Lakhasly

WHAT IS A STRATEGIC METHOD?

➢ According to Evans (2015), a strategic method is way adapted to achieve organizations strategic direction’s goals and objectives. (it is the how)
➢ In determining the methods by which strategic development will take place the management of THE organizations are faced with making a choice between three basic options:
● Develop internally (or organically as it’s often called) utilizing existing available resources.
● Merge with/acquire other companies or allow the company to be acquired by another company.
● Develop through joint development with other organizations by making some form of collaborative arrangement

(Evans, 2015, pp 378)

STRATEGIC METHODS IN THE CONTEXTS

❖ Organic (internal) growth: (the most used mechanism of growth)
➢ Organic growth is the most straightforward mechanism of business growth.
➢ Uses the reinvestment of previous years’ profits in the existing business + funds provided by shareholders and banks.
➢ Normally By increasing capacity (by, say, offering a larger number of holidays for sale, increasing the number of hotel rooms or managing a larger number of events).
➢ This change will make the organization to adapt more resources to cope with the change (i.e. HR, Technology, ...etc.)
➢ common during the early stages of corporate development as companies build markets and develop new products. (Large companies use it alongside external growth to consolidate market position).

Table 11.2 The potential advantages and disadvantages of pursuing organic growth
Potential advantages
Usually a lower risk option in that the increase in capacity remains fully under the control of the existing management thereby avoiding the risks of dealing with other organizations is avoided.
Core competencies can usually be exploited and existing expertise, experience and knowledge can be capitalized upon.
The potential problems associated with the
integration of differing organizational cultures are avoided.
Disruption to cash flows si likely to be less than in the case of mergers or acquisitions and to
a lesser extent with the various forms of joint
development. Other methods of development
often require large up-front payments whereas organic development allows investment to be spread over time.
Potential disadvantages
Usually a slower mechanism compared to external growth methods where the 'bolting on' of a new company or co-operation with other organizations is a faster route to growth than
gradual growth by internal means.
Relying on the competencies and resources of
a single organization may lead to shortages and might mean that important opportunities are not exploited.

This method tends to be chosen in circumstances where:

● suitable partners for joint development are unavailable;
● merger or acquisition is prevented on the grounds of cost, unavailability of suitable targets or regulatory disapproval;
● access to capital is limited to pursue alternative methods;
● directors want to maintain control; and
● the necessary resources and competencies are available internally

❖ External mechanisms of growth: mergers and acquisitions (M&As)
➢ Mergers are the shareholders of the organizations come together, normally willingly, to share the resources of the enlarged (merged) organization, with shareholders from both sides of the merger becoming shareholders in the new organization.
➢ InTHE,acquisitionsarenormallyreplacedby“takeover”
➢ Acquisition is a ‘marriage’ of unequal partners with one organization buying and subsuming
the other party. (The shares in the smaller company are bought by the larger).
➢ Takeover technically the same as an acquisition, but the term is often taken to mean that the approach of the larger acquiring company is unwelcome from the point of view of the smaller target company.
➢ integrationisthecollectivetermusedtodescribethesegrowthmechanisms.

Table 11.4 A summary of the motivations for mergers and acquisitions
M&A motivation
Increase market share
As means of entering a new market
Reduce competition
Gain control of valuable assets
Gain preferential access
Broaden product range
Develop new products
G a i n a c c e s s t o n e w technologies
Gain economies of scale
Make productive use of underused resources
'Asset strip'
Enhance corporate reputation
Comments
Increase pricing power in an industry.
Possibly to offset the effects of decline in current markets or to broaden the portfolio of markets in which sales are generated.
Purchasing a competitor or a potential competitor.
Purchasing and controlling assets such as brand names, pieces of intellectual property like patents, access rights, e.g. development land for new hotels or take-off and landing slots at crowded airports.
Purchasing 'downstream' assets to gain preferential access to distribution channels or 'upstream' assets by purchasing a supplier to gain preferential access to inputs.
Purchasing another business to exploit more market opportunities and to spread risk.
Acquiring a business may be a faster way of developing new products than by research and development carried out internally.
New operational or information technologies may reduce costs, increase quality or increase product differentiation.
Combining two companies may result ni economies ni areas such as purchasing, human resources and marketing.
Resources such as finance sitting in bank accounts or staff not working effectively might lead to greater productivity being achieved.
The practice of breaking up an acquired company and recovering more than the price paid by selling the parts separately.
Appropriate if the existing company name has been associated with an alleged misdemeanour.

Ther ear asol often significant chalenges facing managersni integrating het megred busineses. These managerial chalenges ofr movnig het megred company forward sucesfuly mgiht include:
• designingna efective organizational structure;
• decdinig wher operations nad head ofcies shoudl eblocated; • sucesfuly integrating policies, proceses and procedures;
• c r e a t i n g r o m o d f i y n i g o r g a n i z a t i o n a l c u l t u r e s o s h t a t h e t wt o p a r t s w o k r o t g e h t e r h a r m o n i o u s l y ; • ensuring htat markenitg nda brandnig fohet wot parst aer aligned;
• plan ning hte cash olfw os ht at megrer costs can eb suc ces sful ly serviced.

❖ External mechanisms of growth – Joint development
➢ It is the situation where two or more organizations work together to share resources and
activities to pursue common strategic objectives.
➢ This method of development has been increasingly popular over recent years and is very common amongst THE organizations seeking help and support from other organizations.
➢ Itisamiddlewaybetweenmergersandorganicgrowthmethods(hybrid)
➢ Twoforms:
● In a hierarchy a central authority governs internal relationships and has the formal power to coordinate strategy and solve inter-departmental disputes (De Wit and Meyer, 2010:165).
● In a market relationships between firms are non-hierarchical, as they interact with one another without any explicit or dispute settlement mechanism (De Wit and Meyer, 2010:165).

Joint development in THE, comes in 5 main categories:
● strategic alliances and joint ventures ● public–private partnerships
● franchising
● management contracts
● cooperative networks.
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HIERARCHIES
Strategic alliances, joint ventures and public-private partnerships
Licensing and franchising
Management contracts
Loose cooperative networks
Established supplier and distributor networks
MARKETS
Figure 11.3 Acategorization of inter-organizational forms of joint development

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