Executive summary
I chose to focus on functional strategy formulation and strategic choice in their application to real business world. This would aid me in understanding the topic in this “Strategic Management and Business Policy” textbook written by Thomas L. Wheelen and J. David Hunger. This report will be aimed at analyzing topic seven and eight, as they appear in the above class textbook. Chapter 7 and 8 concentrates on functional strategy formulation and strategic choice that concerns the full cycle of business life. This topic analyzes various strategies a business undertakes in the pursuit of growth and stability as well as retrenchment and exit from the market. This also focuses on the decisions undertaken by an organization in entering the market and the manner of management of various business subsidiaries that an organization might have acquired or opened. In regard to these, business concepts such as synergy, merger, bankruptcy, licensing, joint venture, franchising and acquisition are analyzed in an attempt to cast light in understanding various strategic moves an organization makes.
The making of functional strategies is to ensure that moves and strategies formulated at the top management level are communicated and understood at the functional level. This flow of strategic decisions helps in putting a controlling hand on all activities of different departments of an organization. Before functional managers implement strategies, they first need to be broken into viable and easily implemented policies, which are congruent with the larger perceptions of organization’s goals and objectives. Therefore, there is a clear channel of communication that enables all branches of an organization to work together in a clear growth stability and retrenchment way for the benefit of an organization.
Abstract
- Jargon, Julie (2009-09-30). "Starbucks Takes New Road With Instant Coffee". The Wall Street Journal.
- Miller, Michael (April 5, 2012). "Wine, beer at Starbucks?". Huntington Beach Independent. p. A4
This too focuses on various products this company of Starbucks launched in the market in order to promote sales.
- US banking mega-merger unveiled". BBC News. October 27, 2003
This article is about the merger that took place between bank of America and NationsBank
- Rusli, Evelyn M. (October 27, 2011). "For Google, a New High in Deal-Making". The New York Times.
This article refers to the efforts of Google as it strived in excelling and consolidating its market share
- Terry Murden (January 30, 2005). "Coke adds life to health drinks sector". Scotland on Sunday (UK)
This is an article about franchising between coca cola industry and Inca cola in Peru before it purchased the company
- Five big banks form Global ATM Alliance", ATMmarketplace.com. January 9, 2002.
This is an article that reports of the joint venture various major banks in the world took that enabled customers to access their accounts from another bank in the alliance without access fee
- The Economic Impact of Franchised Businesses In the United States". Price Waterhouse Coopers. 2012
This stipulates various businesses carried in the country that takes a mode of franchising in order to promote growth.
- Sorkin, Andrew Ross (September 15, 2008). "Lehman Files for Bankruptcy; Merrill Is Sold"
This is an article that reported acquisition of Merrill Lynch by the bank of America.
Concepts
Strategy of business growth, stability and retrenchment are applied through various concepts. These concepts as stipulated above includes
- Synergy
- Merger
- Bankruptcy
- Licensing
- Joint venture,
- Franchising
- Acquisition
Analysis
- Synergy
Synergy by definition is a combination of various elements in an organization so that to produce an impact that is greater than an individual element. The organization management aims at combining different elements or groups so that they can produce more than individual element. This is believed true since group performs greater than an individual. This concept has been widely used in the business world by combining different skills and abilities of employees together with other factors of production so that the output increases in quantity and quality. Improved quality and increased quantity helps an organization to make high volumes of sales and to have a large market share and at the same time earning a name to it. Starbucks, for instance, believes that a whole sum of the group is better than a single individual has done marvelous in combining the leadership skills of its CEO and the board of directors to enable it to maintain its market share and volumes of sale. In the year 2009, Starbucks through its management were able to introduce an array of products in order to diversify its products so that it could increase its sales revenue. The diversification of Starbucks’ products did not stop there. The synergistic effect realized in introduction of new products in 2009 was a positive one. This gave the company’s management to introduce beer and wine in the year 2010.
The bank of America made structural changes in its management organ, and the CEO was made responsible for day to day running of the business. He or she is then answerable to the board of governors who help the CEO in leading the company. (Bank of America). The bank emphasizes on teamwork and promotes an open dialogue between its employees and its management organ. Teamwork creates a feeling of belonging to employees, and this helps in creating highly co-operative employees with great synergistic effect. The effect of synergy is widely acknowledged in the business world and fully applied practically in the real business world.
- Merger
Mergers are another aspect of growth in an organization that management undertakes in their effort of taking their organizations to a higher level. Mergers can be explained as a business concept of growth that entails combining of different business organizations in order to promote growth of shares and increase in market share. Mergers are done without creating subsidiaries, and many organizations enters in this growth strategy for growth stability or and penetration into a new market or new location. Various mergers have occurred in the world of business. In the year 1998, the Bank of America merged with the Nation Bank to form a single entity known as bank of America. In the year 2001, the bank merged with FleetBoston Financial at a price that was of several billions of dollars. (BBC News. October 27, 2003). Google Inc too has been acquiring or merging with companies for the sole purpose of growth and expansion. In February 2003 Google merged with Neotonic software, a customer relations company that for personalized search in its operations. Google can be probably number one in the cases of mergers in united state with its frequency of merging being rated as approximately one per week. Until now, Google has purchased hundreds of companies. The transport companies too have exhibited a history of merging. Companies in this sector that have adopted this strategy of merging is continental airline that merged with people express frontier and new York airline. This merge was meant to create a synergistic effect in their operations so that to reduce cost and increase sales. Western airlines too merged with delta airlines with the same reasons of growth and sustainability in the market. Nevertheless, in most cases of mergers, only a single organization survives as the other is ‘swallowed’ by its stronger partner.
- Bankruptcy
Bankruptcy is a status of a company or an individual whose debt has far exceeded its assets and revenue. It can be argued as a downsizing plan where the management of an organization is placed in the hand of the court in order to settle the prevailing obligations that exist at that time of bankruptcy. Companies like Eastman Kodak have filed for chapter eleven of bankruptcy in the 2012 after a series of losses and a whooping debt of several billions of shillings. Section eleven of the bankruptcy act is a legislation that is meant for rehabilitation and reorganization of a company and allows company to continue to operate as it follows debt payment process. This section is concerned with corporate bankruptcy. Enron – a company that has specialized in the provision of electricity filed for bankruptcy after years of accounting malpractice that was meant to please investors. Finally, it was found that the company was unable to pay its debts and in the year 2001, it filed for bankruptcy chapter 11. General Motors too followed suit in application for chapter 11 of bankruptcy act after its consistence poor performance and high level of debts.
- Licensing
This is permission or authorization to use certain products or the name of a licensor by a licensee. A licensor may permit the licensee to use its product brand, its name or a trademark in selling his or her (licensee) products in return to a royalty. Many licenses have a fixed lifetime beyond where the contract ends. Territory of application and practice of the licensing contract is specified by the parties involved in the contract. Licensing in the business world is part of normal practices all over the world. Governments in the world permit business entities to operate within their geographical location only after it has settled the legal fees that enable the business organization to be granted with a permit of doing business.
Coca cola in Peru had adopted to sell its sales through the trademark of Peru’s soft drink producer- Inca kola and later purchased 50% of the company’s voting shares stock.
- Joint venture
Joint venture is an agreement between two or more parties to contribute capital in order to enter into the business with an aim of getting profit. These parties that have entered into this form of business have equal control of business affairs including running of the business and profit sharing. Governments have recognized this form of business and have legalized it with various legislations put in place enhance a favorable condition of operation. The bank of America entered into a joint venture of global ATM alliance with several other major financial institutions that enabled customers to use their ATMs card at another bank’s branch that belonged to the alliance without a transaction fee. The venture ended in the year 2013. (ATMmarketplace.com. Jan 9, 2002.)
- Franchising
This is an arrangement between two companies that many organizations use it as a strategy of market penetration and growth. In this arrangement, a franchisor gives a right to a company to use its trademark and name in its effort of increasing and promoting sales. The use of franchisor name is in return compensated by franchisee’s forfeiture of a certain percentage of his or her sales to the franchisor. This concept of strategic management growth and stability policy has been widely applied in United States of America making the country to be a leader in this form of business organization. Subway, McDonald’s, Eleven and Hampton are among hundreds of thousands franchise business organizations in America.
- Acquisition
This is a takeover or a move where a business organization purchases another company’s stake. This growth method enables a company to grow rapidly. Bank of America purchased and acquired of Merrill Lynch in its growth process. The acquisition of Merrill lynch made the bank of America has the largest financial institution in the world.
Conclusion
It has now become clear that the various concepts that we have learnt in class have a practical application in the real world. The above process has really benefited me as it has enabled me to understand topic seven and to see how it is related to the real business world
Appendix
Works Cited
Cartwright, Susan; Schoenberg, Richard (2006). "Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities". British Journal of Management 17 (S1): S1–S5
https://dspace.lib.cranfield.ac.uk/bitstream/1826/3570/1/Thirty_Years_of_Mergers_and_Acquisitions_Research-2006.pdf
Richard Raysman, Edward A. Pisacreta and Kenneth A. Adler. (1999-2008) Intellectual Property Licensing: Forms and Analysis Law Journal Press,
http://books.google.co.ke/books?id=OCGsutgMdPIC&pg=PR1&lpg=PR1&dq=Intellectual+Property+Licensing:+Forms+and+Analysis,+by+Richard+Raysman,+Edward+A.+Pisacreta+and+Kenneth+A.+Adler.+Law+Journal+Press&source=bl&ots=JSTr_bjEQi&sig=Ohn36ZL005Pg7b-coB4nbFahpdQ&hl=en&sa=X&ei=Eg8dU5HyJ6LoywODu4G4DA&redir_esc=y
David Buchanan & Andrzej Huczynski: Organizational behavior, introductory text. Prentice Hall,pp 276,Third Edition 1997
http://books.google.co.ke/books/about/Organizational_Behaviour.html?id=PDhEAAAAYAAJ&redir_esc=y
Jargon, Julie (2009-09-30). "Starbucks Takes New Road With Instant Coffee". The Wall Street Journal.
http://online.wsj.com/news/articles/SB125418430092348015
Miller, Michael (April 5, 2012). "Wine, beer at Starbucks?". Huntington Beach Independent. p. A4US banking mega-merger unveiled". BBC News. October 27, 2003
http://www.nytimes.com/2008/09/15/business/15lehman.html?pagewanted=all
Rusli, Evelyn M. (October 27, 2011). "For Google, a New High in Deal-Making". The New York Times.Terry Murden (January 30, 2005). "Coke adds life to health drinks sector". Scotland On Sunday (UK)
http://dealbook.nytimes.com/2011/10/27/google-hits-new-ma-record/?_php=true&_type=blogs&_r=0
Five big banks form Global ATM Alliance", ATMmarketplace.com. January 9, 2002.
http://www.atmmarketplace.com/article/138058/Five-big-banks-form-Global-ATM-Alliance
The Economic Impact of Franchised Businesses In the United States". Price Waterhouse Coopers. 2012
http://emarket.franchise.org/News_Release/Franchise%20Business%20Outlook%20Report%202011%20final.pdf
Sorkin, Andrew Ross (September 15, 2008). "Lehman Files for Bankruptcy; Merrill Is Sold"
http://www.nytimes.com/2008/09/15/business/15lehman.html?pagewanted=all
