4. Types of Strategic Coordination
Licensing Alliance/Partnership JV Merger Acquisition
Low Medium High
Investment
Control
Impact
Integration
Pain of separation
5.
6.
7. Choosing between Acquisitions and Alliances
Factor Strategy
1. Types of synergies Modular
Sequential synergies
Reciprocal
Non equity alliances
Equity alliances
Mergers/Acquisitions
2. Nature of resources
Relative value of soft to hard resources
Low-medium
High
Acquisitions
Equity alliances
3. Extent of redundant resources Low
Medium
high
Non equity
Equity
Acquisitions
4.Degree of market uncertainty Low
Low- medium
High
Non equity
Acquisitions
Equity alliances
5. Level of Competition
Degree of competition for resources Low
Medium
High
Non equity alliances
Equity alliances
Acquisitions
9. Post merger integration (PMI) context
Diversified firm A has acquired/merged with a diversified firm T
and now (A+T) has to function to realize the identified
synergies in the valuation phase
Aim is to understand:
The challenges that make integration difficult
The basic strategic decisions in an integration process – how
much to integrate what?
Note: A – Acquirer; T- Target
10. Where does PMI fit in the M&A process?
Target
selection
Valuation &
negotiation
Due diligence
Implemen-
tation
Evaluation
• Attaining the
desired level of
integration of
activities
across acquirer
and target in
order to extract
the synergies
• Preliminary
amount of
integration
preparation
and planning
11. Blue print for Integrating Acquisitions
.
According to a study conducted by Booz- Allen
Hamilton, the success of M&A does not depend much
upon industry type, type of integration, the purchase
premium or the capitalization ratio, rather it depends
on the firm’s pre and post integration strategy
and the ability to act quickly.
12. The work of integration should really
start when the firm is planning the
acquisition, because integration
determines to a large extent, whether
the merger is going to be a failure or a
success.
14. PREACQUISITION – NEGOTIATION PROCESS
START
BEFORE
OTHERS
MAKETWO
TEAMS-
a)FOR
EVALUATION
b) NEGOTIATING
AND DEAL
MAKING
OPERATING
MANAGERS
IN DEAL
MAKING
PROTECT
AGAINST
ESCALATING
COMMITMENT
RELY ON
HARD
STRUCTURAL
FACTS
UNDERSTAND
SELLER’S
MOTIVATION
15. Post acquisition integration process-
I) Cleaning and building the foundation
II) Strategic and Organizational
Revitalization
III) Integration of people and operations
16. POST ACQUISITION INTEGRATION PROCESS
CLEANING UP AND BUILDINGTHE
FOUNDATION
PHASE I
ALIGNTOP
MANAGEMENT
( PROTECT
OTHER
MANAGEMENT
LAYERS)
INSTILL
DISCIPLINE
THROUGH
REPORTING
AND
CONTROL
SYSTEMS
DEBOTTLENECK
CAPACITIES
FEW QUICK
HITSTO
IMPROVE
PERFORMANCE
AND MORALE
17. STRATEGIC AND ORGANIZATIONAL
REVITALIZATION
PHASE II
ESTABLISHING
VISION AND
STRETCH
GOALS
INVESTMENT
FOR
ENHANCING
BASIC
FUNCTIONAL
COMPETENCIES
AND EMPLOYEE
SKILLS
(MANAGEMENT
DEVELOPMENT)
STRUCTURAL
REORGANIZATI
ON IF
NECESSARY
CONTINUING
COMMITMENT
OF CORPORATE
TOP
MANAGEMENT
18. INTEGRATION OF PEOPLE AND
OPERATIONS
PHASE III
BROADENING THE
INTERFACE
BETWEEN
ACQUIRED AND
ACQUIRING
UNITS.
JOINT
RATIONAIZATION
OF PRODUCTION,
MARKETING, IT
ETC.
STRATEGIC
INVESTMENT
AND MARKET
EXPANSION
TWO-WAY
FLOW OF
PEOPLE AT
DIFFERENT
LEVELS
19. A wrongly conceived merger will fail, no
matter how good the integration process;
and a deal based on sound logic might
stumble if the integration process is
poor
20. The PMI challenge
Complexity
(Function of inter-related
decisions between AU andTU
based on synergies identified)
Limited
Information
(Implementation phase reveals
details that were obscure until
valuation)
Functioning
while integrating
Uncertainty and
change
(Dealing with employee
motivation, role and task
allocation)
Cultural
differences
21. Basic tasks in an integration process:“Grouping”
and “linking” the AU-TU pair
“Grouping and Linking”…OR “Boxes and Lines”! What do we mean?
Grouping (Boxes):
• Includes grouping AU and TU into organizational units such
as departments with a common boss, incentives and
procedures (i.e. the boxes in an organization)
Linking (Lines):
• Includes grouping activities across groupings such as
vertical reporting, dedicated liaisons, temporary task forces
(i.e. lines in the org. chart)
Note: PMI is essentially an Org. Design problem!
22. Choices of level of grouping and linking are complements
Grouping and Linking choice spectra The choices have to be complementary for a fruitful integration
23. Decisions about Portfolio Composition:
reducing the scope of the corporation
Divesture: stay or exit
24. Divesture refers to the process of reducing the
portfolio of the businesses a firm owns. It is one of the
two important ways in which a corporation reduces
its scope. The other is outsourcing.
Divesture occurs when the firm reduces the number
of businesses it is active in by completely pulling out
of the value chain to the relevant customers.
28. Spin-offs: A spinoff is the creation of an independent
company through the sale or distribution of new shares
of an existing business or division of a parent company.
In a spin-off, the owner shares of the divested business
are distributed to the existing shareholders. Thus the
shareholders can choose whether they want to hold
both shares or sell their stakes in the divested business.
29. Indian Rayon and Industries(IRIL) spinning off its
insulator business (Jaya Shree Insulators) in favour of
i)a new company – Vikram Insulators Pvt Ltd(VIPL)
ii)VIPL- NGK a 50-50 joint venture formed.
iii) renamed as Birla- NGK Insulators Pvt. Ltd
ITC’s proposed demerger of the hotel business
through a partial spin-off to a new entity called New
Delhi(60% shareholding of common shareholders and
40 % with ITC)
30. One of the most prominent examples is the spin-off of
PayPal from its former parent eBay in 2015.
In that case, eBay shareholders received one share of
PayPal for each share of eBay they owned.
eBay recognized the growth potential of PayPal as an
independent company and made the following
announcement “each company will have a sharper
focus and greater flexibility to pursue future success in
their respective global commerce and payments
market.”
31. Sell offs : Divested businesses are sold to another
company
GSK divesting Horlicks and other Consumer
Healthcare nutrition products to HUL
Divesture of the tractor, glass and Cement
businesses of L&T
L&T divested its Electrical & Automation
business(E&A) to Schneider Electric
32. Equity carve out :
In an equity carve out, the parent sells a fraction of a
business’s stock to the general public and keeps the rest.
This is also called an Initial Public offering (IPO).
Equity Carve-Out is a partial spin-off in which an existing
company creates its subsidiary. After the creation of such a
subsidiary, it brings out its Initial Public Offer (IPO). The reason
why it is called as a partial spin-off is that it does not give
away its control of the subsidiary.
33. Reliance Industries Ltd(RIL) created a wholly
owned subsidiary called Reliance Retail
Ventures(RRV). RRV in turn owned 99.93 % in
Reliance Retail Ltd(RRL).
Over the years RRV carved out its equity. RIL’s stake
in RRV is about 85%. Over the years , a host of
global investors, like KKR, Mubadala, Abu Dhabi
Investment authority, General Atlantic, GIC and
TPG, put in 47000 crores INR for a 10.08 % stake in
RRV. About 5% stake are with minority stakeholders.
RRL is on the verge of being listed.
34. Split-Up: Under a split-up shares are created in the
underlying businesses, while those in the former
parent are discontinued.
The announcement by GE in November 2022, that it
will eventually split into three companies focused on
aviation, healthcare and energy.
35. The energy business is known as GE Vernova. It
has been spun off in 2023
The health-care business will be named GE
Healthcare. It will be spun off in early 2024
The aviation business will be the remaining core
business of GE and will be called GE Aerospace
and GE will be an aviation focused company.
37. From the divesture test it follows that a
corporate parent should divest for one or both
of the following reasons:
a) Failing the synergy test
b) Another corporate parent is a better owner.
38. 1. Failing the synergy test (V(AB)> V(A)+V(B))
In the absence of synergies, divesture is a god option.
Assuming Dm[B] >=V[B]
Sell- off: Dm[B]is the price of selling a business which
should be at least the standalone value of that business.
Spin-off :Dm[B]is the standalone value of that business.
Then a failure to pass the synergy test is sufficient to pass
the divesture test.
39. The Divesture test
V[A] + Dm[B] >V[AB]
V[AB] is the NPV of business A and business B when they
are jointly owned.
V[A] is the standalone value of business A after divesting
business B.
Dm[B] is the value from divesting business B for the original
shareholders of the parent under divesture mode m.
Sell –off : Dm [B] the price for which business B is sold to another company.
Spin-off : Dm[B] the value of business B as an independent , divested unit.
40. 2. Another Corporate parent is a better owner.
If business B is better off with a different corporate
parent than the current one, then it’s time to divest
business B. This might be the case even if business B is
performing well and is benefiting from the presence of
business A.
Thus it is not necessary to fail the synergy test; even if the
synergy test is passed (i.e., V(AB)> V(A)+V(B),) as along as
you can get a good price for business B( i.e., D[B]>V[B]).
43. A company remains in the footwear
business after outsourcing manufacturing
44. Outsourcing occurs when an organization
hands over part of the value chain it owns
to a different firm, while maintaining the
number of business it is active in.
In other words the firm continues to offer the
products and services based on inputs from
the outsourced value chain activities to the
relevant customers, but these parts of the
value chain are no longer done in-house.
45. Offshoring occurs when part of a value
chain moves to another geography,
usually one with lower cost.
Offshoring may or may not involve
outsourcing. The same firm could
merely relocate operations to a new
location.
46. Outsourcing and offshoring
In-house Send out of firm
Away from Current
location
(different geography)
Off-shored but
in-house(captive)
Offshored and outsourced
Current location Status quo
(Neither offshored
or outsourced)
Onshore and outsourced
48. The Outsourcing Test
A and B are value chain activities
A= Design and Distribution
B= Manufacturing
Vo[A] +O[B]> V[AB]
V[AB] is the NPV of the business when the value chain activities A
and B are jointly owned.
Vo[A] is the value of the business comprising retained value chain
activities
O[B] is the value realized from the outsourced value chain activity B.
49. Why a specialist vendor can create more
value after taking over parts of your value
chain
54. Business Model Innovation
Business Model Innovation (BMI) refers to the
creation, or reinvention of a business itself.
A business model innovation results in an
entirely different type of company that competes
not only on the value proposition of its offerings,
but aligns its profit formula, resources and
processes to enhance that value proposition,
capture new market segments and alienate
competitors.
55. Since 2001, Apple began introducing a series of
successful new products and services – the iPod, the
iTunes online music service, and the iPhone- that
propelled the company to the top of its industry. This
was followed with the iPad.
But the shift wasn’t only a matter of product
innovation. Apple’s success in iPod resulted from its
ability to define a workable business model for
downloading music(iTunes) - something that had
eluded the music industry for years.
56. Clayton Christensen, a Professor at the
Harvard Business School, cites the need for
business model innovation as one of the core
elements of a successful market disruption.
A simplifying technology is needed to spark the
disruption, a new business model is then
needed to maximize the recall of the
technology and a comprehensive value
network must finally evolve to support it.
58. As Apple has demonstrated, innovation in a
business model is more than mere product,
service, or technological innovation.
Innovation becomes BMI when two or more
elements of a business model are
reinvented to deliver value in a new way.
Because it involves a multidimensional or
orchestrated set of activities, BMI is both
challenging to execute and difficult to imitate.
59. What necessitates a business model change :
1. The opportunity to address the needs of
large groups of potential customers who
are shut out of a market entirely because
existing solutions are too expensive or
complicated for them
e.g. Tata Nano, Sachet shampoos (Nyle, Chic CavinKare)
2. The opportunity to leverage a brand-
new technology, wrapping the right
business model around it (Ola, Oyo)or the
opportunity to leverage a tested
technology in a whole new market
e.g. UPI, Cloud based technologies.
60. 3. The opportunity to bring a job to be-
done focus to a market -driven industry.
Such industries tend to make offerings
into commodities. But a job focus allows
a company to redefine the industry
profit formula.
e.g. Lakme, L'Oreal has brought the concept of beauty
care, skin care, hair care Salons to focus on the right
usages and trends in Cosmetics offerings.
61. 4. The need to fend off low-end
disruptors.
e.g. If Micromax becomes very successful it will threaten
other mobile phone manufacturers
5. The need to respond to a shifting basis of
competition
e.g. Airtel outsourcing a large part of its value chain
62.
63. Industry Model Innovation
This approach involves innovating the
‘industry value chain’.
a) Horizontal moves into new industries
b)Redefining existing industries
c)Development of entirely new Industries-
64. a) Horizontal moves into new industries
Virgin Group – music and retail to airlines, railways,
beverages, financial services by superior consumer
management
b)Redefining existing industries
Dell – eliminating intermediaries and going directly to
customers
Apple- iTunes- music directly to customers
c)Development of entirely new Industries
eBay, Amazon, Google
65. Revenue Model Innovation
This approach involves innovations in
how companies generate revenues
by reconfiguring offerings(product/
service/value mix) and or by
introducing new pricing models
66. Gillette’s strategy to underprice razors to
sell more razor blades
HP’s offering low priced printers to sell
more cartridges
67. Enterprise Model Innovation
Innovating the structure of the enterprise
and the role it plays in the value chain
by changing our extended enterprise
and networks, with employees, suppliers,
customers and others including
capability/asset configuration. Also by
network plays wherein companies rely
on external communication
68. Tata Nano- designed to the cheapest car by
reconfiguring the value chain.
Zara- managing design through delivery,
creating feedback loops from customer data
at stores back to designers and manufacturing
Bharti Airtel-
Focuses on marketing, sales and distribution
and outsourcing much of the actual IT and
telecom infrastructure to external partners.
Li & Fung
69. Anticipating massive change across diverse
industries, top-performing CEOs are
focusing on business model innovation as a
path to competitive strength.
To accomplish this, business leaders can use
three main types of business model
innovation: innovation in industry models,
revenue models or enterprise models. These
approaches can be used alone or in
combination.
70. Because of its prevalence as a
successful innovation strategy and
relatively easier than other models,
enterprise model innovation,
emphasizing collaboration and
partnerships, is the most prevalent
consideration for executives as they
respond to change.
72. Multidevice, a maker of PC peripherals who used to
be organised by function- marketing, manufacturing ,
R& D departments- recently undertook a dramatic re-
organization towards a matrix organization with the
two dimensions being product and customer.
Polytron, a rival of Multidevice which is also
organized by function, has hired you to help them
understand why Multidevice made this change, and
whether they should follow suit. How would you
proceed?
74. The central issues in corporate strategy pertain
to how managers can create the most value
from the portfolio of businesses they can stitch
together with organizational and governance
linkages (in a way that investors and mutual
fund managers cannot)
78. Simple structure:
A simple structure can be thought of as no formal structure
at all. In a simple structure the organization is run by the
personal control of an individual.
Characteristics:
Usually found in small businesses
Little division of management responsibility and formal
processes are missing.
The main problem here is that the organization can
operate effectively only up to a certain size, beyond which
it becomes too cumbersome for one person to control the
same.
81. Advantages:
Well-defined channels of communication and authority/responsibility relationships. Improve
productivity by minimizing duplication of personnel and equipment, and simplifies training as
well. Suited well for economies of scale.
Disadvantages:
The functional structure can result in narrowed perspectives because of the separateness of
different department work groups.
Decisions and communication are slow to take place because of the many layers of hierarchy.
Authority is more centralized.
The functional structure gives managers experience in only one field—their own. Managers
do not have the opportunity to see how all the firm's departments work together and
understand their interrelationships and interdependence. In the long run, this specialization
results in executives with narrow backgrounds and little training handling top management
duties.
85. Divisional structure:
Because managers in large companies may have difficulty
keeping track of all their company's products and activities,
specialized departments may develop. These departments are
divided according to their organizational outputs. Examples
include departments created to distinguish among production,
customer service, and geographical categories. This grouping
of departments is called divisional structure.
These departments allow managers to better focus their
resources and results. Divisional structure also makes
performance easier to monitor. As a result, this structure is
flexible and responsive to change.
89. The matrix structure:
A matrix structure is a combination of structures
which could take the form of product and
geographical divisions or functional and divisional
structures operating in tandem
90. This structure not only increases employee motivation,
but it also allows technical and general management
training across functional areas as well.
Potential advantages include:
Better cooperation and problem solving.
Increased flexibility.
Better customer service.
Better performance accountability.
Improved strategic management.
91. Drawbacks:
The two-boss system is susceptible to power struggles, as
functional supervisors and team leaders vie with one
another to exercise authority.
Members of the matrix may suffer task confusion when
taking orders from more than one boss.
Teams may develop strong team loyalties that cause a
loss of focus on larger organization goals.
92. Team- based structures
A team based structure attempts to combine both
horizontal and vertical coordination through
structuring people into cross- functional teams
93. The hybrid form- A customer technology hybrid
(R&D is grouped by product line, but sales is grouped by
customer segment)
94. Present Organisational Structure
Aim: To integrate the global scale benefits into the local markets of each country P&G has ventured into.
Benefits:
To focus on:-
Common consumer benefits
Sharing common technologies
Facing common competitors
Global Business Services (GBS) set up so
as to provide best support services at
lowest possible costs
Lean Corporate Functions to ensure
ongoing functional innovation and
capability improvement
96. Functional structures are good for cost efficiencies
and bad for cross-functional integration.
The reorganization suggests the need for cross-
functional integration had either become, or
recognised to have become important.
In particular, the need for rapid product development,
as well as the need for meeting customer needs by
bundling different products together( into solutions)
must have become critical.
97. Problems :
a)Bottlenecks and delays in time to market.
b)Customers seeking more one-stop stopping
or solutions
Both of these could have been driven by
changes in the external environment.
99. A holding Company Structure:
An investment company consisting of shareholdings in a variety of
separate business operations. These subsidiaries may operate
independently, have other shareholders and retain their original
company names.
The parent company limits decisions to the buying and selling of
subsidiaries with little involvement in their product or market strategy.
Holding companies are extremely flexible, with the ability to bring in
outside shareholders as partners and to buy and sell their subsidiaries
as conditions change . However they are hard to control, because of
the hands-off management style and the rights of outside
shareholders
106. they are originally developed for rural
markets of India and China, and are
now being sold in the United States
107. This process is called Reverse Innovation which is
opposite of glocalization.
108. For decades, GE and other leading
technology companies developed high-
end products at Home markets
109. And distributed them globally with some adaptations to local
markets- a process known as glocalization
$
$
$
$
$
$
110. The Core tenets of Glocalization:
1.Emerging economies will largely evolve in the
same way that wealthy economies did.
However developing countries are more happy with high tech
solutions that deliver decent performance at an ultralow cost-
a 50 % solution at 15 % price.
2. Products that address developing countries'
special needs can’t be sold in developed countries
because they’re not good enough to compete there.
111. Around 2000, GE leaders talked of the global market
place . They talked about-
US, Europe, Japan and rest of the world.
Now they talk about resource rich regions like the Middle
East, Brazil, Canada, Australia and Russia and people
rich regions such as China and India.
The rest of the world means the US, Europe and
Japan.
The centre of gravity has shifted.
118. More importantly new competitors from
emerging markets were innovating and
taking their products global
Mahindra and Mahindra,
Godrej
Narayana Health
Suzlon
Haier
Xiaomi
Mindray
Sany
119. By producing products with a new price performance
paradigm, the emerging giants could even destroy GE
135. For GE, organizational software and
support all evolved to support
glocalization
Leaders of Local Growth Team needed to
rewrite the software to support
zero-based innovation
136. They managed its own
complete value chain
●Local recruitment
●Used local dealers to reach China’s
vast and fragmented rural markets
●Built in- country teams to provide
quicker and less costly service
142. Even when it was tiny, the
team in China reported
directly to CEO
He was the key person to
mediate for conflicts
between the team and
global businesses
Connect the team to the
resource
143. And to build a global
market for the
portable ultrasound
GE now has
established dozen
local growth teams in
India and China
144. Thus changing the mind-
set of managers is GE’s
biggest challenge
For Reverse Innovation
there is a still long way
to go.
