BUSINESS POLICY AND STRATEGY IMPLEMENTATION Q1. Successful strategy formulation does not guarantee successful strategy implementation.

Therefore many management issues require management attention to ensure the effectiveness of strategy implementation. Identify and discuss any five (5) major issues that relate to strategy implementation phase. Answer A method or plan chosen to !ring a!out a desired future" such as achievement of a goal or solution to a pro!lem. Strategy is all these#it is perspective" position" plan" and pattern. Strategy is the !ridge !etween policy or high$order goals on the one hand and tactics or concrete actions on the other. Strategy and tactics together straddle the gap !etween ends and means. In short" strategy is a term that refers to a comple% we! of thoughts" ideas" insights" e%periences" goals" e%pertise" memories" perceptions" and e%pectations that provides general guidance for specific actions in pursuit of particular ends. Strategy is at once the course we chart" the journey we imagine and" at the same time" it is the course we steer" the trip we actually ma&e. 'ven when we are em!ar&ing on a voyage of discovery" with no particular destination in mind" the voyage has a purpose" an outcome" an end to !e &ept in view. Strategy" then" has no e%istence apart from the ends sought. It is a general framewor& that provides guidance for actions to !e ta&en and" at the same time" is shaped !y the actions ta&en. This means that the necessary precondition for formulating strategy is a clear and widespread understanding of the ends to !e o!tained. (ithout these ends in view" action is purely tactical and can quic&ly degenerate into nothing more than a flailing a!out. Choosing The Best Strategy A ternati!es )ecision ma&ing is a comple% su!ject" worthy of a chapter or !oo& of its own. This section can only offer a few suggestions. Among the many sources for additional information" I recommend *arrison (+,,,)" -c.all / 0aplan (+,,1)" and (illiams (2112). *ere are some factors to consider when choosing among alternative strategies 3 It is important to get as clear as possi!le a!out o!jectives and decision criteria (what ma&es a decision a 4good4 one5) 3 The primary answer to the previous question" and therefore a vital criterion" is that the chosen strategies must !e effective in addressing the 4critical issues4 the company faces at this time 3 They must !e consistent with the mission and other strategies of the organi6ation 3 They need to !e consistent with e%ternal environment factors" including realistic assessments of the competitive environment and trends 3 They fit the company7s product life cycle position and mar&et attractiveness8competitive strength situation 3 They must !e capa!le of !eing implemented effectively and efficiently" including !eing realistic with respect to the company7s resources

3 The ris&s must !e accepta!le and in line with the potential rewards 3 It is important to match strategy to the other aspects of the situation" including (a) si6e" stage" and growth rate of industry9 (!) industry characteristics" including fragmentation" importance of technology" commodity product orientation" international features9 and (c) company position (dominant leader" leader" aggressive challenger" follower" wea&" 4stuc& in the middle4) 3 .onsider sta&eholder analysis and other people$related factors (e.g." internal and e%ternal pressures" ris& propensity" and needs and desires of important decision$ma&ers) 3 Sometimes it is helpful to do scenario construction" e.g." cases with optimistic" most li&ely" and pessimistic assumptions. Strategy "or#$ ation% Strategy formulation is the process !y which an organi6ation chooses the most appropriate courses of action to achieve its defined goals. This process is essential to an organi6ation:s success" !ecause it provides a framewor& for the actions that will lead to the anticipated results. Strategic plans should !e communicated to all employees so that they are aware of the organi6ation:s o!jectives" mission" and purpose. Strategy formulation forces an organi6ation to carefully loo& at the changing environment and to !e prepared for the possi!le changes that may occur. A strategic plan also ena!les an organi6ation to evaluate its resources" allocate !udgets" and determine the most effective plan for ma%imi6ing ;<I (return on investment). A company that has not ta&en the time to develop a strategic plan will not !e a!le to provide its employees with direction or focus. ;ather than !eing proactive in the face of !usiness conditions" an organi6ation that does not have a set strategy will find that it is !eing reactive9 the organi6ation will !e addressing unanticipated pressures as they arise9 and the organi6ation will !e at a competitive disadvantage. Strategic management is the set of managerial decisions and action that determines the way for the long$range performance of the company. It includes environmental scanning" strategy formulation" strategy implementation" evaluation and control. It emphasi6es the monitoring and evaluation of e%ternal opportunities and threats in light of corporation:s strength and wea&ness. =usiness policy has a general management orientation and tends primarily to loo& inward with its concern for properly integrating the corporations many functional activities. =ut strategic management as a field of study integrates the !usiness policy with the environmental opportunities and threats. Therefore strategic management has tended to replace !usiness policy as the preferred name of the field. Strategy i#& e#entation Strategy implementation is the act of managing the current organisation so that it evolves in the direction of the desired organisation. This is the stage where strategies often fail (rather than at formulation). To avoid failure" ma&e sure you incorporate the following

1' A ign yo$r initiati!es

A &ey road to failed implementation is when we create a new strategy !ut then continue to do the same things of old. A new strategy means new priorities and new activities across the organisation. 'very activity (other than the most functional) must !e reviewed against its relevance to the new strategy. A good way of doing this is to create a strategic value measurement tool for e%isting and new initiatives. Initiatives should !e analysed against their strategic value and the impact to the organisation. 0aplan / >orton developed a scorecard !ased on the following criteria Strategic ;elevance8=enefit (weighted 51?)" ;esource )emands (@1?) and ;is&s (21?). -easuring your initiatives against a scorecard will help highlight the priorities and ensure the right initiatives are adopted for delivery.

(' A ign )$*gets + &er"or#an,e

Ideally your capital !udgets are decentrali6ed" so each division can !oth allocate and manage the !udgets to deliver the division:s strategic initiatives. >orton and 0aplan in their recent !oo& AThe '%ecution Bremium: recommend cross functional strategic initiatives !e allocated specific !udget (ST;AT'C) alongside capital (.AB'C) and operating (<B'C) !udgets. This protects strategic e%penditure from !eing re$allocated to short$term requirements of <B'C whilst su!jecting strategic initiatives to a rigorous review (eg. forecasted revenue growth and productivity) much li&e is done for .AB'C. <rhanisational performance should !e closely aligned to strategy. Berformance measures should !e placed against strategic goals across the organisation and each division and staff mem!er. All staff will have jo! functions that will impact on strategy. -ost staff will have impact across a series of strategic goals (eg. financial" customer service" product). 'nsure employees are aware of their role and influence on strategy delivery and performance. This is also important to employee engagement (see !elow). Di&ewise performance incentives should !e directly lin&ed to performance against strategy. They should include a com!ination of individual" team and corporate performance measures that ensure staff recognise their direct and indirect impact on strategy performance.

-' Str$,t$re "o o.s strategy

A transformational strategy may require a transformation to structure. )oes the structure of your organisation allow strategy to cascade across and down the organisation in a way that meaningfully and efficiently delivers the strategy5 <rganisations that try and force a new strategy into an out$dated structure will find their strategy implementation eventually reaches a deadloc&.

/' Engaging Sta""

The &ey reason strategy e%ecution fails is !ecause the organisation doesn:t get !ehind it. If you:re staff and critical sta&eholders don:t understand the strategy and fail to engage" then the strategy has failed. The importance of this step cannot !e understated. If you:re staff are not delivering the strategy" then the strategy has failed. So how do we engage staff5

Pre&are% Strategy involves change. .hange is difficult and human tendency is to resist it. So not matter how enlightened and inspiring your new strategic vision" it will come up against hurdles. Tipping Boint Deadership theory (a &ey principle of the =lue <cean Strategy methodology) outlines four &ey hurdles that e%ecutives must overcome to achieve e%ecution. Those hurdles are cognitive" resource" motivation and political hurdles. It is important we understand each of these hurdles and develop strategies to overcome them. In, $*e% =ring influential employees" not just e%ecutive team mem!ers into the planning process. >ot only will they contri!ute meaningfully to strategy" they will also !e critical in ensuring the organisation engages with the strategy. Eurthermore" listen across the organisation during strategy formulation. Some of your !est ideas will come from within your organisation" not the e%ecutive team (thin& @-:s Bost$It >otes) Co##$ni,ate% 'nsure every staff mem!er understands the strategic vision" the strategic themes and what their role will !e in delivering the strategic vision. And enrich the communication e%perience. .ommunicate the strategy through a com!ination of presentations" wor&shops" meetings" newsletters" intranets and updates. .ontinue strategy and performance updates throughout the year. And engage them emotionally in the vision. The vision needs to give people goose !umps F a vision they !elieve in" that they want to invest and engage with. C ari"y% It is important that all employees are aware of e%pectations. *ow are they e%pected to change5 (hat and how are they e%pected to deliver5 'ach individual must understand their functions within the strategy" the e%pected outcomes and how they will !e measured. As mentioned a!ove performance measures and incentives should !e aligned with performance against strategic 0BIs.

0' Monitor an* A*a&t

A strategy must !e a living" !reathing document. As we all &now if there:s one constant in !usiness these days it:s change. So our strategies must !e adapta!le and fle%i!le so they can respond to changes in !oth our internal and e%ternal environments. Strategy meetings should !e held regularly throughout the year" where initiatives and direction are assessed for performance and strategic relevance. At least once a year we should put our strategy under full review to chec& it against changes in our e%ternal and competitive environments as well as our internal environments. Strategy is not just a document written !y e%ecutive teams and filed in the .'<:s des&. It is a vision for the organisation" owned !y the organisation. And to succeed the whole organisation must engage with it and live and !reathe it. Strategy should inform our operations" our structure" and how we go a!out doing what we do. It should !e the pillar against which we assess our priorities" our actions and performance. (hen e%ecution is !rought into strategic planning we find that our strategy is weaved through our organisation" and it:s from here that great leaps in growth and productivity can !e achieved.

Q/. A company intends to ta&e over another company and approaches you for advice. (hat guidelines would you li&e to suggest to the company to follow !efore and after ta&eover5 Guote e%amples for successful and unsuccessful ta&eover. Answer In !usiness" a ta1eo!er is the purchase of one company (the target) !y another (the acquirer" or !idder). Types of takeover 2rien* y ta1eo!ers A 4friendly ta&eover4 is an acquisition which is approved !y the management. =efore a !idder ma&es an offer for another company" it usually first informs the company7s !oard of directors. In an ideal world" if the !oard feels that accepting the offer serves the shareholders !etter than rejecting it" it recommends the offer !e accepted !y the shareholders. In a private company" !ecause the shareholders and the !oard are usually the same people or closely connected with one another" private acquisitions are usually friendly. If the shareholders agree to sell the company" then the !oard is usually of the same mind or sufficiently under the orders of the equity shareholders to cooperate with the !idder. This point is not relevant to the H0 concept of ta&eovers" which always involve the acquisition of a pu!lic company. 3osti e ta1eo!ers A 4hostile ta&eover4 allows a suitor to ta&e over a target company whose management is unwilling to agree to a merger or ta&eover. A ta&eover is considered 4hostile4 if the target company7s !oard rejects the offer" !ut the !idder continues to pursue it" or the !idder ma&es the offer directly after having announced its firm intention to ma&e an offer. )evelopment of the hostile tender is attri!uted to Douis (olfson. A hostile ta&eover can !e conducted in several ways. A tender offer can !e made where the acquiring company ma&es a pu!lic offer at a fi%ed price a!ove the current mar&et price. Tender offers in the Hnited States are regulated !y the (illiams Act. An acquiring company can also engage in a pro%y fight" where!y it tries to persuade enough shareholders" usually a simple majority" to replace the management with a new one which will approve the ta&eover. Another method involves quietly purchasing enough stoc& on the open mar&et" &nown as a 4creeping tender offer4" to effect a change in management. In all of these ways" management resists the acquisition" !ut it is carried out anyway. The main consequence of a !id !eing considered hostile is practical rather than legal. If the !oard of the target cooperates" the !idder can conduct e%tensive due diligence into the affairs of the target company" providing the !idder with a comprehensive analysis of the target company7s finances. In contrast" a hostile !idder will only have more limited" pu!licly availa!le information a!out the target company availa!le" rendering the !idder vulnera!le to hidden ris&s regarding the target company7s finances. An additional pro!lem is that ta&eovers often require loans provided

!y !an&s in order to service the offer" !ut !an&s are often less willing to !ac& a hostile !idder !ecause of the relative lac& of target information which is availa!le to them. A well &nown e%ample of an e%tremely hostile ta&eover was <racle7s hostile !id to acquire BeopleSoft I+J Re!erse ta1eo!ers A 4reverse ta&eover4 is a type of ta&eover where a private company acquires a pu!lic company. This is usually done at the instigation of the larger" private company" the purpose !eing for the private company to effectively float itself while avoiding some of the e%pense and time involved in a conventional IB<. *owever" in the H0 under AI- rules" a reverse ta&e$over is an acquisition or acquisitions in a twelve$month period which for an AI- company would

e%ceed +11? in any of the class tests9 or result in a fundamental change in its !usiness" !oard or voting control9 or in the case of an investing company" depart su!stantially from the investing strategy stated in its admission document or" where no admission document was produced on admission" depart su!stantially from the investing strategy stated in its pre$admission announcement or" depart su!stantially from the investing strategy.

An individual or organi6ation" sometimes &nown as corporate raider" can purchase a large fraction of the company7s stoc& and" in doing so" get enough votes to replace the !oard of directors and the .'<. (ith a new agreea!le management team" the stoc& is a much more attractive investment" which would li&ely result in a price rise and a profit for the corporate raider and the other shareholders. Ba,1 " i& ta1eo!ers A 4!ac& flip ta&eover4 is any sort of ta&eover in which the acquiring company turns itself into a su!sidiary of the purchased company. This type of ta&eover can occur when a larger !ut less well$&nown company purchases a struggling company with a very well$&nown !rand such as Te%as Air .orporation ta&eover of .ontinental Airlines !ut ta&ing the .ontinental name as it was !etter &nown. The S=. acquisition of the ailing AT/T and su!sequent rename to AT/T is another e%ample. Pros and cons of takeover Pros% 1. Increase in sales8revenues (e.g. Brocter / Kam!le ta&eover of Killette) 2. Lenture into new !usinesses and mar&ets @. Brofita!ility of target company M. Increase mar&et share 5. )ecreased competition (from the perspective of the acquiring company)

N. ;eduction of overcapacity in the industry

7. 'nlarge !rand portfolio (e.g. D7<rOal7s ta&eover of =ody Shop) 8. Increase in economies of scale

,. Increased efficiency as a result of corporate synergies8redundancies (jo!s with overlapping responsi!ilities can !e eliminated" decreasing operating costs) Cons%
1. Koodwill" often paid in e%cess for the acquisition

2. .ulture clashes within the two companies causes employees to !e less$efficient or despondent
3. ;educed competition and choice for consumers in oligopoly mar&ets. (=ad for consumers"

although this is good for the companies involved in the ta&eover) M. Di&elihood of jo! cuts 5. .ultural integration8conflict with new management N. *idden lia!ilities of target entity P. The monetary cost to the company Q. Dac& of motivation for employees in the company !eing !ought. Eew inputs to !e considered !efore planning for an ta&eover. 1' Asse#) ing the Tea#' )evelop an internal wor&ing team made up of representatives from finance" sales and mar&eting" and operations. Rou also want to consider using outside e%perienced advisors such as lawyers" accountants" investment !an&ers" valuation e%perts" and in some come cases insurance or employee !enefits e%perts. To successfully acquire a company" there must !e cohesive thin&ing and constant communication among team mem!ers. Sherman says that the quarter!ac& of the acquisition team should !e the .'< or someone appointed !y the .'<" who must clearly define !oth responsi!ilities and authority of each team mem!er. (' Initiating a Target Sear,h' The team should decide if an investment !an&er will find and evaluate targets or if deal flow will !e generated internally through screening" networ&ing and industry contacts. An investment !an&er will have access to valua!le resources and provide invalua!le counsel on valuation and negotiation. (hat if an ideal target company is not for sale5 Then the .'< or senior mem!er of the team will have to approach the owner with a compelling offer as to why the two entities would !e strong financial and strategic fit. Rou have an upper hand in that there won7t !e competition from other !uyers" =utler says. 4Rou can &eep the price at a reasona!le level compared to having an open auction.4 -' De!e o&ing a P an' (hy are you doing this5 (hat are your specific o!jectives5 (here are these target companies#domestically or internally5 *ow will you finance the deal5

(hat are the value$added efficiencies and cost savings that will result from the proposed transaction5 *ow will you choose target companies to !uy5 Rou will need to draft an acquisition plan that includes o!jectives" relevant industry trends" method for generating deal flow" criteria for evaluating target companies" and a timeta!le for deal completion. /' Pri,ing the Dea ' >o one valuation method will answer the real question which is what is this !usiness actually worth5 Lalue is in the eye of the !eholder. Kenerally spea&ing" mar&et value is one indicator. <ther price factors are capitali6ation of earnings" discounted cash flow" and net return of assets or equity. =ut you also want to consider strategic value" meaning" what is the projected earnings stream under the proposed new ownership. Doo& at assets such as customer lists" !rands" intellectual property" and licenses. Rou want to !uy at a reasona!le price. Rou want to get as much as the !usiness is worth to the !uyer" says Sherman. Rou have to do a good jo! at not only understanding the financials of a !usiness you are going to acquire. 4It is also a!solutely critical that you loo& at the culture of the targeted company and how it may or may not mesh with your own culture"4 says =utler. 4<ne of the main reasons that acquisitions sometimes fail is that culture of the seller is very different than the culture of the !uyer.4 0' 2inan,ing the A,4$isition' Since each transaction is unique the structure will vary with a wide num!er of options availa!le for financing the deal from equity financing to a layered transaction with multiple layers of de!t and equity" notes Sherman. <verall the &ey factors that affect a structure are the si6e and comple%ity of the transaction" the !uyer7s cash position" the terms of the purchase price" and mar&et conditions. Eor larger deals" the pu!lic mar&ets are availa!le whether it is offering pu!lic stoc& or going to the pu!lic de!t mar&et and getting financing. 4(e are pro!a!ly at a point in modern economic history where corporate !alance sheets are stronger than they have ever !een. -any companies have su!stantial cash reserves"4 =utler says. The !igger challenge is for smaller deals" he adds" those that are less than S51 million. If you are loo&ing at closing smaller transactions or you are a small company !uying another small company" !an& financing is going to !e nearly impossi!le to secure. *owever" there are creative financing structures that can hopefully !ridge that gap. Eor e%ample" seller notes" a de!t o!ligation where!y the seller will !e paid !y the !uyer at some future point. A private placement offering to a small group of investors is another option for acquisition financing.