A company with clearly stated values, well-articulated vision and precisely drafted mission finds decision making easier.

As pointed out in earlier chapter this book emphasizes on 3Qs: Quality (inputs, process, output), Quantity (efficiency, variable cost and fixed cost), Quick (Time targets, eliminate unnecessary activities) for which there are 3 S, Strategy, Structure, System; and 2 Rs are basic elements for success. In this chapter we look at these basic elements in details.

Basic elements of 3Qs are 3S + 2R

3S being Strategy, Structure, System. Strategy, structure and system has impact on the 2Rs as well. A strategy has positive impact on resource utilization as well relationship. Similarly, structure and systems too have impact on the 2Rs.

2Rs being Resources 4M (Money, Material, Machine, Manpower), and Relationship. Resources in terms of manpower are further classified in the chapter on resources.

Organizational growth, however, means different things to different organizations. There are many factors a company may use to measure its growth. Since the decisive goal of most companies is profitability, most companies will measure their growth in terms of net profit, revenue, and other financial documents. While some business owners may use another set of criteria for assessing their growth: sales, number of employees, physical expansion, success of a product line, or increased market share. Ultimately, success and growth will be gauged by how well a firm does, relative to the goals it has set for itself .

Globalization has made organizational growth more difficult than ever before. In order to understand the impact of globalization we must understand the term first. What do economists mean by “globalization”? First and foremost: integration through international trade of markets in goods and services, as reflected in a variety of possible measures. These include direct measures of barriers, e.g., tariffs and transport costs; quantity-related measures of the result, i.e., trade volumes; and price-related measures of the result, i.e., the law of one price and other evidence of arbitrage. Next, financial integration through international trade in assets, again as reflected in a variety of possible criteria: direct measures of barriers, e.g., capital controls and transactions costs; quantity-related measures of the result, i.e., gross and net capital flows, portfolio shares, or consumption sharing; and price-related measures of the result, i.e., interest rate parity conditions and other evidence of arbitrage. Further down the list are foreign direct investments, increased trade in intermediate products (especially within multinational corporations), international outsourcing of services, and international movement of persons. Finally, some truly comprehensive definitions of globalization would include the international spread of ideas, from consumer tastes to intellectual ideas (technological patents, management principles, democracy, environmental activism, the Washington Consensus, accounting standards, inflation targeting among Central Banks, etc.)
Organizations need to concentrate on global economies of scale. Organizations need to address the issues of quantity with respect to efficiency, variable cost and fixed costs. The global economies of scale have also ensured better quality across price points. Earlier better quality required higher input cost of raw material, better processes demanded higher cost. With global economies of scale, organizations can offer quality products at affordable prices across target markets.

Many authors have developed multiple frameworks for organizational growth.

One of the most important contributors to the growth of an organization is a consumer. As pointed out by Daniel Spulber, “Consumers will establish firms if and only if doing so improves economic efficiency.” The theory of the firm necessarily derives the existence of firms from fundamental assumptions about the characteristics of consumers who have exogenously given preferences and endowments. Therefore, consumers are the basic building blocks of the theory of the firm. Consumers do not buy the best and reject the worst. They buy where they see value. Value is always in the eyes of beholder.

Since consumers are the basic building blocks of the firm, firms while ensuring quality of the product must look at the value quality will offer. Value is benefit to cost ratio. Benefit is the advantage of profit that a consumer gets from the product. While buying a product consumer may buy a functional benefit or an emotional benefit. Cost is the money that consumer has to pay to buy/acquire/use a particular product. To determine value consumers, look at both the functional benefit they derive from the product as well as the emotional benefit they get. Similarly, while analysing value, consumers evaluate cost not only the acquisition cost but time, energy as well as psychological cost consumer has to pay.

When the organization makes the value proposition, they must effectively reduce cost and increase benefit. Quality is defined as the standard of something as measured against other things of a similar kind; the degree of excellence of something.

In chapter Paradigm Shift we have discussed marketing orientation as noted by Philip Kotler . The Five Concepts Described are philosophies and their beliefs.
1. The Production Concept
2. The Product Concept
3. The Selling Concept
4. The Marketing Concept
5. The Societal Marketing Concept

The existence of your business or profession depends on quality of product and services you are offering to your customer and client. Quality depends upon quality of input material, process and quality check for final output. [Hemant Lodha Blog, Quality Is Quintessential]

5 Tips for making Quality as way of Life:

1.Develop the culture of quality consciousness in personal as well as professional life.
2.Quality of output depends on quality of input and process.
3.In short term, quality may cost you but in long term, it is an investment.
4.Continuous monitoring is needed to achieve the quality consistently.
5.Use less quantity but use good quality.

The Growth Strategies

Though organizational growth means different things to different organizations and there are many parameters a company may use to measure its growth; the ultimate goal of most companies are sales, increased market shares and profitability.

Organizations strategies are to achieve predetermined objectives while interacting with the external environment. There are multiple approaches to achieve these objectives. Organizations take into account their internal environment, the strengths and weakness while addressing the external environment which brings in opportunities as well as challenges. Many organizations are multi-business organization, diversified organizations.
When the organization articulates its values, vision and mission; it develops strategies to answer questions like…
What do we stand for?
What do we aspire to achieve?
What do we do?
Who do we do it for?
Why do we exist?
Where are we going?
How will we succeed?

Since some organizations have multiple business. In a diversified enterprise, strategies are initiated at four distinct organizational levels. There’s a strategy for the company and all of its businesses as a whole, corporate strategy. There’s a strategy for each separate business the company has diversified into, business strategy. Then there is a strategy for each specific functional unit within a business, functional strategy. Each business usually has a production strategy, a marketing strategy, a finance strategy, and so on. And, finally there are still narrower strategies for basic operating units – plants, sales districts and regions and departments within functional areas, operating strategy. In single-business enterprises, there are only three levels of strategy making business strategy, functional strategy, and operating strategy . The strategies can be developed at three levels.

Strategy can be formulated at three levels, namely,
• The Corporate Level,
• The Business Level, and
• The Functional Level.

The Corporate Level Strategies:

At the corporate level, strategy is formulated for the organization as a whole. Corporate strategy deals with decisions related to various business areas in which the firm operates and competes. Corporate level strategy defines the business areas in which the firm will operate. If the organization operates in multiple businesses then corporate level strategy deals with aligning the resource deployments across a diverse set of business areas, related or unrelated. Strategy formulation at corporate level involves integrating and managing the diverse businesses and realizing synergy at the corporate level. The corporate strategies are formulated by top management team. The corporate strategy reflects the path toward attaining the vision of the organization.

Corporate Level Strategy:

 Defines the business areas in which your firm will operate.
 Involves integrating and managing the diverse businesses and realizing synergy at the corporate level.
 Top management team is responsible.

The Business Level Strategies
When the company operates in multiple business, business level strategies are developed for specific strategic business units and relate to a distinct product-market area. It involves defining the competitive position of a strategic business unit. The business level strategy development is based upon the generic strategies of overall cost leadership, differentiation, and focus. A conglomerate, may choose overall cost leadership as a strategy to be pursued in its steel business, differentiation in its tea business, and focus in its automobile business. The business level strategies are decided upon by the heads of strategic business units and their teams in light of the specific nature of the industry in which they operate.

Porter’s generic strategies offer guidelines how the business level strategies will be developed to compete in the given market. These include overall cost leadership, differentiation and focus.

Business Level Strategy:

 Involves defining the competitive position of a strategic business unit.
 Decided upon by the heads of strategic business units and their teams.

The Functional Level

Functional level strategies relate to the different functional areas which a strategic business unit has, such as production and operations, finance, marketing, and human resources. Functional level strategies also referred to as operational strategies. These strategies are developed by the functional heads along with their teams and are aligned with the business level strategies. The strategies at the functional level involve setting up short-term functional objectives, the attainment of which will lead to the realization of the business level strategy.

Functional Level Strategy:

 Formulated by the functional heads along with their teams.
 Involve setting up short-term functional objectives.

Every organization, essentially, develops strategies for growth. Corporate strategy gives an outline for the growth of the firm. The corporate strategy offers an overall direction for the organization to follow. It also sets the major mile stones, the extent, pace and timing of the firm’s growth. Corporate strategy is mainly concerned with the internal environment of the firm with respect to its choice of businesses, products and markets. The competitive and functional strategies of the firm are developed to match with the corporate strategy to facilitate it to reach its desired objectives.

A corporate-level strategy is an action taken to gain a competitive advantage through the selection and management of a mix of businesses competing in several industries or product markets. Corporate strategies are normally expected to help the firm earn above-average returns and create value for the shareholders (Markides, 1997).
Corporate-level strategy is concerned with the overall purpose and scope of an organization and how value will be added to the different parts (business units) of the organization .

A corporate level strategy thus has three major components:

a) Growth or directional strategy, outlines the growth objectives ranging from drastic retrenchment through stability to varying degrees of growth and methods and approaches to accomplish these objectives.
b) Corporations are responsible for creating value through their businesses. They do so by using a portfolio strategy to manage their portfolio of businesses, ensure that the businesses are successful over the long-term, develop business units, and

c) Ensure that each business is compatible with others in the portfolio.

Portfolio strategy plans the necessary moves to establish positions in different businesses and achieve an appropriate amount and kind of diversification. Portfolio strategy is an important component of corporate strategy in a multi-business corporation.

Basic concept corporate strategy concerns how a diversified company intends to establish business positions in different industries and the actions and approaches employed to improve the performance of the group of businesses in which the company has diversified . Corporate strategy is the overall managerial game plan for a diversified company, it extends companywide – an umbrella over all the diversified company’s businesses. Thus, developing corporate strategy for a diversified company involves four kinds of initiatives:

Firstly, making moves to establish positions in different businesses and achieve diversification. How many and what kinds of businesses the company should be in – specially, what industries to enter and whether to enter the industries by starting a new business or by acquiring another company. It also evaluates whether to go for related diversification or unrelated diversification.

Harsh Mariwala, chairman and managing director Marico mentioned, “At one level, the organisation has made huge movement from the so-called branded commodities to more value-added brands. That has meant a huge change in the way the organisation has functioned. And that transition is still continuing as we have now made inroads into male grooming …”. The inroads into male grooming came with the acquisition of Paras Pharmaceuticals’ personal care business from the UK consumer goods giant Reckitt Benckiser.

From edible and hair oil company, Marico entered new exciting categories with high growth rates. The acquisition gave Marico access to skin creams (Borosoft and Recova), lip balms (Dr Lips), hair gels (Set Wet), hair serums (Livon) and deodorants (Zatak). Set Wet, Livon and Zatak were growing at 20 percent per annum. This allowed company to participate in high growth categories.

Secondly, initiating actions to boost the combined performance of the businesses the firm has diversified. Corporate office, strategists, help their business subsidiaries to be more successful by financing additional capacity and efficiency improvements, by supplying missing skills and managerial knowhow, by acquiring another company in the same industry and merging the two operations into a stronger business, or by acquiring new business that strongly complement existing businesses. Management’s overall strategy for improving companywide performance usually involves pursuing rapid-growth strategies in the most promising businesses, keeping the other core businesses healthy, initiating turnaround efforts in weak-performing businesses with potential, and divesting businesses that are no longer attractive or that don’t fit into the organization’s long-range plans.
Marico’s dominant markets for a long time were edible oil (Saffola), and hair oil (Parachute) and a smaller extent, the lice treatment category (Mediker). But there was only that much a company can grow in these sectors, especially if it wants to establish itself as a major player in the consumer products/FMCG category. To get to the right size, the management realised that it had to enter into new categories that are on a growth path. Marico’s strategy was to focus on emerging markets, in developing categories with high growth rates and low penetration . According to industry estimates then, the male grooming category in India including pre and post shave products, toiletries, skin and hair care products was worth about Rs. 3,000 crore.

Thirdly, pursuing ways to capture valuable cross-business strategic fits and turn them into competitive advantage. When a company diversifies into businesses with related technologies, similar operating characteristics, common distribution channels or customers or some other synergistic factor, it gains competitive advantage potential not open to a company that diversifies into totally unrelated businesses.

Marico’s product diversification strategy involved men and women. For growth it focused on organic and inorganic path. The company realised that it has to focus on big bets that will significantly drive not only growth, but also add back to the equity. In that context, the brand structures of Saffola and Parachute were in the right direction. Saffola developed into a ‘healthy lifestyle’ brand with the launch of Saffola Oats, and Marico moved into breakfast, as it is a meal that people are more inclined to eat healthy. Similarly, with Parachute, company stands for care and nourishment, it moved into body care lotion with the launch of ‘Parachute Advansed Lotion’, skin care.
Fourthly, instituting investment primacies and routing corporate resources into the most attractive business units. A diversified company’s different businesses are usually not just as attractive from the standpoint of investing additional funds. Thus, corporate strategy making involves channelling resources into areas where earnings potentials are higher and away from areas where they are lower.

Tata Chemicals sold its urea business to Yara Fertilisers . The divestment of the Urea Business by Tata Chemicals unlocked value for the company, strengthened its balance sheet and helped to pursue growth potentials and opportunities in line with its strategic directions.

This process of divestment by Tata Chemicals is in line with the strategic direction of the company to continue to strengthen the fertiliser businesses by partnerships and/or transfer of ownership to world class companies. The Urea Business will now have the benefit of International network of Yara and its global expertise .

The top management views its product lines and business unit as a portfolio of investments from which it expects a profitable return. A key part of corporate strategy is making decisions on how many, what types, and which specific lines of business the company should be in. This may involve decisions to increase or decrease the breadth of diversification by closing out some lines of business, adding others, and changing emphasis among the portfolio of businesses. A portfolio strategy is concerned not only about choice of business portfolio, but also about portfolio of geographical markets for acquisition of inputs, locating various value chain activities and selling of outputs. In short, a portfolio strategy facilitates efficient allocation of corporate resources, links the businesses and geographically dispersed activities and builds synergy leading to corporate or parenting advantage.

Corporate office, strategists, try to capture valuable cross-business strategic fits in a portfolio of business and turn them into competitive advantages, especially transferring and sharing related technology, procurement leverage, operating facilities, distribution channels, and/or customers. In other words, it decides how will organization allocate resources and manage capabilities and activities across the portfolio — where does organization put special emphasis, and how much does organization integrate its various lines of business. Corporate strategists, view the corporation in terms of resources and capabilities that can be used to build business units’ value as well as generate synergies across business units.

Corporate strategists develop corporate strategy by focusing on the core competencies of the parent corporation and on the value creation from the relationship between the parent and its businesses. To achieve corporate advantage a corporation needs to do at least the following…

Better choice of business to compete.

Superior acquisition and development of corporate resources.
Effective deployment, monitoring and controlling of corporate resources.
Sharing and transferring of resources from one business to other leading to synergy.
To achieve a targeted top line, KEC International ltd developed a strategic plan. Company forayed into water, wind and solar power. Targeting to position itself as a complete EPC (Engineering, Procurement & Construction) infrastructure company. With focus on power transmission business . KEC geared up to sustain its growth momentum with a diversified portfolio. Even as company continued its leadership in the power transmission space it was looking at EPC and supply opportunities in other infrastructure businesses. This helped the company to grow at a faster rate, and also added tremendous value proposition to overall business model. First, company evolved as a major EPC company in the power transmission arena. It emerged as a global leader in this segment. Then started spreading its footprint aggressively into overseas destinations, KEC powered infrastructure developments in 45 countries across South Asia, Middle East, Africa, Central Asia and the America. With proven technical capability and superior project management expertise, the company is executing complex projects in different international locations.

KEC’s diversification into other infrastructure verticals is a strategic move on is part to scale up its overall operation and de-risk its business model from cyclical downturns. KEC’s geographical and business diversifications are well-backed up by a robust execution capability and strong management bandwidth. The company invested about Rs. 1,000 crores in building up capabilities in existing as well as newer areas. As a part of its geographical diversification and business expansion, KEC acquire Texas-based SAE Towers, which marked KEC’s entry into large markets of North and South America. SAE had manufacturing capacity of 100,000 tonnes, spread over two locations – Brazil and Mexico.

KEC’s efforts to consolidate its existing businesses and diversify into newer areas provided a distinct edge in the market. Its internal foray had shaped up quite well too, with the acquisition of SAE Towers. Over the years company has built up credibility for itself through commitment and delivering constant quality. Most of its projects, despite being complex in nature, have been delivered on time.

Growth is essential for an organization. Organizations go through an inevitable progression from growth through maturity, revival, and eventually decline. The broad corporate strategy alternatives, sometimes referred to as grand strategies, are:

Stability/Consolidation, Expansion/Growth, Divestment/Retrenchment and Combination strategies. During the organizational life cycle, managements choose between growth, stability, or retrenchment strategies to overcome deteriorating trends in performance.

Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation towards growth by asking the following three questions:
1. Should we expand, cut back, or continue our operations unchanged?
2. Should we concentrate our activities within our current industry or should we diversify into other industries?
3. If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisitions, mergers, or strategic alliances?

At the core of corporate strategy, must be a clear logic of how the corporate objectives will be achieved. Most of the strategic choices of successful corporations have a central economic logic that serves as the fulcrum for profit creation. Some of the major economic reasons for choosing a particular type corporate strategy are:
a) Exploiting operational economies and financial economies of scope.
b) Uncertainty avoidance and efficiency.
c) Possession of management skills that help create corporate advantage.
d) Overcoming the inefficiency in factor markets and
e) Long term profit potential of a business.
The non-economic reasons for the choice of corporate strategy elements include
a) dominant view of the top management,
b) employee incentives to diversify (maximizing management compensation),
c) desire for more power and management control,
d) ethical considerations and
e) corporate social responsibility.

There are four types of generic corporate strategies. They are:
Stability strategies: make no change to the company’s current activities
Growth strategies: expand the company’s activities
Retrenchment strategies: reduce the company’s level of activities

Combination strategies: a combination of above strategies

Each one of the above strategies has a specific objective. For instance, a concentration strategy seeks to increase the growth of a single product line while a diversification strategy seeks to alter a firm’s strategic track by adding new product lines.

Once a strategic course has been identified, it then becomes necessary for management to scrutinize business and functional level strategies of the firm to make sure that all units are stirring towards the attainment of the organization-wide corporate strategy. A stability strategy is employed by a firm to achieve steady, but slow improvements in growth while a retrenchment strategy (which includes harvesting, turnaround, divestiture, or liquidation strategies) is utilized to inverse poor-organizational performance.

Stability Strategy

Stability strategy is a strategy in which the organization retains its present strategy at the corporate level and continues focusing on its present products and markets. The firm stays with its current business and product markets; maintains the existing level of effort; and is satisfied with incremental growth. It does not seek to invest in new factories and capital assets, gain market share, or invade new geographical territories. Organizations choose this strategy when the industry in which it operates or the state of the economy is in turmoil or when the industry faces slow or no growth prospects. They also choose this strategy when they go through a period of rapid expansion and need to consolidate their operations before going for another bout of expansion. Organization may prefer this strategy for a group of products.

For instance, as discussed in case of Marico, for brands like Parachute (hair oil) and Saffola (edible oil), company may prefer stability strategy as further growth on these products was difficult. Moreover, incremental marketing spend on these brands probably would have generated less returns compared to other product categories which were in higher growth trajectory.

As we shall discuss later in this book, these brands / product categories may be considered as cash cow where market growth is low but the relative market share in the product category with respect to competition is high. The objective of the organization then is to defend the high market share.

Even to defend the market share in a slow growth market, organization must pay attention to quality, quantity and quickness. Organization also needs to evaluate current strategy for defending market share as well as the organizational structure within which the product portfolio / brand fits in and employed resources for profitability. If the profits are difficult to come by, organization should have a decency to withdraw the product even if it has high market share but little scope of contributing to profits in near future.

	Strategy: Stability
	Importance/Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity		ü
Quick	ü
Resources		ü
Relationships	ü

 

 

Even while employing the stability strategy organizations quality with respect to product as well as services should never be compromised. Organization may select a few markets and thus cut down on the quantity part, but the markets that it serves should be served with utmost care. Organization also must be quick to identify the shift in favour or the product or against and respond to the changing consumer preference. The resource allocation for the product category may be moderate, but the relationships should continue to be of highest order for future growth of the category as well as new focus area.

A firm following stability strategy maintains its current business and product portfolios; maintains the existing level of effort; and is satisfied with incremental growth. It focuses on fine-tuning its business operations and improving functional efficiencies through better deployment of resources. In other words, a firm is said to follow stability/ consolidation strategy if:
 It chooses to serve the same markets with the same products;
 It endures to follow the same goals with a strategic thrust on incremental improvement of functional performances; and
 It focusses its resources in a narrow product-market scope for developing a meaningful competitive advantage.

Embracing a stability strategy does not mean that a firm lacks interest for business growth. It only implies that their growth targets are conservative and that they wish to maintain a status quo. Since products, markets and functions continue unchanged, stability strategy is basically a defensive strategy. A stability strategy is ideal in stable business environments where an organization can devote its efforts to improving its efficiency while not being threatened with external change. In some cases, organizations are inhibited by regulations or the expectations of key stakeholders and hence they have no option except to follow stability strategy.

Usually large firms with a significant portfolio of businesses do not usually depend on the stability strategy as a principal route, though they may employ it under certain special circumstances. They normally use it in combination with the other generic strategies, adopting stability for some businesses while pursuing expansion for the others.
However, small firms find this a very useful approach since they can reduce their risk and defend their positions by adopting this strategy. Niche players also prefer this strategy for the same reasons.

Employing Stability Strategy

Stability strategy does require shifting the way the business is run, however, the range of products offered and the markets served, remain unchanged or narrowly focused. Stability strategy is alleged as a non-growth strategy. However, stability strategy does provide growth opportunities, though to a narrow extent, in the current product-market zone to realize contemporary business goals. Executing stability strategy does not indicate stagnation since the primary push is on continuing the current level of performance with incremental growth in ensuing phases. Strategists of an organization might choose stability when:

 The economy or the industry is in chaos or the environment is volatile. Strategists stay conservative because of the prevailing uncertain conditions, till the environment is more positive.
 Similarly, when the environment is highly predictable and there is no apparent major threat to organization of industry.
 The organization that has gone through a period of swift growth and then objective is to consolidate the advantages before chasing additional growth.
 The firm is content with modest or incremental growth ambitions.
 The firm is in a comfortable competitive position in a mature industry with no potential growth prospects.
Basis for Using Stability Strategy

Stability strategy is preferred over growth strategy for a number of reasons and conditions. As mentioned earlier, an organization that has gone through a period of swift growth and then objective is to consolidate the advantages before chasing additional growth. A hostile phase of growth and/or expansion may find itself inefficient and uncontrollable. Organization need to stabilize for a while.

India Cements went through a rapid expansion by acquiring other cement companies before stabilizing and consolidating its operations. Videocon and BPL had first diversified into new businesses and then started consolidating once faced with stiff competition.

If the organization is performing well, conservative management, contented with the market position and profitability, does not see a reason to change, and continue with stability strategy for following years. Since the products of the company are well accepted in the target market, company relishes the competitive advantage and does not see any abrupt threat. Organization thus fancies stability in current market with existing product, avoiding deviation from it. Management also avoids taking risk of attempting into unfamiliar businesses landscapes. As long as the expected results are achieved management does not want to take any risk. Management considers traditional business, products and markets instead of taking risk of product development, market development or even diversification. This exposes company to higher risk in future.

It was February 2011, and Nokia had a problem . Once an undisputed leader in mobile technology, the company no longer could keep up with its competitors. For over a decade, Nokia had been the world’s most successful handset manufacturer. But now it was losing ground. Fast. With Apple’s introduction of the iPhone in 2007 and Google’s unveiling of Android in 2008, the rules of the game had changed. These were hugely successful software platforms in what was once a hardware-centric industry, and Nokia was nowhere near that stage. Its legacy operating system, Symbian, was outdated and difficult to develop software for and its next-gen operating system, MeeGo, still wasn’t ready for prime time.

Nokia did not react to the changing environment fast (quick).

Jo Harlow, Nokia’s head of Symbian, agreed. “Our ability to change from being device-led to being software-led as the industry changed hasn’t been fast enough,” she said. “We could have been in a different position if we had been able to make the transition more quickly. ”

Many strategists pursue consolidation strategy involuntarily. As a matter of fact, they do not react to dynamic environmental changes and avoid radical changes in the current strategy unless warranted by unexpected conditions.
At times regulatory factors do not permit larger organizations to adopt aggressive expansion strategies, fearing monopoly. Particularly if an organization has dominant market share in a given market, as it may lead to monopolistic and restrictive trade practices which have damaging impact on public interest.

Stability Strategy Approaches

A firm can employ multiple approaches while developing a stability/consolidation strategy. Management can employ the one that best suits to achieve organization’s objective. Depending upon the situation that the organization is, it can employ one of the following strategies.

Holding Strategy: There are two situations where holding strategy is suitable:
1. After the rapid growth or having faced hostile environment, organization needs stability strategy to reflect on the learnings, rejuvenate and consolidate, before employing the next growth strategy.
or
2. If the environment is hostile and uncertain, company needs to employ holding strategy to get clearer picture of environment or let the environment become favourable.

Holding strategy aims at maintaining the current development rate and defend its current market share. If the market itself grows, organization too will grow with the market, but growth is not chased. Normally organization does not invest additionally in resources as well as managerial efforts. In a way, it indicates that the functional strategies will stay at the earlier levels. This approach is particularly useful when either the company does not have necessary resources to chase higher growth for a longer period of time and environmental changes disallow growth.

Stable Growth: This strategy is generally employed in stable economic environment. It can be a long-term strategy for mature markets. Generally employed by smaller organizations, where level of competition is also low. These companies cannot invest heavily in product or market development, it expands product line as well as its presence in the market at lower pace. In this strategy company develops market penetration and product development strategies. It develops products to cater to existing market but the pace of launch of new products is low. Company also develops markets for its existing product, though again the pace of development is low. The strategy is generally followed by regional players where entry costs are low.

Harvesting Strategy: To take the advantage of dominant market share and generate cash for future business expansion, company may employ harvesting strategy. Strategy got its name as is typically related with cost cutting and price increase to generate additional profits. Particularly suitable to an organization whose foremos9t objective is to generate cash. Company may generate cash even by sacrificing its market share. There are multiple approaches to achieve the objective of being more profitable for generating cash. A company may choose to selective price increase and reduce cost while keeping prices at the same level. A select product or a product category thus skim the market rather than increasing or defending market share. All products in a company product portfolio do not have same gross contribution.

Endgame Strategy or Profit: In this strategy, as in other strategic decisions, timing is most crucial. A profit strategy is one that exploits a condition in which old and obsolete product or technology is being replaced by a new one. While moving to the new technology, company partially continues to use existing technology. As the old technology does not need any investment, this strategy is not a growth strategy. The strategy is employed particularly for consumer durables which require spare parts for products based on old technologies over a few years. The old technology continues to cater to the spare part market over the transition years. So, till end of the game companies continue to stay in the market. However, all manufacturers over the years shelve the old assets and move upgrade to the new product or technology.

Growth Strategies
Firms select expansion strategy when the strategy maker’s observations of resource availability and past financial performance are both high. The most employed growth strategies are diversification at the corporate level and concentration at the business level.

Reliance Industry, with its presence in Exploration & Production, Petroleum Refining & Marketing, Petrochemicals, Textiles, Retail, Retail Investor Relations, Jio is a vertically integrated company . Covering the complete textile value chain has been repositioning itself to be a diversified conglomerate by entering into a range of business such as power generation and distribution, insurance, telecommunication, and information and communication technology services. Diversification is defined as the entry of a firm into new lines of activity, through internal or external modes.

The principal motives a firm chase increased diversification are value creation through economies of scale and scope, or market supremacy. In some cases, firms choose diversification because of government policy, performance problems and uncertainty about future cash flow. In a way, diversification is a risk management instrument, in that its successful use decreases a firm’s susceptibility to the concerns of competing in a single market or industry. Threat plays a very vital role in choosing a strategy and hence, uninterrupted evaluation of risk is linked with a firm’s ability to achieve strategic advantage.

Internal development can take the form of investments in new products, services, customer segments, or geographic markets including international expansion. As suggested by The Ansoff Matrix, developed by H. Igor Ansoff and first published in the Harvard Business Review in 1957, in an article titled “Strategies for Diversification.” Companies can go for market penetration, product development, market development strategies apart from the diversification strategy.

Diversification is achieved through external modes through acquisitions and joint ventures. Concentration can be achieved through vertical or horizontal growth. Vertical growth takes place when a firm takes over a function hitherto provided by a supplier or a distributor, i.e. successive stages of production. Horizontal growth take place when the firm develops products into new geographic areas or increases the range of products and services in current markets.

Quality, Quantity and Quickness remain critical for all the growth strategies. Quick does not mean being first in the market but it refers to time targets and eliminating unnecessary activities while responding to customer needs.

	Strategy: Growth
	Importance/Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity	ü
Quick		ü
Resources	ü
Relationships		ü

 

As the organization looks forward to growth, it leverages quality, gains quantity, makes optimum use of its resources, it will take time to achieve its target and will take time develop relationship.

 

Retrenchment Strategy

Numerous firms experience declining financial performance as a consequence of market erosion and wrong decisions by management. Managers retort by choosing corporate strategies that redirect their endeavour to turnaround the company by refining the firm’s competitive position or divest or wind up the business if a turnaround is not possible. Turnaround strategy is a form of retrenchment strategy, which focuses on operational improvement when the state of decline is not severe. A diversified firm may employ retrenchment strategy for the underperforming business units or business units which are not strategic fit to organizational objectives. Retrenchment is not considered as managements inability to run a business but more of a strategic decision to stay focused on core competencies of the firm for productively deploying its scarce resources.

Additionally, probable corporate level strategic reactions to waning include growth and stability.

Combination Strategy

The three basic strategies can be employed in combination; they can be employed in as a series of strategies, for instance growth followed by stability, or tracked simultaneously in different parts of the business unit. Combination Strategy is designed to mix growth, retrenchment, and stability strategies and apply them across a corporation’s business units.

A diversified firm can identify underperforming business units as well as units performing well. Resources from the underperforming units then can be directed at units which have potential to perform in future. Thus, organizations identify their thrust areas and then accordingly direct resources and then pursue stability strategy for performing business units, retrenchment for underperforming units and growth for the units which are thrust areas for future.

Expansion Strategies

In a persistent and brutal competitive environment every organization seeks growth as its long-term goal to avoid extinction. Growth is crucial for the existence of the organization and offers ample opportunities to everyone in the organization to meet their professional and personal ambitions. All this is possible only when essential conditions of expansion have been met.

Organization to maintain its competitive position in fast growing national and international markets, formulates expansion strategies. Expansion strategies are essential for an organization to successfully compete, persist and prosper. To fulfil their long-term growth objectives expansion strategy is an important strategic option for organizations. Organizations pursue expansion strategy to achieve substantial growth contrasting to incremental growth predicted in stability strategy. Expansion strategy is embraced to speed up the rate of growth of sales, profits and market share quicker by entering new markets, acquiring new resources, developing new technologies and creating new managerial capabilities.

Expansion strategy offers a blueprint for an organization to achieve its long-term growth objectives. It permits it to retain its competitive advantage even in the advanced stages of product and market progression. Growth offers economies of scale and scope to an organization, which in turn reduces operating costs and increases earnings. Moreover, with these advantages the organization benefits by getting a greater control over the direct environment because of its size. This stimulus is crucial for persistence in mature markets where competing firms belligerently defend their market shares. 

Ansoff’s Product-Market Expansion Grid

	Existing Market	New Market
Existing Product	Market Penetration	Market Development
New Product	Product Development	Diversification

 

 

For growth strategies pioneering work was done by Igor Ansoff (1968). The product/market grid, has been very useful in determining growth prospects. This grid best elucidates several intensification choices available to an organization. The product/market grid has two dimensions, namely, products and markets. Combinations of these two dimensions result in four growth strategies. According to Ansoff’s Grid, three distinct strategies are possible for achieving growth through the intensification route. These are:

Market Penetration: The organization pursues growth with existing products in their existing market segments, intending to increase its markets share.

Market Development: The organization pursues growth by targeting its existing products to new market segments, geographies.

Product Development: The organization develops new products to cater to its existing market segments.
Diversification: The organization grows by diversifying into new businesses by developing new products for new markets.

Market Penetration

An organization pursues market penetration strategy, when it believes that there are plenty of opportunities that can be exploited in its current market and with current products. Market penetration comprises of achieving growth through existing products in existing markets and an organization can achieve this by:

Encouraging the existing customers to buy its product more frequently and in larger quantities. Market penetration strategy generally emphasizes on shifting the infrequent users of the firm’s products or services to frequent users and frequent users to heavy users. Typical sales promotion schemes used for this purpose are volume discounts, bonus cards, price promotion, heavy advertising, regular publicity, wider distribution and obviously through retention of customers by means of an effective customer relationship management.

Organizations try to attract its competitors’ customers by encouraging brand switch. For this objective, organization must develop noteworthy competitive advantages. Attractive product design, high product quality, attractive prices, stronger advertising, and wider distribution can support the organization in gaining lead over its competitors. All these require heavy investment, which only firms with considerable resources, can afford. Organizations with less capabilities may search for niche segments. Many small organizations, for instance, survive by looking out for and developing lucrative niches in the market. They may also grow by developing highly specialized and unique skills to cater to a small segment of exclusive customers with special requirements.

Aiming for new customers in its current markets. Offering better customer service, Price concessions, increasing publicity and other techniques can be valuable in this strategy.

In a growing market, even maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits.

Market penetration has limits. As the organization employing market penetration strategy, operates in the same markets offering the same products, growth is achieved by increasing its market share with existing products. However, once the market reaches saturation another strategy must be pursued if the organization is to continue to grow. Strategy heavily depends on brand switch, unless there is an intrinsic growth in its current market. Since market penetration strategy leverages many of the firm’s existing resources and capabilities, it is the least risky. Another advantage of this strategy is that it does not require additional investment for developing new products.

Impact of market penetration strategy on the five elements.

	Strategy: Market Penetration
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity	ü
Quick		ü
Resources	ü
Relationships	ü

 

By achieving higher market penetration organization gains on the quantity manufactured. Higher quantity sale also offers economies of scale to the organization, which can be channelized as per the objective. Retained earnings may give higher profitability. Price competitiveness, if passed on to customers and better quality, if invested in improving product further. To gain new customers organization needs to re-look at its promotional strategies because if the brands equity is diluted, organization may lose its existing customers to competitors. Market penetration allows company to use all its resources optimally and also allows to leverage its relationship with stake holders, make them stronger in the process.

Market Development Strategy

Market Development strategy attempts to achieve growth by launching existing products in new markets. Market development opportunities include the search of additional market segments or geographical regions. If the organization’s core competencies are linked more to the specific product than to its experience with a specific market segment or when new markets offer better growth prospects compared to the existing ones, the development of new markets for the product may be a good strategy. As the organization attempts expanding into a new market, a market development strategy characteristically has more risk as compared to a market penetration strategy. The success of the strategy depends on knowledge of new markets, if the managers lack knowledge about the market and the customers, it may result in erroneous market assessment and wrong marketing decisions.

As the market development strategy attempts to increase organizations sales by taking its product into new markets. The two possible approaches of implementing market development strategy are…

1. Develop a new geographical area for the products. This is done by increasing its sales force, appointing new channel partners, sales agents or manufacturing representatives and by franchising its operation; or
2. Develop new market segments. Making minor modifications in the existing products that appeal to new segments.
Market development has similar impact on the five elements.

	Strategy: Market Development
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity	ü
Quick		ü
Resources		ü
Relationships		ü

 

 

However, since it is the new market, organization does not immediately gain on relationships with stakeholder as well as has to invest more on resources. Market also takes time to respond to its promotional strategies, unless the brand was known to the market earlier.

Product Development Strategy

Customer needs change continuously. It is important for an organization to identify new needs of the customers and develop new products to cater to the new needs of the customer. Expansion through product development comprises development of new or improved products for its current markets. The organization caters to its present markets but develops new products for these markets. Growth will accrue if the new products produce additional sales and market share. The strategy is particularly useful for products that have low brand loyalty and/or short product life cycles.

If the firm’s strengths are related to its specific customers rather than to the specific product itself then the product development strategy may be more appropriate. In such situation, company can leverage its strengths by developing a new product targeted to its existing customers. There are inherent risks normally associated with new product development, although the firm operates in familiar markets, product development strategy carries more risk than simply attempting to increase market share.

The three possible ways of implementing the product development strategy are:
Developing new products to expand sales.
Develop different or improved versions of the existing products.
Develop new products making necessary changes in its existing products to suit the different needs of the customers.

	Strategy: Product Development
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity		ü
Quick		ü
Resources		ü
Relationships	ü

 

 

Product development strategy helps organization in improving the quality of the product currently marketed. Thus, it can leverage the relationships with the stakeholders, but the acceptance to new product, quantity demanded and the resources may be quite different that the one currently used by the organization, particularly if the product is radically different. For a modified product, organization may not gain significantly on the quality front.
When the customer preferences are shifting faster, organization has to adopt product development strategy. Nokia’s failure to retain its position is quite often attributed to not developing product to cater to existing market.

Combination Strategy

For aggressive growth organizations may use combination strategy. Combine Strategy cartels the intensification strategy alternatives i.e., market penetration, market development and product development to grow. In the market development and market penetration strategy, the organization continues with its existing product portfolio, while the product development strategy comprises developing new or improved products, which will satisfy the current market’s new needs.

Conditions for Opting for Expansion Strategy

Organizations choose an expansion strategy under the following situations:
When the organization has elevated growth objectives and looks forward to fast and continuous growth in assets, income and profits. Organizations that are keen to achieve large and rapid growth should employ expansion through diversification as that would be especially useful since it involves developing new opportunities outside the domain of current operations.

When mammoth new opportunities are evolving in the environment and the organization is ready and willing to expand its business scope.

Organizations find expansion appealing since sheer size transforms into superior clout.
When an organization is a leader in its industry and wants to protect its leading position.
Expansion strategy is chosen in volatile situations. Substantive growth would act as a cushion in such conditions.
When the organization has spare resources, it may find it utilitarian to grow by levering on its strengths and resources.

When the environment, especially the regulatory set-up, hinders the growth of the organization in its current businesses, it may opt to diversification to meets its growth objectives.

When the organization relishes synergy that arises by tapping certain opportunities in the environment, it opts for expansion strategies. Economies of scale and scope and competitive advantage may accrue through such synergistic operations. Over the last decade, in response to economic liberalisation, some companies in India expanded the scale of existing businesses as well as diversified into many new businesses.

As discussed earlier, companies like KEC International’s towering growth came through diversified portfolio.
Organizations employing strengthening strategy focuses on their principal line of business and look for means to meet their growth objectives by increasing their size of operations in this principal business. An organization may expand externally by integrating with other companies. An organization expands its operations by moving into a different industry by following diversification strategies. Growth of a business enterprise necessitates realignment of its strategies in product – market environment. This is accomplished through the basic growth strategies of intensive expansion, integration, horizontal and vertical integration, diversification and international operations.

An organization can grow by “going international”, i.e., by crossing domestic borders by employing any of the expansion strategies discussed so far.

Marico’s was the first Indian company to have a manufacturing location in Bangladesh, and its Parachute brand is a leader in its category. Acquisitions in 2005 (Camelia and Aromatic) were followed by the launch of Haircode hair dye in 2009. In 2010, it also launched Saffola Gold, its premium edible oil. Bangladesh was an emerging market, and the company has a strong market there. It’s a large country and the story of conversion from unbranded to branded plays out. The company has second largest distribution chain after Unilever .

Marico’s Egypt operations have done reasonably well given the country’s tumultuous political conditions . It acquired two brands in 2006, Fiancee and Haircode, along with their manufacturing facilities. It set up a greenfield factory in Egypt in 2008, and in 2010, launched its Parachute range of hair creams and hair oils in the Egyptian market. It is a leader in hair styling market. Through Egypt company moved into North Africa, it’s future and has huge potential. Marico entered South Africa with the acquisition of the consumer division of Enaleni Pharmaceuticals Limited.

Marico entered Malaysia’s hair styling market in 2010 with the acquisition of Code 10 brand from Colgate Palmolive . In February 2011, it entered the Vietnam market by acquiring an 85 per cent stake in International Consumer Products Corporation, and with that gained access to brands like Xmen (a leading player in the male grooming segment), L’Ovite, a five ranked premium cosmetic brand in the country, and ThuanPhat, a sources and condiments brand.

Expansion Through Intensification

Organizations that have not entirely exploited the potential opportunities with their existing products in the existing market domain, intensification is quite valuable strategy. The organization employing intensification strategy, should focus on its major line of business and look for means to meet its growth objectives by increasing its size of operations in its major business. Intensification strategy involves expansion within the existing line of business. Intensive expansion strategy involves protecting the present position and expanding in the current product-market space to achieve growth targets. Organizations can achieve intensive expansion in three ways, namely, market penetration, market development and product development first suggested in Ansoff’s model.
Organizations can employ intensification strategy if enough growth potential exists in the organization’s existing products-market space. However, before employing the strategy organization must evaluate following points…
First preference should be to the one with highest net present value, even if there are number of other alternatives.

Organizations must do the SWOC analysis and establish its competitive advantages. At the same time organization should also foresee competitive reaction to organizations strategy.
Organizations should evaluate the prevailing circumstances and determine the demand for the product and the price consumers are prepared to pay.

Organization’s internal environment should support the expansion strategy. Company’s financial, technological and managerial competencies should be evaluated before employing the strategy.
Organization should also study external factors in the market with respect to technological, socio-cultural and demographic trends before employing the strategy. External as well as internal factor evaluation is more critical in unstable business environment.

	Strategy: Diversification
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity		ü
Quick		ü
Resources		ü
Relationships			ü

 

 

When organizations employ diversification strategy the quality has to be ensured. But the quantity and the quickness depend upon the size of market and the organizations ability to attract customers. Which also determines the use of resources. However, organization needs to develop new relationships unless it goes for either M&A or Strategic Alliance.

Expansion Through Integration

Integration strategy comprises expanding externally by combining with other firms, as against the intensive growth. Essentially motivated by need for survival and also for growth by creating synergies, grouping includes association and integration among different organizations. Grouping of organizations may take the merger or consolidation path. Merger implies a combination of two or more organizations into one entity. The merged organizations cease to exists and their assets and liabilities are taken over by the acquiring company. A consolidation is a grouping of two or more business units to form an entirely new company. All the original organizations entities cease to exist after the combination. The term merger is usually used to refer to both forms of external growth since mergers and consolidations involve the combination of two or more companies into a single company. As is the case in all the strategies, acquisition is a choice a firm has made regarding how it intends to compete (Markides, 1999).

Organizations employ integration strategies to

1. Increase market share,
2. Avoid the costs of developing new products internally and bringing them to the market,
3. Reduce the risk of entering new business,
4. Speed up the process of entering the market,
5. Become more diversified and
6. Quite possibly to reduce the intensity of competition by taking over the competitor’s business.

Integration strategies have their own draw backs as well. Integration reduces flexibility as post integration the organization is locked into specific products and technology, financial costs of acquiring another company and difficulties in integrating various operations of the erstwhile firms. There are many forms of integration, but the two major ones are vertical and horizontal integration.

Vertical Integration: Vertical integration refers to the integration of firms involved in different stages of the supply chain, production. A vertically integrated organization has units operating in various stages of supply chain starting from raw material to delivery of final product to the end user. An organization tries to gain control of its inputs, reduce dependency on supplier (called backwards integration) or its outputs, reduce dependency on distributors (called forward integration) or both. Vertical integration may take the form of backward or forward integration or both. The concept of vertical integration can be picturised using the value chain.
For instance, an organization whose products are made via an assembly process. Such organization may contemplate backward integrating into intermediate production or forward integrating into distribution. Backward integration sometimes is referred to as upstream integration and forward integration as downstream integration. To scale up its power generation and mining operations in Africa, Jindal Steel and Power Limited (JSPL) acquired Canadian mining company CIC Energy corp. The deal gave JSPL access to the Canadian miner’s coal reserves in Botswana which was estimated to be around 6 billion metric tonnes. The mines are still in an early stage of development and it would take some time to start production. The reserves will largely cater to operation of its subsidiary Jindal Africa, which is scaling up its power generation and mining operations in Africa . Acquiring a mining company was to consolidate the mining operations, the group was also interested in the miner’s coal reserves in Botswana which was to be used for power generation, a case of backward integration.

Forward integration denotes to moving closer to the end user by increasing control over distribution activities. For example, a personal computer assembler could own a chain of retail stores from which it sells its machines (forward integration). Many firms in India such as MRF Tyres, Maruti Nexa, have set up their own retail distribution systems to have better control over their distribution activities.

Some companies expand vertically backwards and forward. Reliance Petrochemicals grew by leveraging backward and forward integration : it began with manufacturing of textiles and fibres, moved to polymers and other intermediates then went into the manufacture of fibres, then to petrochemicals and oil refining. In power, Reliance Energy wants to do the same thing and the catchphrase that for this vertical integration is ‘from well-head to wall-socket’. Reliance Energy’s strategy is to straddle the entire value chain in the power business.

It plans to generate power by using the group’s production of gas, transmit and distribute it to the domestic and industrial consumers, reaping the returns of not just generating power using its own gas but selling what it generates not as a bulk supplier but to the end user. In essence, a firm seeks to grow through vertical integration by taking control of the business operations at various stages of the supply chain to gain advantage over its rivals. The record of vertical integration is mixed and hence, decisions should be taken after a comprehensive and careful consideration of all aspects of this form of integration. In most cases the initial investments may be very high and exiting an arrangement that does not prove beneficial may be hard. Vertical integration also requires an organization to develop additional product market and technology capabilities, which it may not currently possess. As discussed earlier Reliance industries is a classic example of vertical integration. Company has also employed horizontal integration strategies as well.

When Jindal Steel and Power Limited (JSPL) acquired Canadian mining company CIC Energy corp many factors were conducive for the deal. Major factor conducive for vertical integration include
1. Taxes and regulations on market transactions,
2. Obstacles to the formulation and monitoring of contracts,
3. Similarity between the vertically-related activities,
4. Sufficient large production quantities so that the firm can benefit from economies of scale and
5. Reluctance of other firms to make investments specific to the transaction.
Since JSPL was already present in Africa with interest in power generation and mining it benefited from the similarity between the related activities, economies of scale and access to coal mines.
Vertical integration may not yield the desired benefit if,
1. Organizations need a critical mass for backward or forward integration. If the quantity required from a supplier is much less than the minimum efficient scale for producing the product, vertical integration is not recommended.
2. Economies of scale also play a major role in make or buy decision. Thus, if the product is widely available commodity and its production cost decreases significantly as cumulative quantity increases, vertical integration strategy is again not recommended.
3. Many business warrant core competencies, or are also heavily R&D driven. If the core competencies between the activities of the two business are very different, organizations should avoid vertical integration.
4. If the vertical integration is unlikely to result in any synergy, either through operations, or managerial competencies. If the vertically adjacent activities are in very different types of industries (For example, manufacturing is very different from retailing.) and vertical integration strategy should be avoided and finally
5. If the addition of the new activity places the firm in competition with another player with which it needs to cooperate. The firm then may be viewed as a competitor rather than a partner.
Firms integrate vertically to
1. Reduce transportation costs, if in a supply chain inbound as well as outbound transportation costs are high or if common ownership results in closer geographic proximity,
2. Enhance supply chain harmonisation,
3. Seize upstream or downstream profit margins,
4. Increase entry barriers to potential competitors, for example, if the firm can gain sole access to scarce resource, or achieves significant economies of scale,
5. Secure access to downstream distribution channels that otherwise would be unapproachable,
6. Enable investment in highly specialized assets in which upstream or downstream players may be reluctant to invest and
It is observed that cultural mismatch among the integrated firms gives paralysing economies of scale than anticipated synergy. The downside risks of an integration strategy to a company include
1. Trouble in effectively integrating the organizations involved, in such cases post acquisition integration should be avoided if possible. Though this may result in duplication of some functions.
2. Due diligence is particularly imperative in integration strategy. Incorrect evaluation of target firm’s value,
3. Overrating the potential for synergy between the companies involved,
4. Forming a combination too outsized to control,
5. The huge financial liability that acquisition entails,
6. Capacity equalizing issues. (For instance, the firm may need to build excess upstream capacity to ensure that its downstream operations have sufficient supply under all demand conditions),
7. Potentially higher costs due to low efficiencies stemming from lack of supplier competition,
8. Decreased flexibility due to previous upstream or downstream investments, (however, that flexibility to coordinate vertically –related activities may increase.),
9. Decreased ability of increase product variety if significant in-house development is required, and
10. Building new core competencies may compromise existing competencies.
Considering all the pros and cons of integration strategies, we look at the alternatives to vertical integration that may provide some of the same benefits with fewer drawbacks. The following are a few of these alternatives for relationships between vertically related organizations.
Long-term explicit contracts
Franchise agreements
Joint ventures
Co-location of facilities
Implicit contracts (relying on firm’s reputation)

	Strategy: Vertical Integration
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity		ü
Quick	ü
Resources	ü
Relationships	ü

 

Vertical integration helps in improving quality of product, as the organization gains control over either the suppliers, who can ensure better quality inputs, or better access to customer with control over distribution, depending upon the nature of integration. Backward integration offers control over raw material in terms of quality as well as delivery schedule. Forward integration on other hand ensures better access to customer, customer service etc., thereby improving quality of the product. Vertical integration ensures quickness as well, and ensures quicker access to resources. The acquiring firm also gets access to necessary relationships as well.

The control over quantity remains moderate as integration process does not create new markets.
ii) Horizontal Integration: Horizontal growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of firms offering similar products and services. The acquisition of additional business in the same line of business or at the same level of the value chain, same stage of production in (combining with competitors) is referred to as horizontal integration. A firm may diversify by growing horizontally into unrelated business. Integration of oil companies, Exxon and Mobil, is an example of horizontal integration.
The Aditya Birla group acquired Dubai-based ETA Star Cement Company. The purchase was seen as a strategic move. Acquisition of ETA group’s cement operation provided UltraTech with direct access to Gulf markets as well as Bangladesh. The acquisition was in line with company’s long-term strategy of expanding global presence across businesses and consistent with vision of taking India to the world . Apart from the access to Gulf and Bangladesh markets, post-acquisition, UltraTech emerged as India’s largest cement producer with 52 million tonnes (mt). A V Birla group had other cement business Grasim and UltraTech. The merger exercise was undertaken with a view to bring about synergies across the same businesses. The Gulf market was expected to grow at 7 per cent. ETA Star’s total capacity included a 2.3 mt clinker plant and 2.1 mt grinding plant in the UAE, a 0.4 mt grinding plant in Bahrain and a 0.5 mt grinding plant in Bangladesh. This helped the group expand its base in the region.

Benefits of Horizontal Integration

The following are some of the benefits of horizontal integration:
Since the organization sells more of the same product, it gets economies of scale – for production, distribution and if marketed under same brand name then promotional as well.

Sharing resources common to different products, commonly referred to as ‘synergies’, company also achieves economies of scope.

With the increased production the bargaining power over suppliers and downstream channel members also increases.
Operating plants in foreign markets, company ensures reduction in the cost of global operations.
Promoting multiple products using the same brand name gives promotional synergy.

Hazards of Horizontal Integration

Acquiring firms market share increases with horizontal integration. Increased market share industry concentration also increases the anti-trust issues. Similarly, as pointed out earlier, the concern is whether the anticipated synergies will materialize or not, if the firms have cultural mismatch. Thus, the due diligence on multiple parameters are necessary.

Another critical factor is M & A do not create new markets. Horizontal acquisitions only increase market share of the organization not the market size. Even the potential benefits of the horizontal merger do not emerge impulsively. Organizations needs to have an unambiguous horizontal strategy to deal with.

Organizations employ diversification strategy for growth. Thus, most of the firms in the industry probably have reached maturity and all of them may employ diversification into new lines of business. Diversification involves moving into new business lines. As the industry matures and consolidates most of the organizations in that industry would have extended the parameters of growth employing vertical and horizontal growth strategies. Hence the next phase of growth can come only through diversification by intensifying their operations into a different industry. Diversification strategy especially make sense when the firm faces uncertain conditions in its core product-market domain.

	Strategy: Horizontal Integration
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity	ü
Quick	ü
Resources	ü
Relationships		ü

 

 

Apparently horizontal integration ensures improvement in all the five elements. However, the improvement depends on the target. If the acquiring company has better technology, then the product quality can be improved. Unless the nature of two firms, who are in same stage of production in case of horizontal integration, have complementary assets, leveraging horizontal gains is difficult. Integration strategies instantly give access to resources as well as relationships.

Organization’s diversification can concentric and conglomerate diversification. Concentric, which refers to related, diversification is suitable when an organization has a strong competitive position but industry attractiveness is low.

On the other hand, a conglomerate, which refers to unrelated diversification, is a suitable strategy when current industry is unattractive and that the organization is deficient of unique and exceptional competencies or abilities in related products or services. Mostly, related diversification strategies have been proved to achieve higher value creation than unrelated diversification strategies. This indicates that there is some advantage attained through collective resources, experience, competencies, technologies or other value creating factors. The synergy effect of diversification indicates whole is greater than the sum of its parts. Although it is difficult to forecast what is a “synergistic” match of a business to its current corporate portfolio, the assessment must be that the business creates new value when it is added to the organization’s line of current businesses.
Related Diversification (Concentric Diversification)

In related diversification or concentric diversification, the organization expands into an allied industry, one having synergy with the company’s current lines of business, creating a state in which the current and new lines of business share and gain special advantages from commonalities such as technology, customers, distribution, location, product or manufacturing similarities, and government access. In principle, in concentric diversification, the new industry is related in some way to the current one. If existing industry is not very attractive related diversification is often suitable corporate strategy when a company has a strong competitive position and distinctive competencies. An organization is said to have followed concentric diversification strategy when it caters to new product or service area belonging to different industry category but the new product or service is similar to the current one with respect to technology or production or marketing channels or customers. Such diversification may be possible in two ways: internal development through product and market expansion utilizing the existing resources and capabilities or through external acquisitions operating in the same market space.

Addition of lease financing activity in India is a case of market-related concentric diversification. Another type of concentric diversification is technology related in which the firm employs similar technology to manufacture new products.

Unrelated Diversification

In an organization which seeks to grow by adding entirely unrelated products and markets to its existing business the growth strategy employed is conglomerate diversification. Conglomerate is a company that consists of a grouping of businesses from unrelated streams. As a conglomerate diversification strategy, an organization generally introduces new products using different technologies in new markets. This means conglomerate consists of a number of product divisions, which sell different products, principally to their own markets rather than to each other. For a conglomerate, business risks are diversified through profit gained from profit centres in various lines of business. However, each business unit of a diversified conglomerate should be a profit centre for the organization, and not that the profits are cross subsidized to other non-performing units.

During the evolution phase of strategic management conglomerates were immensely popular in the 1960s to 80s. However, late 80s & early 90s in the quest for competitive advantage, sources of competitive advantage within the firm, resource analysis of core competencies, corporate restructuring and business process reengineering, organizations started focusing and outsourcing, many conglomerates reduced their business lines by restricting to a choice few. The reasons for pondering this alternative were largely to seek more attractive opportunities for growth, spread the risk across different industries, and/or to exit an existing line of business. Moreover, this may be an appropriate strategy when, not only the present industry is unattractive, but the company also lacks exceptional capabilities that it could transfer to related products or industries. However, since it is difficult to manage and excel in unrelated business units, it is often difficult to realize the expected and anticipated results.

In a quest to sticking to its core business, the pace of divestments has gathered momentum in India Inc. DLF, which had a debt of over Rs. 19,000 crores on its balance sheet in 2011-12 started the ball rolling in 2013. It raised $90 million by selling off part of its wind power assets (capacity 150 MW) to Bharat Light & Power. Earlier, it had sold off a 17 acre plot in Mumbai for Rs. 2,700 crore and sold off its stake in Aman Resorts for Rs. 1,650 crore. The decision of companies to stick to its core business also saw Pantaloon selling of its 22.5 per cent stake in Future Generali Insurance business .
GMR, which had debt of Rs. 28,000 crore on its books in 2011-12, inked an agreement earlier in March with FPM Power Holdings for divesting its 70 per cent equity stake in GMR Energy (Singapore), which holds energy assets in Singapore for a total consideration of $660 million. FMP is a joint venture between first pacific Co and Manila Electric Co .

Most companies in the infrastructure sector are nursing huge debts. Advani Enterprises, one of India’s fastest growing infra company, had debt of nearly Rs. 52,000 crores as on 31 March 2012 .

Rationale for Diversification

Some of the most important reasons for diversification are listed below.
Economies of Scale and Scope (Synergy): When companies manufacturing similar products merge, it allows the pooled firms to combine resources and achieve lower operating costs. Merged entity can cut down operating costs and improve operational efficiency by eliminating redundant and overlapping activities. Merged entity can share existing marketing costs, investment, operating and managerial facilities. Reduced overhead costs, and sharing of fixed manufacturing costs also helps reducing costs. An organization with exceptional managerial competencies can acquire a less efficient organization and make it more profitable.
Many Japanese companies have successfully built huge markets overseas and Indian companies are also looking to tap into these markets by inking agreements .

Being optimistic of the automobile growth in the country and looking to leverage their technologies and international expertise Mitsui, Sanyo Special Steel and Sumitomo inked agreements with Indian companies. The three Japanese companies also scaled up rapidly to meet the expected surge in demand for auto ancillary products.
While a lot of Japanese companies have built up a presence in the auto and auto ancillary sector, Indian companies were also looking to tap Japanese technology in other sectors.

Through pooled financial resources or simply through pooled risk organizations can achieve efficiencies.
Widen Market Base and Enhance Market Power: Companies ambitious of increasing the market for the its products enter into collaborations and acquisitions. Aditya Birla group company Grasim, signed an agreement with Omikenshi for jointly developing new internal markets for functional rayon products. Besides expanding markets for its products Grasim was also looking to collaborate in a joint R&D programme .

Profit Stability: If the core business of the company depends on sales that are seasonal or cyclical, a large number of these organizations chase diversification strategy to escape instability in sales and profits which can result from events such as cyclical and seasonal changes in demand, changes in the life cycles and other undermining forces in the micro, meso and macro environment. Acquisition of new business can decrease disparities in corporate profits by expanding the company’s lines of business.

Growth: Growth is a basic objective of most of the companies for diversification. Diversification allows companies to grow faster than intensification strategy. Particularly when the current products and markets have come to a level of maturity, further growth is difficult; the only option the management has is to diversify into new terrains. Moreover, mergers and acquisitions as a strategy offers quicker results compared to organic growth as the resources, skills, other factors essential for faster growth are immediately available.

Counter Competitive Threats: Apart from giving immediate access to the resources of the target firm, M&As reduce the competitive pressure. Mergers and acquisition as a strategic move are expected to counter the competitive threats by reducing the intensity of competition.

Access to Latest Technology: As discussed earlier, many Indian firms enter into strategic alliances with foreign company to gain access to the latest technologies without spending huge amount of money on R&D. Grasim signed an agreement with Omikenshi for jointly developing new international markets for functional rayon products. Besides expanding markets for its products Grasim also looked to collaborate in a joint R&D programme.

Regulatory Factors: Many a times various governments offer incentives to attract investment. A large number of organizations, to take advantage of these incentives, have diversified their operations geographically to exploit opportunities in different regions and countries.

Improve Financial Performance: The core business of an organization endures itself on its lucrative projects, and invests this cash to build new ventures that generate additional profits. An organization may also be attracted to pursue diversification opportunities because it has liquid resources far in excess of the total development needs. Large firms generate cash that can be invested in other ventures. The firm acts as a banker of an internal capital market. Sometimes a company may seek a merger with another organization with the intention of tiding over its financial problems.

Alternative Routes to Diversification

Mergers and Acquisitions

In a merger two or more companies come together to form a new company. A merger is a legal transaction in which two or more organizations combine operations through an exchange of stock. The erstwhile companies cease to exist. In a merger, only one organization entity will eventually remain.

On the other hand, an acquisition is a case of purchase of one organization by another. Thus, one of the companies unilaterally relinquishes its existence. In recent years, there were quite a few acquisitions in which the target firms resisted the take-over bids. These acquisitions are referred to as hostile takeovers. It is natural for the target organization’s management to try to defend against the takeover. Although they are used synonymously, there is a distinction between the term ‘merger’ and ‘acquisition’.

A corporate merger is fundamentally a grouping of the assets and liabilities of two companies to form a single business entity. To be precise, only a corporate grouping in which one of the companies survives as a legal entity is called a merger. In a merger of firms that are approximate equals, there is often an exchange of stock in which one firm issues new shares to the shareholders of the other firm at a certain ratio. A merger happens when two firms, often about the same size, agree to unite as a new single company rather than remain as separate units. This kind of action is more precisely referred to as a “merger of equals.” Both companies’ stocks are surrendered, and new company stock is issued in its place.

A merger of equals doesn’t occur quite frequently in practice. Often, a company buying another allows the acquired firm to announce that it is a merger of equals, even though it is technically an acquisition. This is done to overcome some legal restrictions on acquisitions.

When a company takes over another to become the new owner of the target company, the purchase is called an acquisition. From the legal angle, the ‘target company’ ceases to exist and the buyer “gulps down” the business and stock of the buyer continues to be traded.

Strategic Partnering

When two or more organizations establish a relationship that combines their resources, capabilities, and core competencies to achieve some business objective it is termed as strategic partnering. There are three major types of strategic partnerships:
Joint ventures,
Long-term partnerships, and
Strategic alliances.

Joint Ventures: When two or more organizations create a separate, independent organization for strategic purpose it is termed as Joint Venture. Joint Venture partnerships are typically focused on undertaking a specific market objective. The Joint Venture partnerships may last from a few months to a few years and often involve a cross-border relationship. A company may purchase a percentage of the stock in the other company, but not a controlling share. The joint ventures between various Indian and foreign companies such Hindustan Motors and General Motors, Hero Cycles with Honda Motor Company, Wipro and General Electric, etc are examples of such strategic partnering.
Long-Term Contracts: In Long-term contracts, two or more companies enter a legal contract for a specific business purpose. Long term contracts are considered to be more flexible and less inhibiting than vertical integration. Long-term contracts are common between a buyer and a supplier. Compared to joint venture, long term contracts are easier to end in case of unsatisfactory performance. Japanese automakers also enter into long term contract arrangements with their vendors frequently.

Strategic Alliances: Two or more organizations share resources, capabilities, or distinctive competencies to pursue some business purpose in a strategic alliance. Strategic alliances often rise above the narrower focus and shorter duration of joint ventures. Strategic alliances may be aimed at world market dominance within a product category. While the partners cooperate within the boundaries of the alliance association, they often compete aggressively in other parts of their businesses.

	Strategy: Joint Venture, Long term contract, Strategic Alliances
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity		ü
Quick	ü
Resources	ü
Relationships	ü

 

 

Companies looking forward to improving quality of the product one of the quickest ways to improve the quality is to have a Joint Venture, Long term contract, Strategic Alliances depending upon the feasibility and due diligence, with organization having latest technologies. If the technology gap is wide JVs should be a preferred strategy. JV also ensure quickness, access to resources as well as relationships.

Mergers and Acquisitions (M&A)

One plus one is more than two, is what the mergers and acquisitions look for. The principal motive behind merger and acquisition is to maximize shareholder wealth, companies are more valuable together than standalone. Mergers and acquisitions and corporate restructuring—or M&A for short—are a big part of the corporate finance. For a target company M&A is attractive when times are challenging. By coming together companies get a bigger market share and hope to achieve greater efficiencies. Normally, stronger companies will act to buy other companies to form a more competitive, cost-efficient company. However, it is not that the big fish will eat small fish. Tata group made its first significant overseas foray. With exchange control still relatively tight, Tata group made a leveraged transaction to buy out Tetley, UK’s most famous tea brand. This was a huge boost for Tata Tea, which now had control over a key brand that could be a permanent important customer for Indian plantations . The potential benefits companies look forward to while coming together are a surge in market share or greater efficiencies. Tetley got the access to plantation in India and Indian plantation got a permanent customer in the form of UK’s most famous tea brand.

The term “acquisition” is usually used when a larger firm absorbs a smaller firm and “merger” is used when the combination is portrayed to be between equals. For the sake of discussion, the firm whose shares continue to exist, may be under a different company name, will be referred to as the acquiring firm and the firm’s whose shares are being replaced by the acquiring firm will be referred to as the target firm.

The main reason quoted for many M&As is synergy. Synergy is often manifested in the form of revenue enhancement and/or cost savings. Merging companies expect to benefit by virtue of economies of scale, improved market reach, staff cutbacks, acquisition of technology and industry visibility. However, achieving synergy requires lot of due diligence, done-synergy is not routinely realized once two companies merge. Naturally, when two businesses are combined, it should result in improved economies of scale, but sometimes it works in reverse. In many cases, one and one add up to less than two. One of the reasons for not realizing the economies of scale is cultural mismatch. Cultural mismatch instead of giving anticipated synergy results into paralysing economies of scale.

Excluding any synergies resulting from the merger, the total post-merger value of the two firms is equal to the pre-merger value, if the ‘synergistic values’ of the merger activity are not measured. However, the post-merger value of each individual firm is likely to be different from the pre-merger value because the exchange ratio of the shares will not exactly reflect the firms’ values compared to each other. The exchange ratio is distorted because the target firm’s shareholders are paid a premium for their shares. Synergy takes the form of revenue enhancement and cost savings. When two companies in the same industry merge, the revenue will decline to the extent that the businesses overlap. Hence, for the merger to make sense for the acquiring firm’s shareholders, the synergies resulting from the merger must be more than the value lost initially.

Different forms of Mergers

Depending on the relationship between the two companies that are merging, there are different forms of mergers. These are:

Horizontal Merger: When the two or more merging companies are in direct competition in the same (stage of production) product categories and markets.
Vertical Merger: When the two or more merging companies are in different stages (successive stages of production) of the supply chain. Also called as vertical integration. A company taking over its supplier’s firm or a company taking control of its distribution by acquiring the business of its channel partners or distributors are examples of this type of merger.

Conglomeration: When two or more merging companies have no common business areas.
Market-extension Merger: When two or more merging companies sell the same products in different markets.
Product-extension Merger: When two or more merging companies sell different but related products in the same market.

The finance standpoint categorizes mergers in three types: pooling of interests, purchase mergers and consolidation mergers. Each has certain implications for the companies and investors involved:

Pooling of Interests: A pooling of interests is generally accomplished by a common stock swap at a specified ratio. This is sometimes called a tax-free merger. Such mergers are only allowed if they meet certain legal requirements. A pooling of interests is generally accomplished by a common stock swap at a specified ratio. Pooling of interests is less common than purchase acquisitions.

Purchase Mergers: As the name suggests, this kind of merger occurs when one company purchases another one. The purchase is made by cash or through the issue of some kind of debt investment, and the sale is taxable. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be “written up” to the actual purchase price, and the difference between book value and purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company. Purchase acquisitions involve one company purchasing the common stock or assets of another company. In a purchase acquisition, one company decides to acquire another, and offers to purchase the acquisition target’s stock at a given price in cash, securities or both. This offer is called a tender offer because the acquiring company offers to pay a certain price if the target’s shareholders will surrender or tender their shares of stock. Typically, this tender offer is higher than the stock’s current price to encourage the shareholders to tender the stock. The difference between the share price and the tender price is called the acquisition premium. These premiums can sometimes be quite high.

Consolidation Mergers: When a new company is formed to combine the assets of the combining companies and the stock of the consolidated company is issued to the shareholders of both companies and the existing companies are dissolved, then the merger is called consolidation.

The tax terms are the same as those of a purchase merger. Banking sector in India is currently undergoing consolidation phase.

Acquisitions

As discussed earlier, an acquisition is a little different than a merger. In acquisitions as a strategy, like mergers, companies chase economies of scale, efficiencies, and greater market prominence. However, unlike all mergers, all acquisitions involve one firm purchasing another—there is no exchanging of stock or consolidating as a new company, acquired companies unilaterally relinquish their existence. In an acquisition, a company can buy another company with cash, stock, or a combination of the two. In smaller deals, it is common for one company to acquire all the assets of another company. Another type of acquisition is a reverse merger, a transaction that enables a private company to get publicly listed in a reasonably short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise finance buys a publicly listed shell company, usually one with no business and limited assets. The private company reverse merges into the public company and together they become an entirely new public corporation with tradable shares. Irrespective of the type of combination, all mergers and acquisitions have one thing in common: they are all intended to generate synergy and the success of a merger or acquisition centres on how well this synergy is achieved.

Merger and Acquisition Strategy
Mergers and acquisitions strategy is employed for many reasons. The reasons usually are associated to business apprehensions such as growth, resource, product, marketing, efficiency, competition, and tax issues. They can also occur because of ambitions of the CEO, and some very personal reasons such as retirement and family concerns. Some people are of the opinion that mergers and acquisitions also occur because of corporate greed to acquire everything.

Reasons for M&A include:

Growth: Companies take the M&A course to seize the opportunities for growth or accelerate the growth of the company. M&A give instant access to the acquiring company to the resources, competencies and facilities of the target company.

Reduce Competition: Especially in case of horizontal M&As, one foremost reason for companies to employ the strategy is to reduce competition. Acquiring a competitor is an excellent mean to improve a firm’s competitive position in the marketplace. It eliminates the competition and allows the acquiring firm to use the acquired firm’s resources and expertise. However, with the stringent regulations, grouping or even for that matter making a cartel to set a minimum price or reduce competition, is as such not legal and under the Antitrust Acts it is considered a predatory practice. Whenever a merger is proposed, companies make an effort to elucidate that the merger is not anti-competitive and is being done solely to serve the consumer better. Even if the merger is not for the stated purpose of eliminating competition, regulatory agencies may conclude that a merger is anti-competitive. However, there are a number of acceptable reasons for grouping of firms.

Cost Efficiency: Economies of scale are enjoyed by the larger firms. However, due to technology and market conditions, it is possible that there is absence of economies of scale, or in other words cost advantages are independent of scale. The general assumption is that larger firms are more cost effective than are smaller firms, with fragmented markets, however, it may not always cost effective to grow, or at least reap the benefit of scale of operation.

Moreover, larger companies are not necessarily more efficient than smaller companies, in spite of the stated reason that merging will improve cost efficiency. Further, some large companies display diseconomies of scale, which means that the average cost per unit increases, particularly if the capacity augmentation is in large increments, as total assets grow too large. Some industry analysts even suggest that the top management go in for mergers to increase its own prestige. Certainly, managing a big company is more prestigious than managing a small company.
Avoid Being a Takeover Target: To avoid becoming a target company (for acquisition) is another reason that companies merge. Companies that have a large quantity of liquid assets are attractive takeover target because the acquiring firm can use the liquid assets to expand the business, pay off shareholders, etc. If the targeted company invests current funds in a takeover, it discourages other companies from targeting it because it is now larger in size, and will, therefore, require a larger tender offer. The company can use its excess liquid assets to acquire companies, and makes itself more difficult to be acquired. Many conglomerate mergers were motivated by investing excess funds in acquiring other companies, as this was the best possible investment for the liquid cash.

Improve Earnings and Reduce Sales Variability: Companies having seasonal demand for its products can improving earnings, bring in sales stability and reduce corporate risk by acquiring a company that has more stable demand. It is also possible to acquire company with complementary nature with respect to seasonal demand. However, this may prove to be an inefficient strategy as the nature of products is different leveraging the managerial competencies could be a challenge.

Market and Product Line Issues: Identifying product gaps and bridging them with new products of product lines with M&A gives the firm instant entry to target markets. The target firm’s competencies, resources and managerial experience are readily available for immediate use. Most acquisitions are motivated for this reason. Quick market entry or expansion is one of the dominant reasons for a merger and acquisition. Product line concerns also exert dominant stimulus in merger decisions. A firm may wish to expand, balance, fill out or diversify its product lines. Acquisition of Tetley by Tatas, CIC Energy Corp by JSPL are classic examples here.

Acquire Resources: Combining the resources of the two firms is another motivation for acquisition. Firms wish to acquire the resources of other firms. Resources may be tangible such as plant and equipment, or they may be intangible resources such as trade secrets, patents, copyrights, leases, management and technical skills of target company’s employees, etc. This only proves that the reasons for mergers and acquisitions are quite similar to the reasons for buying any asset: to purchase an asset for its utility. Intellectual Property Rights are also traded like fixed assets.

Synergy: Economies of scope occur when two companies combine and the combined company is more cost efficient at the activities erstwhile companies were involved in. Companies experience synergies if each requires the same resources and competencies but the impact is more than the arithmetical sum, meaning one plus one is more than two. Synergy is similar to the concept of economies of scope. Although synergy is often cited as the reason for conglomerate mergers, cost efficiencies due to synergy are difficult to document.

Tax Savings: When a purchase of either the assets or common stock of a company takes place, the tender offer less the stock’s purchase price represents a gain to the target company’s shareholders. Consequently, the target firm’s shareholders will usually gain tax benefits. However, the acquiring company may reap tax savings depending on the market value of the target company’s assets when compared to the purchase price. Also, depending on the method of corporate combination, further tax savings may accrue to the owners of the target company. Although tax savings is not a primary motive for a combination, it can certainly “sweeten” the deal.

Cashing Out: When the promoters of the firm want to exit the business for any reason, they may decide to sell the company to another company. Particularly, for a family-owned business, when the titleholders wish to retire, or otherwise leave the business and the next generation is indifferent in the business, the owners may decide to sell to another firm. For purposes of retirement or cashing out, if the deal is planned correctly, there can be significant tax savings.

M&A as a strategy is employed by the companies to seize the opportunities for growth, accelerate the growth of the firm, access capital and brands, gain complementary strengths, acquire new customers, expand into new product- market domains, widen their portfolios and become a one-stop-shop or end-to end solution provider of products and services.

Reasons for Failure of Merger and Acquisition

Corporate success through mergers and acquisitions world over has not been inspiring. Past trends show that roughly two thirds of all big mergers have not produced the desired results.

Dennis Mueller’s study of acquisitions between 1950 and 1972 concluded that target companies achieved smaller market shares as a result of being acquired. When compared with similar firms that remained independent, the acquired firms grew less quickly. Merged firm increased its assets and revenues as a result of the acquisition, but the acquired business entity was likely to grow more slowly than it would have had it not been acquired .
David Birch and his associates at the Massachusetts Institute of Technology have reached a similar conclusion by measuring the rate at which firms add new employees. They found that firms employed more workers as a result of acquisition and that some resulting firms continued to exceed the average rate at which firms added employees. But when the growth rate of the resulting firm was matched with firms that had been growing as fast as the targets, the comparable firms that remained independent grew at a faster rate .

Supporters of M&As claim that they boost revenues to justify the price premium. The notion of synergy, ‘1+1 > 2’, together the firms are more than their arithmetic sum, or the combined entity is better than the stand along companies, sounds great, but the expectations behind this notion are too naïve. In actual life things are not that simple and rosy. Rationale behind mergers can be inconsistent and efficiencies from economies of scale may prove indefinable. Moreover, the problems associated with trying to make merged entities work cannot be overcome easily.
A successful diversification should comprise a well-crafted strategy in choosing a target, avoiding over-paying, generating value in the integration process.

The probable difficulties that a firm is likely to come across during diversification comprise:

Integration Difficulties: Following mergers and acquisition, integrating two companies can be rather difficult. Blending two incongruent corporate cultures, connecting different financial and control systems, structuring effective financial and control systems, developing effective working relationships, etc., will be issues that will come to the fore and they have to be contended with.

Faulty Assumptions: Many top strategy managers try to replicate others in endeavouring mergers, which can be catastrophic for the company. A prosperous stock market boosts merger, which can spell danger. Transactions done with highly rated stock as currency appear easy and cheap, but underlying assumptions behind such transactions is seriously flawed. Mergers are quite frequently more to do with personal triumph than business growth.

Fear psychosis also drive mergers, fear of globalization, rapid technological advances, dynamic economic scenario that increases ambiguity, all can create a strong stimulus for defensive mergers. Sometimes the management feels that only big players will survive in a competitive world and they have no choice but to acquire a raider before being acquired.

Failure to carry out effective due-diligence: Due diligence in M&A comprises a thorough review by the acquirer of a target company’s internal books and operations. An effective due-diligence process scans a large number of items in areas as diverse as those of financing the intended transaction, differences in cultures between the two firms, tax concessions of the transaction, etc. The failure in comprehensive due-diligence often leads to the acquiring firm paying disproportionate premiums. Transactions are often made depending upon the resolve of the due diligence process.

Inordinate increase in debt: Some companies considerably raise their levels of debt to finance acquisitions. This is likely to increase the probability of bankruptcy leading to downgrading of firm’s credit rating. Debt also prohibits investment in areas that contribute to a firm’s success such as R&D, human resources development and marketing.

Too much diversification: Indications are that a large size creates efficiencies in various organizational functions when the firm is not too large. At some level the costs required to manage the larger firm exceed the benefits of efficiency created by economies of scale. The merger route can lead to strategic competitiveness and above-average returns. By over diversification, firm’s may lose their competitive edge. The threshold level at which a company may lose its competitive edge varies across companies, the reason being that different companies have different capabilities and resources that are required to make the mergers work. Overpassing these threshold limits can result in overstretching these capabilities and resources leading to deteriorating performance.

Problems in making M&A work: Mergers can distract management from company’s core business, spelling trouble for the company. Corporate cultures of the companies are very different; this further obstructs the chances for success. When a company is acquired, cultural differences are often ignored, the decision is typically based on product or market synergies. Ignoring cultural differences is a mistake, to assume that these issues can be easily overcome is wishful thinking. Companies often focus too narrowly on cutting costs following mergers, without paying attention to revenues and profits. The cost-cutting focus can divert attention from the day-to-day business and poor customer service. This is the main reason for the failure of mergers to create value for shareholders.

However, not all mergers fail. Size and global reach can be advantageous and tough managers can often squeeze greater efficiency out of poorly run acquired companies. The success of mergers, however, depends on how realistic the managers are and how well they can integrate the two companies without losing sight of their existing businesses. Though the acquisition strategies do not consistently produce the desired results, some studies suggest certain decisions and actions that firms may follow which can increase the probability of success. The attributes leading to successful acquisition suggested by various studies are that the:

Acquired firm has assets or resources that are complimentary to the acquiring firm’s core business.

Acquisition is friendly.

Acquiring firm selects target firms and conducts negotiation carefully and methodically.
Acquiring firm has adequate cash and favourable debt position.
Merged firms maintains low to moderate debt position.
Acquiring firm has experience with change and is flexible and adaptable.
Acquiring firm maintains sustained and consistent emphasis on R&D and innovation.
When employed with due diligence and carefully drafted integration strategy, M&A are inevitable for growth. Companies looking forward to improving quality of the product one of the quickest ways to improve the quality is to go for M&A depending upon the feasibility and due diligence. One of the additional advantage M&A offers compared to JV, SA and Long-Term Contracts is quantity, though it may come at the cost of resources. Organization can divert resources to another purpose if they are overlapping and minimize the loses on account of underutilized resources, if any post M&A. Sharing of resources may also offer price competitiveness.

	Strategy: Mergers & Acquisition
	Level of Impact
Element	High	Moderate	Low
Quality	ü
Quantity	ü
Quick	ü
Resources	ü
Relationships		ü

 

 

Value Chain Analysis

To add value to the offering organization must improve quality, but not by increasing the selling price. Porter’s Value Chain Analysis (Michael Porter. Competitive Advantage 1985) consists of a number of activities, namely primary activities and support activities. Primary activities have an immediate effect on the production, maintenance, sales and support of the products or services to be supplied.

Inbound Logistics are all processes that are involved in the receiving, storing, and internal distribution of the raw materials or basic ingredients of a product or service. The relationship with the suppliers is essential to the creation of value in this matter. They include materials handling, stock control, transport etc.

Operations involves all the activities (for example production floor or production line) that convert inputs of products or services into semi-finished or finished products. Operational systems are the guiding principle for the creation of value. These include – machining, packaging, assembly testing etc.

Value Chain

Outbound logistics are all activities that are related to delivering the products and services to the customer. These include, for instance, storage, distribution (systems) and transport. For tangible products this would be warehousing, materials handling, transportation etc. In the case of services activity may be more involved with arrangements for bringing customers to the service if it is a fixed location (e.g. amusement parks, zoo etc).

Marketing and Sales are all processes related to putting the products and services in the markets including managing and generating customer relationships. This includes promotion of products, sales administration and so on. The guiding principles are setting oneself apart from the competition and creating advantages for the customer.

Service includes all activities that maintain the value of the products or service to customers as soon as a relationship has developed based on the procurement of services and products. The Service Profit Chain Model is an alternative model, specific designed for service management and organizational growth. They are concerned with activities that help improving the effectiveness or efficiency of primary activities.

Support activities of the Value Chain Analysis

Firm infrastructure enables the organization to maintain its daily operations. Line management, administrative handling, financial management are examples of activities that create value for the organization. Each of the groups of primary activities is linked to support activities which are as follows:

Procurement is a process for procuring the various resource inputs to the primary activities and this is present in many parts of the organization. Procurements are all the support activities related to procurement to service the customer from the organization. Examples of activities are entering into and managing relationships with suppliers, negotiating to arrive at the best prices, making product purchase agreements with suppliers and outsourcing agreements. Organizations use primary and support activities as building blocks to create valuable products, services and distinctiveness.

Technology Development: There are key technologies attached to different activities which may be directly connected with the product or with processes or with resource inputs. Technology development activities relate to the development of the products and services of the organization, both internally and externally. Examples are IT, technological innovations and improvements and the development of new products based on new technologies. These activities create value using innovation and optimization.

Human Resource Management: This is an area involved with recruiting, managing, training, developing and rewarding people within the organization. This categorization of the activities as primary or support may be found true for organizations in general, however it is always better to have one’s own judgment in identifying activities for particular firms in consideration. Human resource management includes the support activities in which the development of the workforce within an organization is the key element. Examples of activities are recruiting staff, training and coaching of staff and compensating and retaining staff.

Firm’s Infrastructure: Execution of strategy warrants coordination and integration among various departments and units within and outside the organization. Sound infrastructure of the firm helps in executing the strategies. For decision making at every stage the firm needs information systems. The quality of planning depends on the accessibility of the information and the infrastructure firm develops. Planning also needs accurate and timely information on environment. Thus, the organization needs a very sound infrastructure as a support activity.

As discussed earlier, value is always in the eyes of the beholder. Consumer may not necessarily appreciate value offered by the organization. This leads to companies making multiple value propositions by segmenting a market. Yet the practice can be followed by competitors as there are no barriers to followership. However, if the company concentrates on quality, by better inputs, processes of converting raw material into final output, barriers get created for followership. This can be achieved by concentrating on Resources, material, machine and manpower. Porters value chain analysis considers these as secondary activities in terms of firm’s infrastructure, Human Resources and Procurements.

Decision making with respect to all the above activities becomes easier if organization frames strategies and states the policies for each step. Developing a system for these decisions making along with framing the organizational structure ensures elimination of unnecessary activities and speeds up the decision making.

Ruchi Soya[1] is a classic example of integrated player in the edible oil business with a presence across the entire value chain. The company is active in the export market having emerged a niche player in

soya bean meal, which is in high demand, particularly in Southeast Asia, the Far East and Middle East. It also exports high-end value-added products like edible de-fatted soya flour, full fatted edible flour, soya lecithin, soya granules, soya flakes and soya chunks. The company exported soya meal and soya lecithin. Godrej group chairman Adi Godrej considered Ruchi Soya a successful company in the oilseeds, vegetable oils and added value products business.
As a part of marketing and sales activity, Ruchi transformed itself from being a commodities trader and one processing oils to a complete foods company with branding of all its products. With a strong portfolio of brands that included ready-to-eat vegetarian fare, Nutrela soya foods, refined oils and table spread, Sunrich sunflower oil, mass edible oil brands Ruchi Gold and Ruchi Star, and Mahakosh refined soya bean oil. Ruchi No. 1 is a leading edible oil and vanaspati brand, while Ruchi Gold is palmolein brand.
Though India was the world’s fifth largest producer of soya beans, its productivity of just 1.02 tonnes per hectare was less than half the global average of 2.5 tonnes. India was thus a net importer of soya bean oil, purchasing almost 1.2 million tonnes yearly. Ruchi forged a joint venture with DJ Hendrick International, Inc. (DJHII), Canada’s leading centre of excellence for developing non-GM (non-Genetically Modified) soya beans, and KMDI International of Japan, a trader and marketer of high-quality food-grade soya beans, for researching, producing, marketing and distributing high-yield non genetically modified soya beans in India . The joint venture combined the expertise of each partner towards enhancing the low yields in India, thus reducing import dependency through improving the oil content of domestically grown soya beans, ensure steady flow of input to Ruchi, benefit public health, conserve precious foreign exchange, raise farmer incomes, and improve the rural economy.
On quality front, Ruchi Soya steered clear of GM seeds or crops, as research globally testified that such ‘tampered food’ can be detrimental to health.
Ruchi entered into 51:26:23 Joint Venture (JV) with Japan’s edible oil major J-Oil Mills Inc. (J-Oil) and global trading company Toyota Tsusho Corporation (TTC). Ruchi transferred its soya processing plant at Shujalpur, in Madhya Pradesh, to the JV for producing and marketing high quality functional edible oils. J-Oil provided technical assistance and TTC provided management assistance for internal control and access to internal markets through its network . The JVs supplemented the R&D capabilities of Ruchi to focus on new product development and modern testing and quality control laboratories across India.
The company replicated its business model for soya for palm oil. Already the largest branded palm oil marketer and palm processor in the country, Ruchi consolidated its sourcing strengths to process imported palm oil as well as that grown by contract farmers. Self-sufficiency in raw material sourcing was the key to insulate from short supplies and spiralling prices in the long run. Achieving back integration in palm plantations was imperative to complete value chain and accord a fillip to the palm oil business. Once Ruchi forayed into palm oil plantation, company was allotted a combined 2,06,000 hectares of land banks by the governments of Andhra Pradesh, Gujarat, Mizoram, Tamil Nadu, Odisha, Karnataka and Chhatisgarh, 58,350 hectares of this in Andhra and 52,457 hectares in Gujarat. The company works closely with farmers in the seven states, where it maintains 22 nurseries with 3.39 million seeding stock. Company operates four mills in Andhra with an aggregate FFB (Fresh Fruit Bunches) processing capacity of 125 tonnes per hour. The tripartite agreement between Ruchi, the state governments and farmers grant exclusive rights to the company to procure FFBs from farmers, who are paid fortnightly by direct bank transfers. Thus, it ensures a steady supply of inputs.
Sunflower alongside palm, are the two fastest growing categories of edible oils, Ruchi launched its Sunrich refined sunflower oil brand in Odisha.
The share of branded oil segment has remained low over the years, it is poised for growth in view of the rising income levels, an uptrend in urbanisation, and the increasing quality consciousness of Indian consumers. While edible oils constitute an important component of food expenditure in Indian households, the industry is highly fragmented. This has resulted in severe competition and inherently thin profitability margins, leading many inefficient units to down shutters. Almost 80 per cent of soya processors have vanished over the past 20 years. Noted investment information and credit rating agency ICRA.
Diversified product portfolios, multiple manufacturing units, and pan-India operations mainly in the branded segment have sustained the presence of major enterprises like Ruchi Soya, Marico Ltd, Adani Wilmar Ltd and KS Oils. ICRA believes that by virtue of their scale, these larger manufacturers are advantaged by access to cheaper working capital credit and savings in production costs that have enabled them to withstand margin pressures and difficult industry conditions.
In case of Ruchi Soya, its dependency reduction strategy on procurement, operations through JV, distribution network, focused marketing efforts and developing brands, gave it a competitive advantage in highly fragmented, intensely competitive with thinly profitable market. Additional value created at each stage, helped the company making higher profits either by charging more or deliver same value at lower cost. This eventually improves the organization’s financial performance.
Select guiding points for evaluation
Positive Negative
Internal factors Strengths
Technological skills
Leading brands
Distribution channels
Customer loyalty/relationship
Production quality
Scale
Management Weakness
Absence of important skills
Weak brands
Peer access to distribution
Low customer retention
Unreliable product/service
Sub-scale
Management
External factors Opportunities
Changing customer tastes
Liberalisation of geographic markets
Technological advances
Changes in government policies
Lower personal taxes
Change in population age structure
New distribution channel Threats
Changing customer tastes
Closing of geographic markets
Technological advances
Changes in government policies
Tax increases
Change in population age structure
New distribution channel

To use value chain analysis framework productively organizations must evaluate primary as well as secondary activities.
Select guiding points for evaluating primary activities
a) Inbound Logistics
Important issues in inbound logistics are the relationship with suppliers; JIT delivery; cost structure of raw material. Soundness of material and inventory control systems. Self-sufficiency in raw material sourcing to insulate from short supplies and spiralling prices in the long run. Achieving back integration in palm plantations to complete value chain and accord a fillip to the palm oil business. Ruchi Soya reduced import dependency through improving the oil content of domestically grown soya beans.
Competencies in handling raw material, warehousing activities.

b) Operations:
Important issues in operations are labour & capital utilization; cycle time; quality etc. Ruchi Soya ensure through JVs
Operational efficiency with respect to handling of equipment vis-a-vis key competitors.
Suitable automation of production processes.
Effective control systems to improve quality and reduce cost.
Effective plant layout and work flow design.
c) Outbound Logistics
Outbound logistics are characterized by the channels of distribution; intermediaries and their timeliness and efficiency of delivery of finished goods and services. Ruchi Soya ensured it through own distribution and managerial expertise from JV partners.
Effective finished goods warehousing activities
d) Marketing and Sales:
Marketing and sales must ensure customer acquisition, method & effectiveness of marketing; cost of customer acquisition; sales force issues. Ruchi Soya ensured that it had effective market research to identify customer segments and needs, diversified product portfolios, multiple manufacturing units, and pan-India operations mainly in the branded segment. Organizations should also look at…
Novelty in sales promotion and advertising.
Assessment of different distribution channels
Motivation and skills of sales force
Building of an image of quality and a favourite reputation
Degree of market dominance within the market segment or overall market
e) Customer Service
Processes to invite customer input for product improvements
Timeliness of consideration to customer complaints
Relevance of warranty and guarantee policies
Facility to provide replacement parts and repair services
Select guiding points for evaluating Support activities
Firm Infrastructure: Ruchi Soya’s management information systems played a major role in diversification and introduction of new products to build the product portfolio. Firm developed effective infrastructure. Following points are important while developing firm’s infrastructure
To facilitate strategy execution firm’s infrastructure must have good coordination and integration among units.
Quality decision making depends on firm’s information system.
Sound infrastructure while ensuring information systems help in quality of planning.
Access to accurate and updated information on environment

Human Resource Management: Strategy execution is done through the human resources. Thus, organization must pay attention to…
Effectiveness of recruitment, training procedures
Pertinence of reward systems
Trade union relationship
Employee motivation and job satisfaction
Technology Development
Accomplishment of R & D environment
Excellence of laboratories and other facilities
Ability of work environment
Qualification and experience of technical personnel.
Procurement
Bases of raw material – time, cost, quality
Procurements procedures
Suppliers relationships with firm
Five elements and Value Chain Analysis
Quality of product can be improved by appropriate use of VCA. Control over supplier, best in class operations, technology can help company improve its product quality. Skilled human resource, procurement practices and firm’s infrastructure can augment the quality of product.
Quantity is ensured by efficient operations and inbound logistics and technology. Higher demand generated through effective marketing and sales function can augment the demand leading to higher quantity.
Organizations looking forward to quickness should improve their inbound, outbound logistics and infrastructure.
VCA also helps in managing resources better. Efficient inbound logistics and outbound logistics will help organization manage its resources better.
The relationship with supplier, distributors ensure efficiency in logistics and thus better margins.

Strategy: Value Chain Analysis
Level of Impact
Element High Moderate Low
Quality 
Quantity 
Quick 
Resources 
Relationships 

Value Chain Analysis helps in improving quality of the product, service. It also improves resources if the organization undertakes vendors and supplier development by providing assistance and actively participating in their operations. VCA also helps in developing better relationships.

Generic Strategies:
Michael Porter has suggested three generic strategies – overall cost leadership, differentiation, and focus.
Generic Strategies
Strategic Advantage
Low Cost Uniqueness Perceived
Industrywide 1. Overall Cost Leadership 2. Differentiation
Niche 3. Focus
3a. Focus OCL 3b. Focus Differentiation

Overall Cost Leadership: Businesses thrive hard to attain the least possible production and distribution costs so that it can keep price lower than its competitors and gain a considerable market share. In order to have a strategic edge over competitors, organization aims at offering its customer the best value for the product they purchase. Overall cost leadership is one such strategy. It aims at providing high quality at low cost. Organizations chasing this strategy must be good at engineering, purchasing, manufacturing, and physical distribution. According to Porter following are the pre-requisites of the strategy…
 Building efficient scale facilities;
 Cost reduction from experience;
 Stringent cost and overhead control;
 Holding off marginal customer accounts;
 Cost minimization.
The challenge with this strategy is that other organizations will typically compete with still lower costs and upset the firm that placed its complete prospect on cost and firm losing cost leadership due to fast technological changes, which require high capital investment.
Strategy: Overall Cost Leadership
Level of Impact
Element High Moderate Low
Quality 
Quantity 
Quick 
Resources 
Relationships 

Organizations aiming for better utilization of resources and aiming for catering to mass market need to manufacture in high quantity. OCL strategy helps in increasing the quantity and optimum utilization of resources. However, the quality, though high is perceived to be moderate by the customers. Building high capacities also requires longer time frame, because even if the plant is setup, demand for the product usually generates over a period of time.
Differentiation: Customers have diverse needs with respect to their preferences and tastes. These diverse needs are catered by differentiated products. In differentiation strategy the business ponders on attaining notable performance in a key customer benefit zone that is valued by a large portion of the market. The firm promotes those strengths that will contribute to the proposed differentiation. Thus, the firm pursuing quality leadership, for instance, must take products with the best components, assemble them proficiently, examine them carefully, and successfully communicate their quality.

Advantage: Differentiation leads to differential advantage, uniqueness perceived by the target market, in which the organization can charge premium in the market, which is more than the cost of providing differentiation. The differential advantage is not restricted to premium price but extends to increase in number of units sold; increase in brand loyalty by the customers; and sustainable competitive advantage.

Disadvantages: The disadvantages of differentiation are that the uniqueness of the product may not be valued by buyers; excess amount of differentiation; and loss due to differentiation.
Thus, differentiation has to be crafted carefully by the organization. There are two types of differentiations; tangible and intangible. The tangible differentiation includes design, packaging, style, quality and composition. While intangible differentiation is through building company’s image, reputation, brand and customer preferences.

Strategy: Differentiation
Level of Impact
Element High Moderate Low
Quality 
Quantity 
Quick 
Resources 
Relationships 
The cost incurred in differentiation strategy are of training, advertising, employee (highly skilled employees are needed), production as more expensive material is required for improving the quality of the product.
Differentiation strategy implies differentiated product implying quality of the product is high and the product is unique. Thus, organizations looking forward to offering quality product to customer but is prepared for the risks of differentiation, should employ the strategy.
Value Chain is a major source of differentiation. The value pursuit establishes the uniqueness of the product. The value endeavours for each differentiated product varies depending on the characteristics of the product. The steps of value activity range from procurement of raw material to the sale of product. Each differentiated product has its own value pursuits.

Focus: The business focuses on one or more narrow market segments. The firm gets to know these segments closely and engage in either cost leadership or differentiation within the target segment.
As suggested by Bolten & McManus, (1999) , focus strategy comprises of the selection of a market segment, or group of segments, in the industry and fulfilling the needs of that selected segment (or niche) better than the other market competitors. This is also called as a niche strategy. In focus strategy, the competitive advantage can be accomplished by optimizing strategy for the target segments.
Focus strategy has two variants. They are:
Cost Focus; and

Differentiation Focus

According to Thompson and Strickland the term ‘niche’ is defined as “geographic uniqueness, by specialised requirements in using the product or by special product attributes that appeal only to niche members”.
The major advantages, if implemented properly, offered by focus strategy are the focuser can guard against Porters competitive forces; decreases competition from new entrants by creating a niche of its own; decreases the threat from producers producing substitute products; decreases the bargaining power of the powerful customers; focus strategy, if combined with low-cost and differentiation strategy, would increase market share and profitability.
The challenges associated with focus strategy are the market segment has to be large enough to generate profits; the segment’s need may become less distinct from the main market; and the competition may take over the target-segment.

Cost focus a niche low cost strategy whereby a cost benefit is achieved in focusers’ target segment. According to Porter, cost focus takes advantage of variances in cost behaviour in some segments. In this the focuser concentrates on a limited buyer segment and out-competes rivals on the basis of lower cost.
In differentiation focus, the organization offers niche buyers something different from rivals. The organization look for differentiation in its target segment. Differentiation focus benefits form the special needs of buyers in identified segments.

Strategy: Focus
Level of Impact
Element High Moderate Low
Quality 
Quantity 
Quick 
Resources 
Relationships 

There are three levels at which organizations can employ strategies. Corporate level, Business level and Operational Level. Setting up the quality standards and deciding on the structure and systems of organization should be the corporate level decisions. At business level, strategist have to make decisions regarding the quality, quantity and the quickness in responding to customer needs. At the business level itself strategies to improve the quality, quantity and quickness has to be framed. Similarly, organizations need to develop structure and systems to deal with quality, quantity and quickness in responding to dynamic environment. Organizations have multiple growth strategies to choose from. Expansion, Intensification, Integration, International expansion. With multiple sub-strategies like product development, market development. While developing the operation level strategies too, the 3S + 2R equation must get due attention.

Quickness can be achieved through M&A, compared to organic growth. But the critical factor in M&A is due diligence.

References:

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ibid
ibid
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ibid
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Ibid
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