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Strategic Management Assignment

Execution of Corporate Strategies

Submitted To Submitted By

Dr. S.K.Chadda Rajneesh Bansal

University Business School Satinder Kaur

Panjab University Siddharth Jain

Smitesh Karoo

Swadesh Kumar



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INDEX

S.No Contents Page No.

1. 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

obstacles to effective execution

31



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INTRODUCTION

Five Fundamental Truths of Corporate Strategy Execution

Strategy is about a focused effort at all levels of the business on how to win in themarketplace. 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

beliefs.

1. Strategy is about trade-offs. Its 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 arent sure anyone is reading. Or it can be

as mission-critical as which markets you wont focus on because the revenue generated is

dilutive to margin or merely not aligned with your long-term vision.

2. Strategy shouldn't be created via democracy. By definition, strategy should be

controversial. Many leaders over-value alignment, wanting everyone to agree on what the

business should do. If everyone agrees, its 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 teamswho truly understand this reality have created planning processes and cultural

environments that foster intense debate and disagreement.

3. Strategy is a look forward, not a look back, and thats what makes it so difficult.

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.

4. Most companies spend hours defining a strategy, but far too few hours focusing on

execution. Consider 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



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corporate strategy, assess the organizational capabilities to execute it, and develop training

programs to bridge capability gaps.

5. To create relevant strategies, your entire executive team needs to spend time in

the marketplace. People should spend time assessing the competition, identifying

emerging trends, or meeting with customers. This knowledge is the raw material for

strategy creation. Ironically, this is the low-hanging fruit in many organizations; its 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, its impossible to create a viable winning strategy.



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S TRATEGIC ALLIANCE S

Alliance Defined

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 servicesthat 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

advances."

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.

y Joint venture 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.

y Equity strategic alliance 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.

y Non-equity strategic alliance is an alliance in which two or more firms develop acontractual-relationship to share some of their unique resources and capabilities to

create a competitive advantage.

Why Strategic Alliances?

In the new economy, strategic alliances enable business to gain competitive advantage

through access to a partner's resources, including markets, technologies, capital and

people.

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. Inthe 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



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such as geographic expansion, cost reduction, manufacturing, and other supply-chain

synergies.

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.

Strategic Alliances as a Key Element of the Toshibas Corporate Strategy

Toshiba firmly believes that a single company cannot dominate any technology or business

by itself. Toshibas approach is to develop relationships with different partners for

different technologies. Strategic alliances form a key element of Toshibas 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 Toshibas 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 andjoint ventures. Toshibas alliance partners include Apple Computers, Ericsson, GE, IBM,

Microsoft, Motorola, National Semi Conductor, Samsung, Siemens, Sun Microsystems and

Thomson.

Toshiba formed an alliance with Apple Computer to develop multimedia computer

products. Apples 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.

Toshibas 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 worlds largest supplier of color flat

panel displays for notebooks.

Developing Relationships

Toshiba believes in a flexible approach because some tension is natural in businesspartnerships, 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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Suzuki and strategic alliance

The name Suzuki 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 countrys 1.15 billion people.

For a long time, Indians have used bicycle rickshaws or autorickshaws for daily

transportation. The word rickshaw originates from the Japanese word jinrikisha, which

literally means human-powered vehicle. 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 Asias 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 downsandfierce competition from other major automobile manufacturers, including the Indian giant

Tata Motors LtdSuzuki succeeded in establishing its brand as Indias peoples car.

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 Japans bigger auto makersToyota, Nissan, and Hondaengaged 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 old

man in a mom-and-pop company 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.

Suzukis decision to enter the Indian market turned out to be a resoundingly wise choice.

Japans 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 s 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.



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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 Strategic and Global Partnership between Japan and India, 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 Japans 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 Asias 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 Asias 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

security.

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.

Suzukis joint venture in India suggests that cooperation in high-tech manufacturing is

eminently possible.

Suzukis 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.

Japans economy and Asian security depend on its replication.



8

M ERGER S AND ACQUI S ITION S

Introduction

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, whichbring 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 spinoffs, carve-outs or tracking stocks.

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 CEO, 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 newspapers business section, odds are

good that at least one headline will announce some kind of M&A transaction.

Definition

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 toexist, 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



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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

acquisition.

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.

Synergy

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:

y Staff reductions - 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.

y Economies of scale - 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.

y Acquiring new technology - 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.

y Improved market reach and industry visibility - 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.

Varieties of Mergers

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

merging:



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y Horizontal merger - Two companies that are in direct competition and share the

same product lines and markets.

y Vertical merger - A customer and company or a supplier and company. Think of a

cone supplier merging with an ice cream maker.

y Market-extension merger - Two companies that sell the same products in different

markets.

y Product-extension merger - Two companies selling different but related products

in the same market.

y Conglomeration - 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:

y Purchase Mergers - 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.

y Consolidation Mergers - 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.

Acquisitions

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.

Valuation Matters 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:

y Comparative Ratios - The following are two examples of the many comparative

metrics on which acquiring companies may base their offers:

o 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.

o 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.



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y Replacement Cost - In 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.

y Discounted Cash Flow (DCF) - 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.

Synergy: The Premium for Potential Success

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.

Doing The Deal

y Start with an Offer



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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 tender offer. 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 outstanding shares before it

must file with the SEC. 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.

y The Target's Response

Once the tender offer has been made, the target company can do one of severalthings:

Accept the Terms of the Offer - If the target firm's top managers and shareholders are happy

with the terms of the transaction, they will go ahead with the deal.

Attempt to Negotiate - 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.

Execute a Poison Pill or Some Other Hostile Takeover Defense 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.

Find a White Knight - 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 willoffer 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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y Closing the Deal

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.

Break ups

As mergers capture the imagination of many investors and companies, the idea of getting

smaller might seem counterintuitive. But corporate break-ups, or de-mergers, can be very

attractive options for companies and their shareholders.

Advantages

The rationale behind a spinoff , tracking stock or carve-out 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 financialdisclosure, 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.



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For employees of the new separate entity, there is a publicly traded stock to motivate and

reward them. Stock options in the parent often provide little incentive to subsidiary

managers, especially because their efforts are buried in the firm's overall performance.

Disadvantages

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 indexes, 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 synergy that it had as a larger

entity. For instance, the division of expenses such as marketing, administration andresearch and development (R&D) into different business units may cause redundant

costs without increasing overall revenues.

Restructuring Methods

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

complex.

y Sell-Offs A sell-off, also known as a divestiture, 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 undervaluing 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.

y Equity Carve-Outs

More and more companies are using equity carve-outs to boost shareholder value. A

parent firm makes a subsidiary public through an initial public offering (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



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public, but the issue also unlocks the value of the subsidiary unit and enhances the

parent's shareholder value.

y Spinoffs

A spinoff occurs when a subsidiary becomes an independent entity. The parent firm

distributes shares of the subsidiary to its shareholders through a stock dividend.

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

board.

y Tracking Stock

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.

Why t hey can fail? 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 economies of scale may prove elusive.

y Flawed Intentions

For 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.

y The Obstacles to Making it Work

Coping with a merger can make top managers spread their time too thinly and neglect theircore 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.



17

Major M& A in the 2000s

Rank Year Purchaser Purchased Transaction

value (in mil.

USD)

1 2000 F usion: America Online

Inc. (AOL)[16][17]

Time Warner 164,747

2 2000 Glaxo Wellcome Plc. SmithKline

Beecham Plc.

75,961

3 2004 Royal Dutch PetroleumCo.

Shell Transport &Trading Co

74,559

4 2006 AT&T Inc.[18][19] BellSouth Corporation 72,671

5 2001 Comcast Corporation AT&T Broadband &

Internet Svcs

72,041

6 2009 Pfizer Inc. Wyeth 68,000

7 2000 Spin-off : Nortel Networks

Corporation

59,974

8 2002 Pfizer Inc. Pharmacia Corporation 59,515

9 2004 JP Morgan Chase & Co[20] Bank One Corp 58,761

10 2008 Inbev Inc. Anheuser-Busch

Companies, Inc

52,000



18

DIVERSIFIC ATION

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 how managers buy,

create and sell different businesses to match skills and strengths with opportunitiespresented to the firm. Successful diversification is expected to reduce variability in the

firms profitability as earnings are generated from different businesses. Because firms incur

development and monitoring costs when diversifying, the ideal portfolio of businesses

balances diversifications costs and benefits. CEOs and their top level management teams

are responsible for determining the ideal portfolio of their company.

Levels and types of diversification

y Low level of diversification

Single business : 95% or more of revenue comes from a single business.Dominant business : Between 70% and 95% of revenue comes from a single business.

y Moderate to high level

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.

y Very high levels of diversification

Unrelated: Less than 70% of revenue comes from the dominant business, and there are nocommon links between businesses.

Low High

Corporate relatedness:

Transferring core competencies into busines

Related

constrained

diversification

Both operational

and corporate

relatedness

Unrelated

diversification

Related linked

diversification

High

Low

Operational

relatedness:

sharing activities

between businesses



19

Strategic Appeal of related diversification

Reap competitive advantage benefits of

± Skills transfer

± Lower costs

± Common brand name usage

± Stronger competitive capabilities

Spread investor risks over a broader base

Preserves strategic unity in its business activities

Achieve consolidated performance greater than the sum of what individual

businesses can earn operating independently

Related diversification and competitive advantage

C ompetitive advantage can result from related diversification if opportunities exist to

± Transfer expertise/capabilities/technology

± C ombine related activities into a single operation and red uce costs

± Leverage use of firms brand name reputation

± Conduct related value chain activities in a collaborative fashion to createvaluable competitive capabilities

Unrelated diversification

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

secondary.

Reasons for diversification

y Value Creating diversification



20

± Economies of scope (related diversification)

y Sharing activities

y Transferring core competencies

± Market power (related diversification)

y Blocking competitors through multipoint competition

y Vertical integration

± Financial economies (unrelated diversification)

y Efficient internal capital allocation

y Business restructuring

y Value natural diversification

± Anti trust regulation

± Tax laws

± Low performance

± Uncertain future cash flows

± Risk reduction for firms

± Tangible resources

± Intangible resources

y Value reducing Diversification

± Diversifying managerial employment risk

± Increasing managerial compensation

A Case of Diversification: ITC

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

explored.

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 2001prohibits 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



21

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

businesses.

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

the hotel industry

Foods

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.

Lifestyle Retailing

ITCs Lifestyle Retailing Business Division has established a nationwide retailing presence

through its Wills Lifestyle chain of exclusive specialty stores.

Education & StationaryProducts

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

Agarbattis

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 2003

Hotels

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.

Packaging

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.



23

RE S TRUCTURING

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.

Types of Restructuring Strategies:

1. Downsizing

2. Downscoping

3. Leveraged buy-outs

Downsizing:

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.

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.

Examples of Downsizing-

Hewlett-Packard used the downsizing strategy very innovatively by implementing a so-

called fortnight program in which all employees were asked to take one day off without pay

every two weeks until business revenue increased.



25

LBO of HC A Inc.: One of the largest LBOs on record was the acquisition of HCA Inc. in 2006

by Kohlberg Kravis Roberts & C o. (KKR), Bain & C o., and Merrill L ynch. The three

companies paid around $33 billion for the acquisition.



26

RETRENCH M ENT

Retrenchment Strategy:

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 tobecome 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.).

Types of Retrenchment Strategy:

1. Turnaround strategy

2. Divestment strategy3. Liquidation strategy

Turnaround strategy:

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.

Managing t urnaround:

There are three ways to manage turnaround:

1. 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. 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.



27

3. The third method involves replacement of existing team with new team or merging

of sick organisation with healthy one.

A pproaches to T urnaround:

When a CEO is replaced by another, the new incumbent can follow two types of

approaches:

1. Surgical approach:

It involves tough attitude and pattern of action followed is roughly the

same everywhere.

2. Non-surgical/ humane approach:

It involves understanding problems, eliciting opinions, adopting a

conciliatory attitude and coming to negotiated settlements among different factions.

Examples of turnaround strategy-

y Arvind Mills Ltd, an Indian textile company was established by the Lalbhai group in

1931 and was producing cotton textiles. In 1986, Arvind Mills decided to focus ondenim 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.

y BHEL: 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 thisdepression, BHEL ventured into Telecommunications, Metropolitan

Transportation and Defence production. Due to this timely diversification, BHEL

is now one of the rare profit making PSUs

y HMT 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.

Divestment Strategy:

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.



28

Reasons to Divest:

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.

y 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.

y 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.

y Need For Increased Investment: Firms sometimes reach a point where continuing tomaintain 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.

y 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.

y 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.

Approaches to divestment:

An organization may choose to divest in two ways:

y 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

ownership.y Organization can sell a unit outright. A buyer is found who considers the divested

unit as a strategic fit.

Examples of divestment strategy-



29

y Divestment of TOMCO: 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.

y Divestment of VST: VST Natural Products, the food business company of VST,

the tobacco firm, was divested to the Global Green Company of the Thapar

group. The reasons for divestment were: non availability of raw materials and

inadequate working capital infusion. VST, the parent company, could not invest

more as it was itself running under a loss.

Liquidation Strategy:

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.

Planned liquidation

A liquidation strategy can 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

liquidation.

Legal aspects of liquidation

Under the companies act, 1956, liquidation is termed as winding-up. The act defines it as a

process by whereby companys 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 companys 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. Compulsory winding up under an act of court

2. Voluntary winding up

3. Voluntary winding up under the supervision of court

Examples of Liquidation strategy-

y Punjab wireless systems (Punwire) was put under liquidation under the orders of

the Punjab and Haryana high courts on a private petition, owing to companys

inability to discharge it debts and liabilities.



30

y 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 didnt prevent it from going to liquidation.



31

M AKING S TRATEGY W ORK: OVERCOM ING THE OB S TACLE S TO EFFECTIVE

EXECUTION

Formulating strategy is a difficult task. Making strategy workexecuting or implementing

it throughout the organizationis even more difficult .

Some obstacl es t o e ff ectiv e executi on

y Planning and execution are interdependent. Strategy formulation and

implementation are separate, 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 interdependent , part of an

overall process of planning-executing-adapting. This interdependence suggests that overlap

between planners and doers 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.

y Execution takes time. The successful implementation of strategy takes more time

than its formulation. This can challenge managers attention to execution details. The longer

time frame can also detract from managers attention to strategic goals. Controls must be set

to provide feedback and keep management abreast of external shocks and changes. The

process of execution must be dynamic and adaptive, responding to unanticipated events. This

imperative challenges managers responsible for execution.

y Execution involves many people. Strategy implementation always involves more

people than strategy formulation. This presents problems. Communication down theorganization 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.

y Effective execution involves managers across all hierarchical levels.

Another problem is that some top-level managers believe strategy implementation is below

them, something best left to lower-level employees. This view holds that one group of

managers does innovative, challenging work (planning), and then hands off the ball to

lower-levels for execution. If things go awry, the problem is placed squarely at the feet of the

doers, who somehow couldnt implement a perfectly sound and viable plan.

y Managing change is difficult. Execution often involves changein structure,

incentives, controls, people, objectives, responsibilities and change can be threatening. The

importance of managing change well is clearly important for effective strategy



32

implementation. The inability to manage change and reduce resistance to new

implementation decisions or actions can spell disaster for execution efforts.

y Other execution-related problems. They include responsibility and accountability for

execution activities and decisions that are not clear; poor knowledge sharing among key

functions or divisions; dysf unctional incentives; inadequate coordination; poor or vague

strategy ; and not having guidelines or a model to shape execution activities and decisions.

M aking strat e g y w ork

Critical Issues in Making Strategy Work

y Having an Implementation Model to Guide Execution Thoughts and Actions

y Remembering that Sound Strategy Comes First

y Structure is Important to Successful Implementation

y Care Must be Taken to Translate Strategic Objectives into Short-term Operating

Metrics

y Clear Responsibility and Accountability are a Must for Effective Execution

y Reward the Right ThingsUse Incentives to Support Execution Processes and

Outcomes

y Ensure the Development of Appropriate Capabilities and Managerial Skills to Make

Strategy Work

y Focus on Managing Change

Use a logical approach to execution

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 think are important, often resulting in uncoordinated, divergent, even

conflicting decisions and actions.



33

y Good strategy comes first . 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 is important to the

implementation of corporate strategy . Business strategy and corporate strategy are

interdependenteach effects and is affected by the other.

y The impact of structure. Figure shows that the choice of str uct ure is vital to the

implementation of corporate strategy . 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 competitors actions and customer needs. Yet they cant 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.

y Need for integration. The integration components refer to the methods used to

achieve coordination across the units comprising organizational str uct ure. In a previousexample, 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

organization.

y 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, forexample, 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 availablee.g. teams, integrating roles,

matrix structuresto 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.

y Integrating strategy and short-term objectives. 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 short-term measurableobjectives 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

scorecards 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 critical metrics or measurable performance criteria.

y Clarifying responsibilities and accountability. Managers cannot create

coordination mechanisms or integrate strategic and short-term operating objectives if job

responsibilities and accountability are unclear. C larifying responsibility and accountability is

vital to making strategy work.

y Developing effective incentives and controls. The 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. Some method of obtaining individ ual and organizational goal

congr uence is required. 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.

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.

y Managing change. 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.

sm skc asinmnt

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