1. Product proliferation occurs when organizations market many
variations of the same products. This can be done through different
colour combinations, product sizes and different product uses. This
produces diversity for the firm as it is able to capture its sizable
portion of the market. However, it can also be considered that
marketing so many new products leads to economic resources being
wasted; the consumer becomes confused and mistakes are made in the
purchase of products. Crest and Colgate each have more than 35 types
of toothpaste and Head & Shoulders dandruff shampoo has 15
different varieties. Moreover, product proliferation is not restricted to
the supermarket, as companies like Goodyear Tire & Rubber, Gillette,
and Eastman Kodak have all recently increased the length
of their product lines Product line proliferation is also particularly
evident in technologically dynamic industries such as personal
computers; for example, in 1992 there were over 2,000 different PC
models available in the market.
A Cost leadership strategy: is based on the concept that you can
produce and market a good quality product or service at a lower cost
than your competitors. These low costs should translate to profit
margins that are higher than the industry average. Some of the
conditions that should exist to support a cost leadership strategy
include an on-going availability of operating capital, good process
engineering skills, close management of labor, products designed for
ease of manufacturing and low cost distribution. Cost leadership is a
concept developed by Michael Porter, The cost leadership is often
driven by company efficiency, size, scale, scope and cumulative
experience (learning curve).
Product bundling is a marketing strategy that involves offering
several products for sale as one combined product. This strategy is
very common in the software business (for example: bundle a word
processor, a spreadsheet, and a database into a single office suite), in
the cable television industry (for example, basic cable in the United
States generally offers many channels at one price), and in the fast
food industry in which multiple items are combined into a complete
meal.
Bundling is most successful when:

2. There are economies of scale in production,
There are economies of scope in distribution,
Marginal costs of bundling are low.
production set-up costs are high,
Customer acquisition costs are high.
Consumers appreciate the resulting simplification of the purchase
decision and benefit from the joint performance of the combined
product.
Consumers have heterogeneous demands and such demands for
different parts of the bundle product are inversely correlated.
Economies of scope are cost advantages that result when firms
provide a variety of products rather than specializing in the
production or delivery of a single output For example, McDonalds
can produce both hamburgers and French fries at a lower average cost
than what it would cost two separate firms to produce the same goods.
This is because McDonalds hamburgers and French fries share the use
of food storage, preparation facilities, and so forth during production.
Another example is a company such as Proctor & Gamble, which
produces hundreds of products from razors to toothpaste. They can
afford to hire expensive graphic designers and marketing experts who
will use their skills across the product lines. Because the costs are
spread out, this lowers the average total cost of production for each
product.
Methods of Achieving Economies of Scope: Flexible manufacturing
system, related diversification,, linked supply chain. Ie: raw material
suppliers, other vendors, manufacturers, wholesalers, distributors,
retailers, and consumers often bring about economies of scope,
===============================================
Multidivisional (M-Form) – Structure – Composed of operating
divisions where each division represents a separate business or profit
center and the top corporate officer delegates responsibility for day-
to-day operations and business-unit strategy to division managers.

3. Advantages of Multidivisional Structures
The multidivisional structure, with its clear division of labour
between the corporate managers and the managers of each
product division, should increase the overall effectiveness of
the of the company.
Division managers can be given sufficient autonomy and
freedom to manage the day-to-day operations of their business
and create their own organizational structure to suit their
specific products and markets.
At the same time, corporate managers can avoid getting into
the details of divisional operations and can focus on long-term
planning for the entire company and determining how each of
the divisions fit into the company’s overall strategic goals and
objectives.
Since corporate managers are not involved in the day-to-day
operations of the product divisions .
Corporate managers have higher level of control and create
processes and systems for objectively tracking and evaluating
the profitability and overall performance of the product
divisions ,determine how additional capital should be invested
and provide remedial measures for performance problems and
inefficiencies.
Since each product division in a multidivisional structure will be
its own profit center, and thus can be easily evaluated to
determine profitability and performance against objective
budgetary goals given by the corporate management team.
since the divisions in a multidivisional structure are essentially
self-contained business units it becomes much easier to
identify how the activities of individual managers and
employees impact “bottom line” performance and this tends to
improve morale and increase enthusiasm within the workforce
Disadvantages of Multidivisional Structures
Too much centralization deprives division managers of the
flexibility and independence can damage the performance of

4. the divisions that corporate managers not directly involved
with a particular issue or problem.
the resulting competition between the divisions can be healthy up
to a point, there is a real possibility that rivalries will eventually
become so intense that divisions cease to cooperate with one
another by sharing resources and transferring information
regarding innovations in technology and business processes.
Another potential problem associated with transfer of
technology, products and components between the product
divisions is establishing a fair “transfer price”. The “seller” will
want to maximize its return on investment by obtaining the
highest price possible; however, this approach often unfairly
penalizes another division.“
The corporate managers may be assigned the task of setting and
enforcing transfer pricing based on objectively verifiable costs plus
a fixed and predetermined profit margin.
A multidivisional structure can be quite costly to establish and
operate. There is entirely new layer of management personnel
and staff at the corporate headquarters level that must be funded.
In addition, the need to duplicate functional resources within
each division creates a serious risk of inefficiency and redundancy
.
While one of the main responsibilities of the corporate managers
in the multidivisional structure is overseeing the activities of the
product divisions, there will inevitably be communications
problems caused by the very tall hierarchical structure.
Bottlenecks may arise when decisions are required from corporate
headquarters and delays in getting approvals back to the divisions.
The Value Chain concept by Michael Porter1985
Porter defined value as the amount buyers are willing to pay for what
a firm
provides.

5. Creating value is ultimately what organizations are all about in
business.
We measure value by a number of metrics each of which is used in
the right context.
1.Financial measures (revenues/profits)
2.Stock price -Shareholders value
3.Innovation - number of new patents
4.Balance score card(Nolan & Norton)
5.EVA Economic Value Added by (Stern & Stewart)
The interdependent processes/network of activities connected by
linkages that generate value, and the resulting demand and funds
flows that are created.
When the system is managed carefully, the linkages can be a vital
source of competitive advantage
The value chain analysis essentially entails the linkage of two areas.
Firstly, the organisations‟ activities with its main functional parts.
Then the assessment of the contribution of each part in the overall
added value of the business
In order to conduct the value chain analysis, the company is split into
primary and support activities.
Primary activities or primary value adding activities are those that
are related with production,
while support activities or overhead activities are those that provide
the background necessary for the effectiveness and efficiency of the

6. firm.
such as human resource management.
Primary activities
Include:
Inbound logistics
These are the activities concerned with receiving the materials from
suppliers, storing these externally sourced materials, and handling
them within the firm.
Operations
These are the activities related to the production of products and
services.
This area can be split into more departments in certain companies. For
example, the operations in case of a hotel would include reception,
room service etc.

7. Outbound logistics
These are all the activities concerned with distributing the final
product and/or service to the customers.
For example, in case of a hotel this activity would entail the ways of
bringing customers to the hotel.
Marketing and sales
This functional area essentially analyses the needs and wants of
customers and their awareness of the company‟s products and
services. Marketing tools are advertising, sales promotions etc.
Service
There is often a need to provide services like pre-installation or after-
sales service before or after the sale of the product or service.
Support activities
The support activities of a company include the following:
Procurement
This function is responsible for purchasing the materials that are
necessary for the company‟s operations,
to obtain the highest quality goods at the lowest prices.
Human Resource Management
This is a function concerned with recruiting, training, motivating and
rewarding the workforce of the company. Human resources are
becoming an important way of attaining sustainable competitive
advantage.

8. Technology Development
This is an area that is concerned with technological innovation,
training and knowledge that is crucial for most companies today in
order to survive.
Firm Infrastructure
This includes planning and control systems, such as finance,
accounting, and corporate strategy etc.
Supply chain management
1.(SCM) is the process of optimizing the shipment of goods and
services from supplier to customer.
2.Today‟s supply chains for mid and large companies span the globe,
with suppliers and partners in multiple countries and multiple time
zones.
3.As such, the use of quality supply chain management software is
critical to success.
4. All organizations have supply chains of varying degrees, depending
upon the size of the organization and the type of product
manufactured.
5. Managing the chain of events in this process is what is known as
supply chain management.
6.The first step is obtaining a customer order, followed by
production, storage and distribution of products and supplies to the
customer site.
6.Customer satisfaction is paramount.

9. 7.Included in supply chain process are customer orders, order
processing, inventory, scheduling, transportation, storage, and
customer service.
8. A necessity in coordinating all these activities is the information
service network.
9.Key to the success of a supply chain is the speed in which these
activities can be accomplished
10. The realization that customer needs and customer satisfaction are
the very reasons for the network.
11.The decisions associated with supply chain management cover
both the long-term and short-term.
12.Strategic decisions deal with corporate policies, and look at overall
design and supply chain structure.
13.Operational decisions are those dealing with every day activities
and problems of an organization. These decisions must take into
account the strategic decisions already in place.
14.Therefore, an organization must structure the supply chain through
long-term analysis and at the same time focus on the day-to-day
activities.
1.Reduced inventories,
2. lower operating costs,
3. product availability and customer satisfaction are all benefits which
grow out of effective supply chain management.
There are six key elements to a supply chain:
Production
Supply
Inventory
Location

10. Transportation, and
Information
Strategic leadership
A strategy is a set of related actions that managers take to increase
their company‟s performance.
It is an integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain competitive
advantage .
For most companies achieving superior performance relative to their
competitors is the ultimate challenge.
There is competitive advantage when a company‟s profitability is
greater than the average profitability of all other companies in the
industry and who are competing for the same customers.
Competitive advantage is when a company implements a strategy
competitors are unable to duplicate or find too costly to try to imitate.
A company has sustainable competitive advantage when its products
/services are Valuable, rare, costly to imitate, and non substitutable.
Average returns: are returns in excess of what an investor expects to
earn from other investments with a similar amount of risk.
Risk: is an investor‟s uncertainty about economic gains or losses that
will result from a particular investment.
Strategic leadership is about how effectively to manage a company‟s
strategy making process to create a competitive advantage .
Strategic making process is process by which managers select and
then implement a set of strategies that aim to achieve competitive
advantage.

11. Strategic leadership is concerned with managing the strategic making
process to increase the performance of a company and thereby
increasing the value of the enterprise to its owners and shareholders .
Maximizing shareholders value;
Is the ultimate goal :reasons.
1.Share holders provide risk capital that can not be recovered if the
company goes bankrupt.
2. Shareholders are the legal owners of the company and therefore
their share represent and generate profit.
Share holders value comes from two sources; capital appreciation and
Dividend payment
To maximize shareholder‟s value managers must formulate and
implement strategies that enable their comapnny to outperform their
rivals.
Higher the profitability greater the competitive advantage.
Managers pursue strategies to make a company unique and different
from other companies.
Business model Manager‟s conception of how a set of strategies their
company can pursue and mesh together into a congruent whole and
enable the company to achieve competitive advantage.They are
Characteristics of strategic leaders:
1.The vision eloquence and consistency:
The key difference between a leader and a strategic leader is that the
strategic leader has a well-defined vision for the future.
He has a clear picture of what the company will be like in five years?
Some call it a vision, others call it a strategic positioning statement,
but whatever you call it, a strategic leader knows where his people are
going.
Bill gates :His vision –a windows based PC on every desk. Windows
based software will be found on every computing device.
Jack Welch GE should be first or second on every business.
Jawaharlal Nehru : An enlightened modern India

12. Martin Luther King: I have a dream
A strategic leader needs to be able to communicate their vision in
order for others to sign up for the journey and understand their role
in it. That also means that the vision needs to be motivational with
clear responsibilities and expectations set for all involved.
2. Articulation of their business model.
Their mental model. How various strategies fit together into a
congruent whole.
Sam Walton of their business model. Walmart Discount Store,
Walmart Super centre, Sam club, Walmart Neighbourhood Market,
Walmex, Wal-Mart International.
3. Commitment:
Walt Disney By words and action sincere to his workers.Died 14 days
before the Disney land opened.
4. Well informed:
Develop network of formal and informal sources.
Ray Kroc of McDonald had the unconventional way of collecting
information. Visited restaurants incognito, obtained firsthand
information on the needs of customers and from every source.
5. Willling to delegate power:
As overloaded with responsibilities. And to empower subordinates
.But had control key decisions.
6. Astute use of power
(discerning, intelligent, clever, cunning, shrewd, crafty)
According to Edward Wrapp Effective leaders are very astute in their
use of power.
They play power game with skill, and attempt to build consensus.

13. Act as members of the coalition, appear democratic and get things
done through intelligent use of power.
Power comes from controlling resources that are important to the
organization. Like knowledge, position, budgets, money
To use astute of power one need not to be a CEO.He can be in any
level in the organization.
7. Emotional intelligent:
(Emotional intelligence is the innate potential to feel, use,
communicate, recognize, remember, describe, identify, learn from,
manage, understand and explain emotions)
By Daniel Goleman
A bundle of psychological attributes like
Self awareness, Self regulation, Motivation, Empathy Identification
with and understanding of another's situation, feelings, and
motive)Social skills.
EQ" represents a relative measure of a person's healthy or unhealthy
development of their innate emotional intelligence.
8. They balance the present with the future
In making resource and operational decisions, especially when
planning investments in capital, including technology and
management (or “getting the right seats on the bus,” as Collins says)
at every level.
9. Works to influence not dominate:
Another key point to remember is that strategic leadership works best
when the leader is able to use influence, not dominance, to rally the
troops. If no one wants to follow, perhaps the vision needs some re-
examination. Jack Welsh wrote that “engaging people‟s hearts and
minds is the key to everything.”
10. To manage through tough times as well as good times.

14. In fact, Herb Kelleher, one of Southwest‟s founders has been quoted
as saying, “Manage in good times, so the company can do well in bad
times.” So far at least, they are the only airline that hasn‟t had to
resort to charging for checked baggage.
11.Their ability to anticipate and manage through chaos,
which is becoming the norm. Many say, “Why plan, when everything
changes?” The key to a good plan is that you know where you are
going long-term, but you can change the road that gets you there in
the short-term, if necessary. (Not unlike a detour during the oh-so-
common summer road construction!)
================================================
“Strategic decision making”
Strategic decisions are
1.Rare:
2.Broad scale
3.Consequential:
4. Directive:
5.Surrounded by uncertainties
6.Set the standard.
Barriers to Strategic decisions:
1.Rate of environment , its change volatility

15. 2.Unpredictability
3.Intricacy, complexity
4.Vagueness of current situation and potential outcomes
Mintzberg‘s model (three approaches.)
Entrepreneurial mode:
Made by by one powerful individual. Focus is on opportunities,
problems are secondary. Strategy is guided by the founder‟s own
vision of direction. Examples. AOL- Steve Case was the driving force
behind „America Online‟ and a leading business pioneer of the
Internet boom of the 1990s. Case worked briefly for both Proctor &
Gamble and PepsiCo With Case at the helm, AOL became one of the
biggest success stories of the dot-com era, introducing millions of
Americans to the Internet through its non-technical, user-friendly
interface. (AOL's audio greeting of "You've got mail!" was so popular
that it became the title of a 1998 movie starring Tom Hanks and Meg
Ryan.) AOL's stock price doubled again and again, turning the
company into a new media giant and making Case both famous and
wealthy. He masterminded AOL's merger with media giant Time
Warner in 2001 in a deal valued at over $160 billion.
Mukesh Ambani helped the company in recent years when it was
scaling up rapidly in energy, retail, petrochemicals or special
economic zones. Now, there is a realisation that the group must move
partially from the “ entrepreneurial mode” to the “planning mode”
where practices are institutionalised. on a day-to-day basis. This
“mission mode” helped the company in recent years when it was
scaling up rapidly in energy, retail, petrochemicals or special
economic zones.

16. Adaptive mode; Some times referred to as “muddling through ”This
decision making is characterised by reactive solutions to existing
problems rather than a proactive search for ne opportunities.
Wipro Infotech introduced the customised Personal computers in
response to Dell computers entering Indian market.
Planning mode: This decision making mode involves systematic
gathering of appropriate information of situation and analysis,
generation of feasible alternatives and rational selection of right
strategy.
Entry of MNCs made Maruthi Suzuki to come up with new models
and discard/slow own production of old models.
CEO Carly Florina of (HP) Hewlett-Packard carefully studied
computer communication industries and decided to become move
from instrumentation and computer hard-ware business to a customer
focused and integrated provider of information appliances,highly
reliable information technologyinfrastructure and electronic
commerce service.
Logical incrementalism fourth mode by Quinn.
Viewed as a sysnthesis of the planning, adaptive and a lesser extent
the entrepreneurial modes.
Offensive /Defensive Strategies - considering strategic options from
a competitor rather than customer orientation is referred to as
competitive marketing strategy. Kotler and Singh identified five
offensive and six defensive strategies – these are named after military
strategies.
Offensive warfare
1. Frontal attack – This is the direct, head on attack meeting
competitors with the same product line, price, promotion, etc.
Because attack is on the enemy‟s strengths rather than weakness it is
considered the most risky and least advised strategy.
2. Flanking attack – The aim here is to engage competitors in those

17. products markets where they are weak or have no presence at all. Its
overreaching goal is to build a position from which to launch, an
attack on the battlefield later.
3. Encirclement attack – Multi pronged attack aimed at diluting the
defenders ability to retaliate in strength. The attacker stands ready to
block the competitor no matter which way he turns the product
market. Product proliferation supplying different types of the same
product to the market. Market encirclement consists of expanding the
products into all segments and distribution channels.
4. Bypass attack – This is the most indirect form of competitive
strategy as it avoids confrontation by moving into new and as yet
uncontested fields. Three type of bypass are possible; develop new
products, diversify into unrelated products or diversify into new
geographical markets.
5. Guerilla warfare – Less ambitious in scope, this involves making
small attacks in different locations whilst remaining mobile. Such
attacks take several forms. The aim is to destabilize the competitor by
small attacks.
Defensive warfare
1. Position defence – static defence of a current position, retaining
current product markets by consolidating resources within existing
areas. Exclusive reliance on a position defence effectively means that
a business is a sitting target for competition.
2. Mobile defence – A high degree of mobility prevents the attackers
chances of localizing the defence and accumulating its forces for a
decisive battle. A business should seek market development, product
development and diversification to create a stronger base.
3. Pre-emptive defence – Attack is the best form of defence. Pre-
emptive defence is launched in a segment where an attack is
anticipated instead of moving into related or new segments.
4. Flank position defence – This is used to occupy a position of
potential future importance in order to deny that position to an
opponent. Leaders need to develop and hold secondary markets to
prevent competitors from using them as a spring board into the
primary market.
5. Counter offensive defence – This is attacking where the company

18. is being attacked. This requires immediate response to any competitor
entering a segment or initiating new moves.
6. Strategic withdrawal.
Withdrawal It might be the right decision to cease producing a
product and/ or to pull out of a market completely. This is a hard
decision for managers to take if they have invested or if the decision
involves redundancies.Exit barriers make this difficult.a. Cost barriers
include redundancy costs, the difficulty of selling assets.
b. Managers might fail to grasp the principles of opportunity costing
c. Political barriers includes government attitudes
d. Marketing considerations may delay withdrawal
e. Psychology – managers hate to admit failure
Reasons for exit a The company‟s business may be buying firms
turning them around and selling them at a profit.
b. Resource limitations mean that less profitable businesses have to be
abandoned. A business might be sold to a competitor or occasionally
to management.
c. A company may be forced to close because of insolvency.
d. Change of competitive strategy.
e. Decline in attractiveness of the market.
f. Funds can earn more elsewhere.
Horizontal Integration: are those mergers where the companies
manufacturing similar kinds of commodities or running similar type
of businesses merge with each other.
The principal objective :is to achieve economies of scale in the
production procedure through carrying off duplication of installations,
services and functions, widening the line of products, decrease in
working capital and fixed assets investment, getting rid of
competition, minimizing the advertising expenses, enhancing the
market capability and to get more dominance on the market.
Examples of horizontal mergers:
1.The formation of Brook Bond Lipton India Ltd. through the merger
of Lipton India and Brook Bond .
2 .Bank of Mathura with ICICI (Industrial Credit and Investment
corporation of India) Bank.

19. 3. The merger of BSES (Bombay Suburban Electric Supply) Ltd. with
Orissa Power Supply Company
4. The merger of ACC (erstwhile Associated Cement Companies
Ltd.) with Damodar Cement
5. Blue star with Iris logic,
6. Mahindra&Mahindra and Trade & Financial of Arab emirites,
Advantages of Horizontal Merger: 1.Reducing costs by economies
of scale : large scale integration allows to spread Fixed cost over large
volume . Therefore, the merged company can derive the benefits of
economies of scale. The maximum use of plant facilities can be done
by the merged company, which will lead to a decrease in the average
expenses of the production.
2. Increasing value of products by differentiation: by product
bundling offering a bundle of products. Air tel: Mobile service,
telemedia service, land lines phone, Enterprise services, provider of
SMs service, voice mail, Miss all alerts, Black berry 8800 smart
phone on the , launch of iphone, IBM to offer end to end managed
service, Tie up wit Wipro, TCS for telecom service, Virtela global
service provider, Eg.World Com in 1983-2001 customers switched
over to World com. Eg. Sord perfect world No.1 in word processing
category Microsoft was 2 or 3 , Lotus was the best selling spread
sheet, Harvard graphics was best selling presentation program
Microsoft in 1990 offered different software programs, Word
processor, spread sheet , presentation software all in one achieved
superior value. Single provider.
3. Cross selling: A company tries to leverage its relationship with
customers by acquiring additional product categories. Eg.Financial
service Customers prefer single providers. Checking accounts,
mortgage, insurance policies , investment services as Banks like
IDBI, ICICI , HDFC are doing
4.Managing rivalry: helps eliminate excess capacity which leads to
price war instead tacit coordination ( but without communication it is
illegal. Dell tried to gain market share. Compaq when was taken over
by HP

20. 5. increasing bargaining power over suppliers. And if other things
are equal the price can be increased.
Limitations of Horizontal interation:
Due to cuture differences
Govt restrictions.
Vertical Integration: Nineteenth century steel tycoon Andrew
Carnegie introduced the idea of vertical integration. The Indian
petrochemical giant Reliance Industries is a great example of vertical
integration in modern business. Reliance's backward integration from
textiles into polyester fibres and further into petrochemicals was
started by Mukesh Ambani. Reliance has entered the oil and natural
gas sector, along with retail sector. Reliance now has a complete
vertical product portfolio from oil and gas production, refining,
petrochemicals, synthetic garments and retail outlets.
Vertical integration is integration along a supply chain. For example,
if a retailer starts manufacturing the products it sells, it is increasing
its level of vertical integration. Vertical integration may be backward
or forward. For example, a car company that is expanding into tire
manufacturing. A company such as this is often referred to as
vertically integrated. vertical integration is the consolidation of
upstream (suppliers) and/or downstream (customers) components of
the value chain into a common ownership structure. Costs, market
differentiation, and other business issues are impacted by the extent of
vertical integration. Vertical integration focused on expanding
downstream activity is called forward integration. Vertical integration
focused on expanding upstream activity is called backward
integration.
The advantages of vertical integration
1.Lower transaction cost:
this comes due to inter transactions between subsidiary companies
who usually have a central management and a central communication
system which is cheaper to use.
2. High certainty of Quality:
this comes about since the subsidiary companies have a common

21. quality control system as such they produce standard products as such
the companies are sure of their products' quality.
3. Ability to monopolise the market:
This type of situation will start from the production of raw materials
all the way to production, then distribution. This will assist the
company to control all the lines of business
4.Improves supply chain coordination.
5. Provide more opportunities to differentiate by means of more
control.
6. Capture upstream , downstream profit margins.
7. Increase entry barriers to potential competitors if the firm can gain
access to scarce raw materials
8. Gain access to down stream distribution channels that would
otherwise be inaccessible.
9. Lead to expansion of core competencies.
Disadvantages:
1. Higher Monetory and Organisational Costs.
This can be brought about by a company having a big organisational
structure which leads to higher cost for managing such a structure.
2.Lacks Capacity balancing issues. For example –the firm may need
to build excess upstream capacity to ensure that its down stream
operations have sufficient supply of under all demand conditions.
3. Potentially higher costs due to low efficiencies resulting from lack
of suppliers competition.
4. Developing new core Competencies may compromise existing
competencies.
5. Increased bureaucratic costs.
6. In addition to the new activity places the firm in competition with
another player with whom it needs to cooperate. The firm may be
viewed as competitor.
7. If supply of components is greater than that required by the parent
company then either production will have to be reduced
(redundancies, industrial action etc) or the surplus will have to be sold
to rival firms.

22. 8.Customer choice may be restricted if the parent company insists on
only its products being offered for sale (brewery - note current affairs
on the Monopoly's Commission investigation into breweries.)
==========================================
Synergy: Basically it means that the whole is greater than the sum of
its parts. If synergy is where the sum of the parts is greater than the
whole, then negative synergy would be where the sum of the parts is
less than the sum of the parts. .
1. Operating synergy when two firms combine their resources and
efforts, they will be able to produce better results than they were
producing as separate entities because of savings various types of
operating costs. In a vertical merger, a firm may either combine with
its supplier of input (backward integration) and/or with its customers
(forward integration). Such merger facilitates better coordination and
administration of the different stages of business stages of business
operations-purchasing, manufacturing and marketing –eliminates the
need for bargaining (with suppliers and/or customers), An example of
a merger resulting in operating economies is the merger of Sundaram
Clayton Ltd. (SCL) with TVS-Suzuki Ltd. (TSL).By this merger, TSL
became the second largest producer of two –wheelers after Bajaj. The
main objective motivation for the takeover was TSL‟s need to tide
over its different market situation through increased volume of
production. It needed a large manufacturing bas to reduce its
production costs. Large amount of funds would have been required
for creating additional production capacity. SCL also needed to
upgrade its technology and increase its production. SCL‟s and TCL‟s
plants were closely located which added to their advantages. The
combined company has also been enabled to share the common R&D
facilities.
Advantages: Economies of scale, Economies of vertical integration,
complementary resources and elimination of inefficiency.
2. Financial synergy Financial synergy refers to increase in the value
of the firm that accrues to the combined firm from financial factors.

23. There are many ways in which a merger can result into financial
synergy and benefit. A merger may help in:
Eliminating financial constraint
Deployment surplus cash
Enhancing debt capacity
Lowering the financial costs
Better credit worthiness
RP Goenka‟s ceat tyres sold off its type cord division to Shriram
Fibers Ltd. in 1996 and also transfer‟s its fiber glass division to FGL
Ltd., another group company to achieve financial synergies.
3. Managerial synergy is possible when a new business venture faces
strategic, organizational or operating problems which are similar to
problems that the management has dealt with in the past. One of the
potential gains of merger is an increase in managerial effectiveness.
This may occur if the existing management team, which is performing
poorly, is replaced by a more effective management team. Often a
firm, plagued with managerial inadequacies, can gain immensely
from the superior management that is likely to emerge as a sequel to
the merger. Another allied benefit of a merger may be in the form of
greater congruence between the interests of the managers and the
shareholders.
A common argument for creating a favorable environment for
mergers is that it imposes a certain discipline on the management. If
lackluster performance renders a firm more vulnerable to potential
acquisition, existing managers will strive continually to improve their
performance.
4 .Sales synergy which occurs when different products use common
distribution channels, common sales administration, or common
warehousing. These synergies occurs when merged organization can
benefit from common distribution channels, sales administration,
advertising, sales promotion and warehousing.
The Industrial Credit and Investment Corporation of India Ltd.
(ICICI) acquired Tobaco Company, ITC. Classic and Anagram

24. Finance to obtain quick access to a well dispersed distribution
network
Michael porter. “sharing has the potential to reduce cost if the cost of
a value activity is driven by economies of scale, learning or the
pattern of capacity utilization”.
GE-MC KANSY 9 CELL MATRIX
GE-Mc Kansy 9 Cell Matrix
Description of the Model
The General Electric Company, with the aid of the
Boston Consulting Group and McKinsey and Company,
pioneered the nine cell strategic business screen
illustrated here. The circle on the matrix represents
your enterprise. Both axes are divided into three
segments, yielding nine cells. The nine cells are
grouped into three zones:
The Green Zone consists of the three cells in the upper
left corner. If your enterprise falls in this zone you are

25. in a favourable position with relatively attractive
growth opportunities. This indicates a "green light" to
invest in this product/service. The yellow
zoneYellow Zone consists of the three diagonal cells
from the lower left to the upper right. A position in the
yellow zone is viewed as having medium
attractiveness. Management must therefore exercise
caution when making additional investments in this
product/service. The suggested strategy is to seek to
maintain share rather than growing or reducing share.
The Red Zone consists of the three cells in the lower
right corner. A position in the red zone is not
attractive. The suggested strategy is that management
should begin to make plans to exit the industry.
Characterize Your Enterprise
The vertical axis represents the industry attractiveness.
The expert system will position your enterprise on the
chart based upon your description of:
bargaining power of the buyers
bargaining power of the suppliers
internal rivalry
the threat of new entrants
the threat of substitutes

26. The horizontal axis represents the firm's competitive
strength or ability to compete in the industry. It includes
an analysis of:
the value and quality of the offering
market share
staying power
experience
You can trace through the supporting analysis and its
conclusions, adjusting your input until you are satisfied
your description accurately characterizes your
enterprise.
Transfer pricing :Charges, prices made by one business unit
to another business unit of the same company or related
companies for services or for supplying raw material or goods
or use of properties This is a significant and problematic
transaction since:
1. It may cause conflict in fixing a fair price.
2. It could be a source of bureaucratic cost.
3.The concerned units have to settle various taxes to the
government.
4. Each division /unit intends to increase price of its resources
and skills and thereby their profitability.
Govt of India has introduced introduced law of transfer
pricing in 2001 through sections 92A to 92F of the Indian
Income tax Act, 1961 which guides computation of the
transfer price and suggests detailed documentation
procedures.
Strategic control: is different from traditional organizational
control which seeks only to compare the actual results against
a standard expected targets and that is after some years.

27. But strategic control is tracking strategy as a form of steering
control, as it is implemented, in guiding efforts to see 1. Are
we moving in the proper direction? 2. How are we
performing? There are four types of strategic controls.
Premise control: is designed to check systematically and
continuous whether or not the premises set during the
planning and implementation process are still valid
Implementation control: is designed to assess whether the
overall strategy result associated with incremental steps and
actions that implement overall strategy.
Strategic surveillance: It is designed to monitor a broad range
of events inside and outside the company to threaten the
course of firm's strategy.
Special alert control: is the need to thoroughly and often
rapidly reconsider the firm's basic strategy based on a sudden
unexpected event.