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Company Strategy

Page history last edited by /pd 6 years, 6 months ago

1.00 What is Company Strategy and why is it important ?


1.10 Examples of Company strategic action


1.11 Diversification Vs. Concentration

Merger of Cadbury and Schweppes in 1969, who were dependent on the UK markets only. In 1968 Schweppes has diversified into tea products. After the merger they further diversified into

house hold products in 1975. Later in 1984 Cadbury and Schweppes divested both segments and concentrated on chocolate and soft drinks. This brought about an improved performance of profit/sales ratio. As the markets are becoming a global and external oriented, the need

for diversification or concentration increases. As far back as the early 70’s was strategic planning used as an important management tool.


1.12 Responding to a changing Environment

During the 1980’ the ECC had given UK entry into this market, Cadbury Schweppes, Rand International divested from tea, newspaper and concentrated on information and publishing.

Similar TI group scraped bicycles and domestic appliances and products and went into engineering and technical commercial markets. In South East Asia, India and China,

in the early 80’ went in for technological tie-ups. In the early 1990’ with the GATT, Dunkel Draft and similar international policies, many companies have to tie up with companies abroad to retain its competitive edge and respond to the emerging International markets.


1.13 The Takeover Trail

Concentration and diversification are not the only means of expansion. many a successful company shows beside organic growth, its main path of growth has been acquisitions and some diversification. This perhaps, is possible by raising stock markets and issues of new shares or bonds. Or sometimes it could also mean a leverage buy out.


1.14 The Best Strategy ?

The Best Strategy for a company depends on the company’s performance, it’s particular strengths and weakness and the perceived opportunities and threats. As the environment is always dynamic and changing thus strategy should also be flexible and should also change.


1.20 What is Company Strategy ?


1.21 Different Structures, Different Strategies !

Whatever maybe the size or complexity of the company, the core strategy concerns ‘markets’ and products or services. Its about choosing ;


Where and how to compete

Whom to appoint in the top executive positions and with what delegation of authority.

How to organize the company

How to allocate resources to yield the greatest overall success

The various types of strategy is :-

Business Strategy :- The strategy of a single business which may be completely independent or part of a larger group of business.

Divisional Strategy :- The strategy across several business which may or may not be a part of the larger whole.

Group Strategy :- The strategy across several business which may or may not be related to each other or may not be clustered into divisions within groups.

Corporate Strategy :- The Strategy across a whole company or group of companies, is viewed as single entity and relates Business Strategy with embraces a more complex method of the each of the previous mentioned strategies.

1.22 The Crucial Questions

Whether while retaining its focus, the business should conserve its use of resources and retrench or significantly increase the resources used and expand its activities. E.g. if current capacity is a constraint on expansions, it should establish a second factory or alternately cut costs, lower margins for products or customers.

Whether, the positions of the business in relation to products/service markets and competitors should be changed e.g. moving up market into a branded niche.


Whether the level of resource invested in particular parts of the business and the emphasis is on using these resource should be reallocated e.g.


Increase R&D expenditure to provide the basis for faster future growth.

Invest in production activity and increase products performance in terms of quality productivity and delivery.

Invest in human resource via training programs or substantial improvement in personnel industrial relationship.

1.30 The importance of Business Strategy

1.31 Good Strategy and Good Management

“Doing things right” and “doing the right things” are the watch words for strategy, success will be achieved only by both good planning and sound day to day management.


1.32 Strategy and Survival

It is important to remember the Survival of a company is dependent on the decisions being taken. For this, the management should be in a position to delegate tasks and make decisions. Some examples of survival by the European market, when they were threaten by low-cost labor and products from the south East Asian countries for the clothing and textile business;


Moving into an automotive environment to offset the disadvantage of relatively high labor costs.

Focusing on staying on the High Volume and low cost end of the market, i.e. gaining volume and hence economic scale by merger or acquisitions.

Moving into the up-market or branded niche, thus avoiding the threat from low -labor costs products from these countries.

Divesting manufacture and moving into retailing and importing cloths or mergers as sales outlets for branded products.


2.10 The Corporate Board and the Managing Director

Much of the responsibility lies within the top executive levels for the divisional or business strategies. The degree of responsibility and accountability they face will depend on the degree of autonomy allowed and the constraints imposed by the level above. The possibility can thus be stated as resting within the corporate board.


2.20 The Legal obligations of directors

A director of a company is accountable both individually and jointly with other directors for the company’s viability and future success. Each director or CEO is ultimately accountable for the whole business. (The Managers of a company share responsibility with others).


The accountability is to the company and not to its shareholders .e.g. the board proposed to pay a divided to the shareholders, they (the shareholders) cannot raise the dividends. Similarly the shareholders cannot order specific actions to the employees of the company. The main power of the shareholder resides in their ability to remove directors and replace them.


2.30 Competence and Competition

The success of a company depends heavily on the quality of the board and its senior management on the companies competitive side. A company’s risk factor will be more if either the directors or Sr. Management are not of a high and dynamic quality. The essence of Leadership, motivation, inspiration and decision making are crucial. Without good management, the competition is always ahead.


2.40 The Role of the Board


· To Direct the Company.

· To appoint the Group (i.e. CEO /MD/Management Team)

· To delegate appropriate powers for running the company.

· To take corrective action where necessary.


2.50 Strategy proposals - Involvement's and detachments

Corporate decisions approved by the board. The boards makes a decision on any of the members of the boards involvement and detachments. e.g. if the chairman of the board, has proposed a major capital investment expenditure, the purpose of the board is to appraise these proposals critically before an agreed judgment can be taken. Augments and counter augments are the best way to simulate debates and reduce the risk factor of a wrong decision.


2.60 Composition of the Board

A successful company needs leadership, if the chairman is not the Managing Director the relationship between this pair is very crucial. The ultimate factor on this relationship as far as the corporate strategy is concerned, is whether the pair work together effectively to decide and implement the strategy. A responsible board will monitor both the implementation of the strategy and it’s overall performance and the internal problems of the company itself. It should be able to foresee and respond to these factors. The balance of having non-executive on the board are good. (i.e. part time directors) as they bring external experience and normally have a dispassionate way of way looking at the companies affairs.


Effective strategy planning process start with the top executives guidelines wherein which the individual discussions and business plans guidelines, followed by feedback and corrective action.


2.70 Formulating strategy - A Business and its environment

A business is an operating shell which sells a district set of products or service to an identifiable group of customers and is in competition within a well defined set of competitors. Managing strategically is a process which requires leadership if it is to be effective and to be translated into success.


2.80 What is Business Strategy ?




It is a business plan defining

What kind of business (in terms of structure , capabilities, focus of products/service, markets and performance) the company aims to be in a particular time in the future.

The resources required to achieve this and how they are going to be obtained.

What are the main steps along the way ?

Who is responsible for each of the various steps to occur ?

What are the key signals or millstones that will signify if the strategy is on target in terms of action and performance.

What are the external factors needed to be monitored for indications that a change in strategy or plan may be required.

3.0 Crafting Strategy : How is it done ?

To arrive at each statement in the strategy requires analysis, judgment and discussions in the face of uncertainty by those responsible for the overall success of the company. The importance of analysis lays in the fact that it provides a better foundation for decisions making. The process of formulating strategy will differ from the complexity and size of the company. The process will also vary depending upon the degree of which the analysis is committed to paper. Whatever the size of complexity of the company the associated rational steps have been outlined here. Initially the understanding which comes from the analysis of the company and its environment may not be completed, with the result being that modifications to the strategy have to be made as implementations are being carried out. A Fuller insight to the companies competitive positions develops.

3.30 Winners & Losers - How Business Evolve

Analysis of Business strategy means explaining why some companies win or lose. This means explaining what has actually happened in the past and what is likely to occur in the future. There are frequently several reasons for what has happened all plausible but nevertheless not necessary connected. The real test is whether the explanation of what is causing companies to win or loss helps in forecasting events in the face of uncertainty which the future holds including factors which are yet to occur.


3.31 Adopting to Environment

The theory that companies either evolve in their changing environment to retain their vigor or even become dominant or else they fail to adopt, sooner or later they will perish. Given a specific (changing) environment business processes certain types of internal characters and using certain strategies are more lily that others to survive and prosper.


3.32 The life of a Business - Choice and Change

A successful company must change. It foresees in its environment and shifts its assets o be in phase with opportunities as they develop. It then tries to establish strong defensible positions in the chosen areas of opportunity before competition has had time to build up. The terms assets include both the tangible and intangibles. Many companies move from start-up to joint ventures and stock holding companies in a relative short time, these are the companies which are changing and using the various choice to build asset and establish themselves.


3.33. Leaning to Learn

Development of good strategic ability is a need for a ‘sense of history’. You need to understand how the environment and the business itself have been changing over time and why. You need to look into the future ,reviewing the various ways in which the environment may change and how it will affect the business and what are the actions needed to alter the strategic direction. A company feeds of its environment and is also affected by it. It also learns from being faced with different environments but all companies do not learn quickly and effectively. Employees who have weathered a take-over bid or crises are more prompt in the actions and adjustments required for changes. Conversely the companies is not ‘on its toes’ becomes a prey for take -over bids or leverage buy outs.


3.34 Being prepared for change

New activities require sufficient resources, a secure financial base and a strong position of cash flow. This will in terms signify light management and effective learning. Time and delays of shifting strategies will result into ‘out of the frying pan into the fire’ situation.


3.35 Keeping up with times

In 1990’s many companies performance were beginning to slip, but high inflation rate marked this slippage. E.g. Total turnover increase by 10% and profits by 7%. Actual realties of the situations were inflation was 17.5%, Thus turnover has dropped -i.e. loss of market share. The environment s turbulent and unstable. To be successful companies must understand its change and change their own strategies accordingly.


3.40 The purpose of Business


3.41 The need for cohesion

A business is a combination of people, physical and other assets merged and associated together for a purpose. Without any agreed purpose, discussions about alternate strategies may be a waste of time. If you do not know where you are going, there is no point of debating how to get there !. A business with a clear purpose and a well chosen strategy also need to motivate its employees behind that purpose so that all their energies are directed towards that goal.


3.42 Defining the purpose

The purpose of a business, however is not easily defined. Even a publicly quoted company, the purpose is rarely formally agreed or recorded. The stock answers would be to ‘ensure profits’. It is always good to clarify this purpose and eliminate any disagreements of this purposes. A purpose of a business can always recorded on the articles of association or MOUE or with the government bodies which monitor companies and economic activity. By defining the purpose of business, on also concurrently is setting the base for its horizons.


3.50 The Strategic horizons


3.51 The inherent momentum of business

Any business even small is alike a supertanker. Its culture, commitments and abilities give it a momentum carrying it in a particular direction. Without a strategy is like supertanker in a fog without a captain or a rudder. A business needs a well considered strategy if it needs to move ahead safely and purposely.


3.52 Choosing Direction :stating with the present

A business strategy is a choice of where to steer towards, in some time ahead. A major change in strategy usually requires a change in organizational structures as well as change in the information and control systems, attitudes, training and personnel recruitment's. Setting directions also involve setting demanding targets, without which the business is likely to sink into poorer performance or be exposed and venerable to a take over bid or by out. So a necessary part of deciding business strategy is to consider the company ‘ the the present’ environment.


3.43 The Future :- Next Week, Next Year ......When ?

If the company is an increasingly threatening environment where its very survival is at risk, strategic thinking must be totally focused on the very short-term requirements of ensuring survival. As the threat to survival is pushed away and as the environment clears and offers more likelihood of good opportunities so the frame or horizon for strategic thinking can and should, be extended to at least a medium or long range.


3.60 Success and its measurements


3.61 Taking stock

Where a company is trying to get too and how likely it is to get there are affected by where it starts from (e.g. A visitor asking local for directions and after receiving a long explanation of the turnings and directions says’ but if I were trying to get there, I would not start from here’). If performance has been bad, it will not be in a position to attract the resources for pursuit of its strategies. The basic questions at this review would be what is the present positions and performance and over the recent years how has the positions and environment been changing and who well has been the performance.


3.62 Room for Maneuver ?

Most business have little freedom to change their focus in the short term perspective, Some cannot make major changes in strategy without first strengthening their current financial performance and their abilities in management. A companies success should not be measured solely in financial terms , ignoring the restrictions on its flexibility.


3.63 The importance of relative positioning

Success is always relative to actual competition in the past and potential competition in the future. During the crash of the late 80’s (e.g. Real estate) the companies at the lower end were forced out and companies at the ‘top of the pack’ generally survived the crisis.


3.64 The picture of time

A companies performance can vary from one year to the next year, so it is necessary to look at the accounts over a period of several years. Taking one year with another, a picture of how a company has been managed and whether it’s performance is improving over its competitors. It may be necessary to start with turnover figures and correct for inflation, particularly when you understand what has happened to volume to outputs and hence level of use in capacity and resources. Another method is to create an index on components costs i.e. labor materials etc. and using industrial standards to cross reference.


3.65 Which indicators to examine ?

To measure ones success, one is looking for indicators of two things, how ell the resource put in the business have been producing current benefits and who much assets has been strengthen to yield future benefits. One is also interested in the ‘how much risk’ is involved in the business operation.


Public companies Dividends, Prices, EPOS

With company shares one is interested in the sequence of dividends paid over the years and the change in level of the share price compared to prices in that industry. using this basis one would have to allow for a period over which the original investment in shares was made and any extra calls on those shares and for inflation. Considerable caution should be excised in using price /earning P/E ratio's. These quoted are basically the current rating which is dependent on historical data , these are the figures which cover the 3- 15 months previously. Conversely the P/E could signify the markets review of the future prospects of a the company A high P/E can therefore reflect a low past earnings or expected good profits.


Profits and Growth

It is possible for companies to lower there rates to increase the rate of Growth, conversely it could cease to invest for the future and temporally increase profits margins. Sooner or later growth and profit margins have brought into balance. A successful company I is one which is constantly beating its competitors on both these accounts ( growth and progress) To get an in-depth view one should have


Growth -changes in turnover over the years

Profit margins over the years

Profit before taxes

Profit on capital employed

Level of borrowings

Capital Incremental Output Rations (Acorns)

If the company is making annuls loss in more that 2% of its sales its cash flow is on the negative and the company is facing a crisis situation.

Beyond numbers

There may well be other important evidence not apparent from all these figures. Beside financial evidence other more subjective and qualities factors need to asses before forming a view of how a company has done and how effective is the management team. Some indicators could be;


How old is the company equipment ( when was the last major purchase /resourceing and for how much )

What were the effects in recent changes in the top management level (i.e. at the group level)

What is the approach to research and development ,which may lead to profits and growth

Awareness of new and dangerous competitors which are in the market or recently entered the market

The various combinations of financial information and an intelligent appraisal of its factors forms a good basis for relating the companies to the choices likely to covering in the future environment

3.70 Who are the competitors ?

3.71 Ways of defining Competition

A business competitors may change over time, so may the positions of the business compared to the competition generally. At any particular time the competitors of a business are defined in terms of ‘sphere’ and ‘radius’ of competition. The sphere of competition is a precise definition of the type of business activities engaged in. Customers behaviors may be changing towards a situation where the customer prefers to deal with a business entity rather than purchases from off the shelf. This reflects a change in the sphere of competition. The ‘Radius of competition is basically the geographical distance over which a company should be capable of competing if it is efficient and the distance from which it can expect competition form the competitors. IF there is more than one point of production or service it will be necessary to think of the radius at two levels, business as a whole and the individual points of production and services.


3.72 Changes in the Pattern of Competition

Neither the sphere or the radius of competition is necessarily fixed. The radius of competition can increase over time or particular changes of technology. The transition phase for international competition will also effect many areas of business. In some areas because of the nature of the customers requirements or the method of production or the service itself.


3.73 Pinpointing the key competitors


Exactly what business are we into ( the sphere of competition)

how far away are we able to compete and from what distance are the competitors companies likely to compete.

Are there likely changes which will alter either the sphere or the radius of competition. (the future environment)

Which companies are and are likely to be he competition within this sphere and radius of competition (pattern of competition)

Which competitors are winning at present and if the others are threatening to win in the future.



On Waging Business War

"When you understand the way os strategy, there will not not be on thing that you cannot understand and you will see the way in everything" (Miyamota Musashi)


"You win in battle with the timing in the boid , born of the timing of cunning by knowing the enemies timing and thus using a timing which the enemy does not expect" (Miyamota Musashi)


"Ma is the key to victory, Ma is not just the difference between near and far, seeing through all conditions of change, not letting the opponent take the initiative, always holding the advantage and advancing the fight are the cardinal points of Ma" (Unknown)


"Bun bu Itch" - Pen and sword in accord ! (unknown)


"The gaze should be large and broad, this is the 'two fold gaze, perception and sight', Perception is strong and sight is weak" (Miyamota Musashi)

"An enemy's strength is more quickly defined then his weakness, if time is of the essence, you will not be able to search out his weakness. Instead, determine his strength and then devise a way of using it against him" (Sun Tzu)


"Chi - Concentration of total strengths through meditation. All things come into existence and thence, we see them return. Look at the things that have been flourishing, each goes back to its origin..it means revision to destiny, revision to destiny is called eternity" ( Loa Tzu)


"Ka - The length of time that exceed only by eternity, in 'wei qui'. the points where the contending forces have reached a microcosmic stalemate" ( Kotada Yahei)


"In seeing things, there is the KAN and the KEN, penetrating the true nature of things is KAN seeing the surface phenomena is KEN" (Miyamota Musashi)


"In Strategy it is important to see distinct things as they were close and to take a distance view of close things" (Miyamota Musashi)


"Hsing-I - Thought and action in unison" (unknown)


"Tzu-Tan - To respond instinctivly, spontaneously" (unknown)


"Wu-Wei - To refrain from contention" (unknown)


"To Come to know your enemy, first you must become his friend. Once you become his friend, all his defences come down. Then you must choose the must fitting method for his demise" (Sun Tzu)




On Laying Plans

Which of the two business have moral corporate laws/ culture ?

Which of the two CEO has the most ability ?

With which company lie the advantage of "Sphere and radius of business" ?

Which business has a better task force /work force ?

Which Business has executives which are highly trained and qualified ?

Which Business has the absolute certainty that merit will be properly rewarded and of that misdeeds would be punished ?

Which Business has home resources ?






(12 cardinal points of life )

Do not think Dishonestly

The way is in training.

Become accquainted with every art

Know the ways of all professions

Distinguish between gain and loss in worldly matters

Develop intuitive judgment and understanding for everything

Perceive those things which cannot be seen

Pay attention to trifles

Do nothing which is of no use

Always treat your enemy as an honored guest

In peace prepare for war, in war prepare for peace

Be True to yourself in whatever you think , speak and do !


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