities that !an& s!aer

    organizations #a& for dear&" Our research indicates that !anage!ent !a& discard the

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    CORPORATE STRATEGY

    Patni na!e$ but not the strong deiver& attributes that !ade it successfu" As we note in

    our

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    CORPORATE STRATEGY

    These invest!ents invove both #rocess and technoog& and resut in a business #atfor!

    for the cient"

    The services industr& wi ike& refect #ositive& on the announce!ent

    and the continued integration of the two co!#anies for the foowing reasonK continued

    success woud highight that !id.tier #roviders : not on& the goba !ajors : can

    integrate their ac9uisitions to bring new ca#abiities and scae to a broader brand na!e"

    Other !id.tier #rovides wi everage the iGATE Patni !ode as a #recedent to 9uaif&

    and buid ac9uisition and integration #ans" 0ost i!#ortant&$ if the industr& sees even a

    s!a u#tick in consoidation ste!!ing fro! this ac9uisition$ then bu&ers wi have a

    greater nu!ber of 9uaified goba services #rovider to choose fro!"

    So!e observers !a& concude that iGATE Patni !anage!ent #aid a

    high vaue to retire the Patni na!e" ,ut further refection shows that this invest!ent is

    !ore about co!#eting the #rocess of integration started in ear& 788 and #ositioning the

    co!#an& to reach its stretch 78 targets"

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    CORPORATE STRATEGY

    CONC)0SION

    Cor#orate strateg& is the strateg& deveo#ed and i!#e!ented to the goas set

    b& the co!#an&6s business #oic&" As a co!#an&.wide strateg&$ cor#orate strateg& is

    concerned #ri!ari& with answering the 9uestion 2what set of businesses shoud the

    co!#an& be in34 and shoud be distinguished fro! business strateg&$ which focuses on

    answering the 9uestion 2how to buid a sustainabe co!#etitive advantage in s#ecific

    business or !arket34 0ore s#ecifica&$ cor#orate strateg& can be defined as the wa& a

    co!#an& creates vaue through the configuration and coordination of its !utibusiness

    activities"

    There is no singe best cor#orate.eve strateg&( rather$ !an& vaue.

    creating cor#orate strategies can be deveo#ed based on different configurations of the

    various co!#onents of cor#orate strateg&" @ir!s6 cor#orate strategies and their theoretica

    rationaes have evoved over ti!e in res#onse to the #ressures of the fir!6s e%terna as

    we as interna environ!ents" 1iversification is one of the !ain ee!ents of cor#orate

    strateg&$ such that a fir!6s eve of diversification infuences its #erfor!ance and that

    cor#orate strateg& !atters" -owever$ a theor& of cor#orate strateg& enco!#ass !ore than

    the ink between diversification and #erfor!ance" A theor& of cor#orate strateg& aso

    incor#orate or infuence a theor& of the growth of the fir!$ a theor& of the

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    CORPORATE STRATEGY

    organizationa structure of the fir!$ a theor& of !uti#oint co!#etition$ as we as a

    theor& of cor#orate governance"

    +I+)IOGRAPH9

    www"unifr"ch"""78