Lecture 8 - growth

Question 1

What are some Advantages of internal growth?

Answer 1

• KNOWLEDGE and learning can be enhanced – Focus & develop own strategic capability
• SPREAD investment over time – easier to finance.
• No AVAILABILITY constraints – no need to search for suitable partners or acquisition targets.
• STRATEGIC INDEPENDENCE – less need to make compromises or accept strategic constraints.
• MINIMIZE DISRUPTION - gradual rate of change to avoid political & cultural acrimony of acquisitions / alliances

Question 2

Disadvantages of internal growth/going solo?

Answer 2

• SIGNIFICANT portion innovation comes from collaborative efforts of multiple organizations / individuals outside firm

• PARADIGM CHANGE?
– From “successful innovation requires control”
– To ecosystem of “open innovation”

Question 3

What is a Strategic Alliance?

Answer 3

A strategic alliance is a partnership of two or more organisations sharing resources and activities to pursue a common purpose (strategy).

Question 4

What are some Advantages of alliances?

Answer 4

• OBTAIN skills or resources more quickly than internally
• REDUCE asset commitment and increase flexibility
• LEARN from partner
• SHARE costs and risks
• BUILD cooperation around a common standard

Question 5

How long does the average alliance last and what is the probability of failure?

Answer 5

Average alliance lasts 5-7 years

60-70% failure rate

Question 6

What are 2 vital themes for success in alliances?

Answer 6

1) WILLINGNESS to CO-EVOLVE the need for flexibility and change as the environment and strategies of the partners evolve
2) TRUST - partners need to behave in a trustworthy fashion throughout the alliance

Question 7

What are Strategic motives for M&A? ( 3 )

Answer 7

1) SPEEDY EXTENSION – in terms of geography, products, markets
2) CONSOLIDATION – increase market power, increase efficiency, increase bargaining power with suppliers
3) INCREASE CAPABILITIES – acquire entrepreneurial firms to rapidly increase capabilities in competitive domain when industries converge (Internet…)

Question 8

What are some managerial incentives for M&A?

Answer 8

1) PERSONAL AMBITION – financial incentives tied to short-term growth or share-price targets; boost personal reputation…
2) BANDWAGON EFFECTS – managers may be branded as conservative if they don’t follow an M&A trend; shareholder pressure due to overoptimism; fear that company may itself become a takeover target.

Question 9

What are Target choices in M&A?

Answer 9

1) STRATEGIC FIT - does target firm strengthen or complement the acquiring firm’s strategy?
2) ORGANIZATIONAL FIT - is there a match between the management practices, cultural practices & staff characteristics of the target and the acquiring firm?

Question 10

What are the 4 Approaches to Integration and what do they mean?

Answer 10

1) ABSORPTION – strong strategic interdependence and little need for organisational autonomy. Rapid adjustment of the acquired company’s strategies, culture and systems.
2) PRESERVATION – little interdependence and a high need for autonomy. Old strategies, cultures and systems can be continued much as before.
3) SYMBIOSIS – strong strategic interdependence, but a high need for autonomy. Both the acquired firm and acquiring firm learn and adopt the best qualities from each other.
4) HOLDING – a residual category – with little to gain by integration. The acquisition will be ‘held’ temporarily before being sold on, so the acquired unit is left largely alone.

Question 11

What are the 6 rules of thumb when comparing organic/internal, alliances & acquisitions?

Answer 11

1) Culture & innovation – if your strategic capability is built on a unique culture of innovation, internal may be best choice
2) Urgency – internal may be too slow, alliances can accelerate the process but acquisitions are quickest.
3) Uncertainty – an alliance means risks are shared and thus a failure does not mean the full cost is lost.
4) Type of capabilities – acquisitions work best with ‘hard’ resources (e.g.production units or distribution network) rather than ‘soft’ resources (e.g. people).
5) Dedicated-purpose capabilities – if the needed capabilities can be clearly separated from the rest of the organisation an alliance may be best.
6) Long-term - To obtain sustainable growth, rapid acquisition growth has to be combined with timely internal innovation/ focus renewal, and experimental alliances