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STRATEGIC METHODS FOR THE ORGANIZATIONS - Coggle Diagram
STRATEGIC METHODS FOR THE ORGANIZATIONS
ORGANIC DEVELOPMENT
(internal)
CONCEPTS
- The essential feature: the reinvestment of previous year's profits in the existing business together with finance provided by shareholders and banks. Example: increasing capacity (rooms, number of holidays, events,..) -> turn over increases -> the capital value increases.
- Its a common method as:
+For early stages of cooperate development companies build markets and develop new products.
+Accessing to capital markets might be restricted as with public sector organizations.
+Large companies consolidate market position.
ADVANTAGES
- The risks with 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 is likely to be less.
DISADVANTAGES
- Slower compared to external growth methods
- Relying on the competencies and resources of a single organization may lead to shortages and important opportunities are not exploited
CHOSEN CIRCUMSTANCES
- Suitable partners for joint development are unavailable.
- Merger or acquisition is prevented on the ground of cost, unavailability of suitable targets or regularly disapproval.
- Access to capital is limited to pursue alternative methods.
- Directors want to maintain control.
- The necessary resources and competencies are available internally.
MERGERS AND ACQUISITIONS (external)
CONCEPTS
Merger
:
The shareholders of the organization 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 organizations.
Acquisition
:
A 'marriage' of unequal partners with one organizations buying and subsuming the other party.
Take over
:
Replacement of 'merger': 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.
EFFECTS
- Strategy's result is a larger and usually more financially powerful company.
- The purchasing company pays too much to acquire another company where the high financing costs cannot be serviced satisfactorily.
MAIN OBJECTIVES
SYNERGY
The over-ridding purpose by
integration
- the collective term used to describe M&A). Integration can be said to be synergistic when the whole is greater than the sum of the parts.
If the integration is to achieve synergy, the new company must perform more efficiently than either of the 2 parties would have done had they remained seperated.
MOTIVATIONS
- Increase market share
- As means of entering a new market
- Reduce competition
- Gain control of valable assets
- Gain preferential access
- Broaden product range
- Develop new product
- Gain access to new technologies
- Gain economies of scale
- Make productive use of underused resources
- Enhance corporate reputation
POTENTIAL FAILURE FACTORS
- Lack of research into the circumstances of the Target Company.
- Cultural incompatibility between 2 parties.
- Lack of communication within and between the 2 parties.
- Loss of key personnel in the target company after integration.
- Paying too much for the acquired company and target company's market will continue indefinitely.
POTENTIAL SUCCESS FACTORS
- Identification of a suitable 'target' candidate with whom to merge or acquire.
- Consideration being given to the compatibility of the 2 companies management styles and culture.
- The possibility of a successful marriage between the 2 corporate structures.
- Retaining key personnel.
- The initiating company ensuring that the price paid for the target is realistic.
- The price paid for the target company should take likely market trends into account
JOINT DEVELOPMENT
(external)
Strategic alliances
- at least 2 partner firms that remain legally independent after the alliance is formed.
- sharing of benefits and managerial control over the performances of assigned tasks.
- making continuing contributions in one or more strategic area, such as technology or products.
- potential difficulties: alliances involve significant costs in terms of co-ordination, reconciling goals with an independent entity and creating competitors. Alliance can fail because of the alliance leads to the delivery of a high degree of collaboration and agreement between partners.
- partner selection: complementary skills, cooperative cultures, compatible goals, commensurate levels of risk.
Public private partnerships
Public sector
(providing the policy and planning framework and infrastructure provision together with some financial incentives)
Private sector
(being involved in providing some or all of the financial resources and managerial competencies)
Franchising
2 parties: franchisor and franchisee
(In return for gaining access to the brand attributes, image, marketing and other support from the franchisor, such as systems and training, the franchisee usually takes a substantial portion of the financial risk and pays fees to the franchisor)
Management contracts
- Operating of a facility
- Reservation/ticketing/operating system
- Management of HR
- Accounting/financial control
- Sales and marketing services
- Training
Co-operative networks
Hospitality consortia
In response threats of competing in arenas increasingly dominated by large companies, individually operated hotel and accommodation businesses have increasingly jointed together in networks or consortia
-> achieve marketing, branding and systems advantages
Referral networks
These arrangements involve consumers being cross-referred from one supplier to other 'preferred' suppliers in the supply chain, usually in a vertical or diagonal supplier relationship