Notes Written in Class
Corporate Parenting Roles
1. Portfolio Management
- Acquire Different Companies
- Let it run on their own
- don’t interfere much
2. Restructuring
- Companies which are doing moderately well à organization restructuring (Don’t do anything to companies doing well)
- Restructuring à plants, inbound / outbound logistics, distributions, operations, marketing, HR, procurement
- Restructure it, Increase Value & Sell it
3. Synergy Developer
- Acquire different companies from different places for different markets
- It can be horizontal / vertical integration
- Benefit from the synergies
4. Parental Developer
- Enhancement takes into the company
- Keep Company
- Do Value Edition
- See that company prospers
- Long Term Investment
- Main objective to add value to the company
Material from Internet
corporate parenting generates corporate strategy by focusing on the core competencies of the parent corporation and on the value created from the relationship between the parent and its business
Corporate-level strategyis concerned with the overall purpose and scope of an organisation and how value will be added to the different parts
Corporate parentrefers to the levels of management above that of the business units and therefore without direct interaction with buyers and competitors
Thesynergy managera corporate parent seeking to enhance value across business units by managing synergies across business units
Theparental developer: a corporate parent seeking to employ its own competences as a parent to add value to its businesses and build parenting skills that are appropriate for their portfolio of business units
Aportfolio manageris a corporate parent acting as an agent on behalf of financial markets and shareholders
Critical Success Factor(CSF) is the term for an element that is necessary for an organization or project to achieve itsmission. It is a critical factor or activity required for ensuring the success of your business.
Critical Success Factorshave been used significantly to present or identify a few key factors that organizations should focus on to be successful.
As a definition, critical success factors refer to "the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization”.
Organizations competing on an international basis face choices in terms of resource allocation, the balance of authority between the central office and business units, and the degree to which products and services are customized in order to accommodate tastes and preferences of local markets. When employing a transnational strategy, the goal is to combine elements of global and multidomestic strategies. Each of these will now be briefly discussed.
A global strategy involves a high degree of concentration of resources and capabilities in the central office and centralization of authority in order to exploit potential scale and learning economies. Customization at the local level is thus necessarily low. The multidomestic strategy, on the other hand, represents the opposite view of international strategy. Resources are dispersed throughout the various countries where the firm does business, decision-making authority is pushed down to the local level, and each business unit is allowed to customize product and market offerings to specific needs. The corporation as a whole foregoes the benefits that could be derived from centralization and coordination of diverse activities.
A transnational strategy allows for the attainment of benefits inherent in both global and multidomestic strategies. The overseas components are integrated into the overall corporate structure across several dimensions, and each of the components is empowered to become a source of specialized innovation. It is a management approach in which an organization integrates its global business activities through close cooperation and interdependence among its headquarters, operations, and international subsidiaries, and its use of appropriate global information technologies (Zwass, 1998).
The key philosophy of a transnational organization is adaptation to all environmental situations and achieving flexibility by capitalizing on knowledge flows (which take the form of decisions and value-added information) and two-way communication throughout the organization. The principal characteristic of a transnational strategy is the differentiated contributions by all its units to integrated worldwide operations. As one of its other characteristics, a joint innovation by headquarters and by some of the overseas units leads to the development of relatively standardized and yet flexible products and services that can capture several local markets. Decision making and knowledge generation are distributed among the units of a transnational organization.
Structure follows strategy (Chandler, 1962), implying that a transnational strategy must have an appropriate structure in order to implement the strategy. Just as the transnational strategy is a combination or hybrid strategy between global and multidomestic strategies, the organizational structure of firms pursuing transnational strategies is a structure that draws on characteristics of the worldwide geographic structure and the worldwide product divisional structure. The combination of mechanisms needed is somewhat contradictory, because the structure need be centralized and decentralized, integrated and nonintegrated, and formalized and nonformalized. But firms that can successfully implement this strategy and structure often perform better than firms pursuing only multidomestic or global strategies.
Transnational companies often enter into strategic alliances with their customers, suppliers, and other business partners to save time and capital. As long-term partnerships, these alliances may bring to the firm specialized competencies, relatively stable and sophisticated market outlets that help in honing its products and services, or stable and flexible supply sources. This may result in a virtual corporation, consisting of several independent firms that collaborate to bring products or services to the market.
A transnational model represents a compromise between local autonomy and centralized decision making. The organization seeks a balance between the pressures for global integration and the pressures for local responsiveness. It achieves this balance by pursuing a distributed strategy which is a hybrid of the centralized and decentralized strategies. Under the transnational model, a multinational corporation's assets and capabilities are dispersed according to the most beneficial location for a specific activity. Simultaneously, overseas operations are interdependent, and knowledge is developed jointly and shared worldwide.
Transnational firms have higher degrees of coordination with low control dispersed throughout the organization. The five implementation tactics (Vitalari and Wetherbe, 1996) used for implementing the transnational model are:
· mass customization-synergies through global research and development (e.g., American Express, Time Warner, Frito-Lay, MCI)
· global sourcing and logistics (e.g., Benetton, Citicorp)
· global intelligence and information resources (e.g., Andersen Consulting, McKinsey Consulting)
· global customer service (e.g., American Express)
· global alliances (e.g., British Airways and US Air; KLM and Northwest)
Turnaround strategyWhich stage does your company belong?
There are three stages of a turnaround strategy:
I – Pre-turnaround
II – Period of Crisis
III – Period of Recovery
The first stage is the period just before the profitability begins to decline. The company is still considered profitable at this point, but losing ground. The second period is known as the period of crisis. At this point the company needs to turnaround. This stage is marked by a decline in profits (even negatives), a fall in market share and the company's poor cash situation.
The third stage is the period of recovery or the turning point. This is the stage where serious action is taken to turnaround the company. Important decisions like scaling back production or returning to an aggressive growth stage are taken. At this point, the company's strategy is clear. The company can choose to rely on a centralised and low cost system and continue profitably. Alternatively, it might decide to combine these benefits with a growth strategy. This is the longest period and may last for years.
Steps in turnaround strategy
· Changing the leadership:A change in leadership ensures that those techniques, which resulted in the company’s failure, are not used. The new leader has to motivate employees, listen to their views and delegate powers.
· Redefining strategic focus:This involves re-evaluating the company's business and deciding which ones to change and which to retain. Diversified companies need to review their portfolio on the basis of long-term profitability and growth prospects.
· Selling or divesting unnecessary assets:Sometimes, although the assets are profitable, they must be liquidated to contribute to the strategic focus. The cash received from the sale of such assets should be used to repay debts. Self-sustaining businesses are ideal candidates to do so.
· Improving Profitability:To do this the company has to take drastic steps like:-
1. Assigning profit responsibility to individual divisions
2. Tightening finance controls and reducing unnecessary overheads.
3. Laying off workers wherever necessary
4. Investing in labour saving equipment
5. Building a new inventory management system and manage debt efficiently through negotiating long-term loans.
· Making careful acquisitions:The company must be careful while making acquisitions. It should be in an area related to its core business enabling the company to quickly rebuild or replace its weak divisions.
Retrenchment Strategy:
A Retrenchment grand strategy is followed when an organization aims at a contraction of its activities through substantial reduction or the elimination of the scope of one or more its businesses, in terms of their respective customer groups, customer functions or alternatives technologies either singly or jointly on order to improve its overall performance.
Retrenchment involves a total or partial withdrawal from either a customer group or customer functions, or the use of an alternatives technology in one or more of firms businesses, as can be seen from the situation as given below:
Types of Retrenchment Strategies:
Ø Turnaround Strategy
Ø Divestment Strategy
Ø Liquidation Strategy
For Example:
A pharmaceutical firm pulls out from retail selling to concentrate on institutional selling in order to reduce the size of its sales force and increase marketing efficiency.
A corporate hospital decides to focus only on specialty treatment and realize higher revenues by reducing its commitment to general cases which are typically less profitable to deal with.
Retrenchment revolves around cutting sales. 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 to become financially stable. Retrenchment is a pullback or a withdrawal from offering some current products or serving some markets. In a military situation a retrenchment provides a second line of defense. Retrenchment is often a strategy employed prior to or as part of a Turnaround strategy.
There are five activities that characterize retrenchment:
· Captive Company.Essentially, a captive company's destiny is tied to a larger company. For some companies, the only way to stay viable is to act as an exclusive supplier to a giant company. A company may also be taken captive if their competitive position is irreparably weak.
· Turnaround.If your company is steadily losing profit or market share, a turnaround strategy may be needed. There are two forms of turnarounds: First, one may choose contractions (cutting labor costs, PP&E and Marketing). Second, they may decide to consolidate
· Bankruptcy.This may also be a viable legal protective strategy. Bankruptcy without a customer base is truly a bad place. However, if one declares bankruptcy with loyal customers, there is at least a possibility of a turnaround.
· Divestment.This 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.
· Liquidation.This is very simple. Take the book value of assets, subtract depreciation and sell the business. This may be hard for some companies to do because there may be untapped potential in the assets.
Source: http://rapidbi.com/created/criticalsuccessfactors.html
http://www.mindtools.com/pages/article/newLDR_80.htm
http://www.chally.com/enews/issue10/EightFactors.html
http://www.clintburdett.com/process/08_synthesis/synthesis_02_csf.htm
http://www.brs-inc.com/models/model18.asp
http://www.referenceforbusiness.com/management/Tr-Z/Transnational-Organization.html?Comments[do]=mod&Comments[id]=2