Slide 10.1Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Slide 10.1Strategic Choices10: ergers, !c"uisitions and !lliancesSlide 10.2Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Learning outcomes# Esta$lish the %otential role o& organic (do it yourself) strategies.# 'denti&( )e( issues in the success&ul management o& mergers and acquisitions.# 'denti&( the )e( issues in the success&ul management o& strategic alliances.# *etermine the appropriate choices $et+een organic de,elo%ment, mergers and ac"uisitions and strategic alliances.# Com%are key success factors in mergers, ac"uisitions and alliances.Slide 10.-Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Strategy methods .igure 10.1/hree strateg( methodsSlide 10.0Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Organic development Organic development is +here a strateg( is %ursued $( $uilding on and de,elo%ing an organisation1s o+n ca%a$ilities. /his is essentiall( the 2do it (oursel&1 method.Slide 10.3Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Advantages of organic development#Knowledge and learning can $e enhanced.#Spreading inestment oer time 4 easier to &inance.#!o aaila"ility constraints 4 no need to search &or suita$le %artners or ac"uisition targets.#Strategic independence 4 less need to ma)e com%romises or acce%t strategic constraints.Slide 10.5Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Corporate entrepreneurshipCorporate entrepreneurship re&ers to radical change in the organisation1s $usiness, dri,en %rinci%all( $( the organisation1s o+n ca%a$ilities..or e6am%le, #ma$ons de,elo%ment o& Kindle using its o+n in house de,elo%ment .Slide 10.7Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Mergers and acquisitions #A merger is the com$ination o& t+o%re,iousl( se%arate organisations, t(%icall(as more or less e"ual %artners.#An acquisition in,ol,es one &irm ta)ingo,er the o+nershi% 82e"uit(19 o& another,hencethe alternati,e term 2ta)eo,er1.Slide 10.:Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Strategic motives for M&AStrategic moti,es can $e categorised in three +a(s:Extension % of scope in terms of geography& products or markets.'onsolidation % increasing scale& efficiency and market power.'apa"ilities % enhancing technological know(how (or other competences).Slide 10.9Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Financial motives for M&A/here are three main &inancial moti,es:)inancial efficiency 4 a com%an( +ith a strong $alance sheet 8cash rich9 ma( ac"uire;merge +ith a com%an( +ith a +ea) $alance sheet 8high de$t9.*ax efficiency % reducing the com$ined ta6 $urden.#sset stripping or un"undling % selling off "its of the acquired company to maximise asset alues.Slide 10.10Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Managerial motives for M&A the com%an( ma( itsel& $ecome a ta)eo,er target.Slide 10.11Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Target choice in M&A/+o main criteria a%%l(:#Strategic fit % does the target &irm strengthen or com%lement the ac"uiring &irm1s strateg(@ 8A.B. 't is eas( to o,er=estimate this %otential s(nerg(9.#-rganisational fit % is there a match $et+een the management %ractices, cultural %ractices and sta&& characteristics o& the target and the ac"uiring &irm@Slide 10.12Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Valuation in M&ACetting the o&&er %rice correct is essential:D&&er the target too little, and the $id +ill $e unsuccess&ul.Pa( too much and the ac"uisition is unli)el( to ma)e a %ro&it net o& the original ac"uisition %rice. 82the winners curse).!c"uirers do not sim%l( %a( the current mar)et ,alue o& the target, $ut also %a( a 2premium for control.Slide 10.1-Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011ntegration in M&A.igure 10.2!c"uisition integration matri6Source: P. Eas%eslagh and *. Jemison, .anaging #cquisitions, .ree Press, 1991Slide 10.10Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011ntegration in M&AApproaches to integration:##"sorption 4 strong strategic interde%endence and little need &or organisational autonom(. Fa%id ad?ustment o& the ac"uired com%an(1s strategies, culture and s(stems.#+reseration 4 little interde%endence and a high need &or autonom(. Dld strategies, cultures and s(stems can $e continued much as $e&ore.#Sym"iosis 4 strong strategic interde%endence, $ut a high need &or autonom(. Both the ac"uired &irm and ac"uiring &irm learn and ado%t the $est "ualities &rom each other.#/olding 4 a residual categor( 4 +ith little to gain $( integration. /he ac"uisition +ill $e 2held1 tem%oraril( $e&ore $eing sold on, so the ac"uired unit is le&t largel( alone.Slide 10.13Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Strategic alliances #A strategic alliance is +here t+o or more organisations share resources and acti,ities to %ursue a strateg(.#Collective strategy is a$out ho+ the +hole net+or) o& alliances o& +hich an organisation is a mem$er com%etes against ri,al net+or)s o& alliances.#Collaborative advantage is a$out managing alliances $etter than com%etitors.Slide 10.15Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Types of strategic alliance/here are t+o main )inds o& o+nershi% in strategic alliances:#Equity alliances in,ol,e the creation o& a ne+entit( that is o+ned se%aratel( $( the %artnersin,ol,ed.#Non-equity alliances are t(%icall( looser, +ithout the commitment im%lied $( o+nershi%.Slide 10.17Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011!quity alliances #/he most common &orm o& e"uit( alliance is the joint venture& +here t+o organisations remain inde%endent $ut set u% a ne+ organisation ?ointl( o+ned $( the %arents.#A consortium alliance in,ol,es se,eral %artners setting u% a ,enture together.Slide 10.1:Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011"on#equity alliances#Aon=e"uit( alliances are o&ten $ased on contracts.#/hree common &orms o& non=e"uit( alliance:)ranchising.0icensing.0ong(term su"contracting.Slide 10.19Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Motives for alliances#Scale alliances % lo+er costs, more $argaining %o+er and sharing ris)s.#Access alliances % %artners %ro,ide needed ca%a$ilities 8e.g. distri$ution outlets or licenses to $rands9#Complementary alliances $ringing together com%lementar( strengths to o&&set the other %artner1s +ea)nesses.#Collusive alliances to increase mar)et %o+er. Gsuall( )e%t secret to e,ade com%etition regulations.Slide 10.20Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Strategic alliance motives.igure 10.-Strategic alliance moti,esSlide 10.21Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Strategic alliance processes/+o themes are ,ital to success in alliances:#Co-evolution 4 the need &or &le6i$ilit( and change as the en,ironment, com%etition and strategies o& the %artners e,ol,e.#Trust 4 %artners need to $eha,e in a trust+orth( &ashion throughout the alliance.Slide 10.22Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Alliance evolution.igure 10.0!lliance e,olutionSource: !da%ted &rom E. urra( and J. ahon 8199-9, 2Strategic alliances: gate+a( to the ne+ Euro%e1, 0ong 1ange +lanning, ,ol. 25, %. 109. +++.sciencedirect.com;science;?ournalSlide 10.2-Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Comparing acquisitions$ alliances and organic development.igure 10.3Bu(, all( or *'H matri6Slide 10.20Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Comparing acquisitions$ alliances and organic development.our )e( &actors in choosing the method o& strateg( de,elo%ment :# rgency 4 internal de,elo%ment ma( $e too slo+,alliances can accelerate the %rocess $ut ac"uisitions are"uic)est.# ncertainty 4 an alliance means ris)s are shared andthus a &ailure does not mean the &ull cost is lost.# Type o! capabilities 4 ac"uisitions +or) $est +ith 2hard1resources 8e.g. %roduction units9 rather than 2so&t1 resources 8e.g. %eo%le9. Culture clash is the $ig issue.# "odularity o! capabilities 4 i& the needed ca%a$ilitiescan$e clearl( se%arated &rom the rest o& theorganisation an alliance ma( $e $est.Slide 10.23Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011%ey success factors.igure 10.5Ie( success &actors in mergers, ac"uisitions and alliancesSlide 10.25Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Summary &'(# /here are three $road methods for pursuing strategy: mergers and ac"uisitions, strategic alliances and organic de,elo%ment.# -rganic deelopment can $e either continuous or radical. Fadical organic de,elo%ment is termed cor%orate entre%reneurshi%.# #cquisitions can $e hostile or &riendl(. oti,es &or mergers and ac"uisitions can $e strategic, &inancial or managerial.Slide 10.27Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, Pearson Education Limited 2011Summary &)(# *he acquisition process includes target choice, ,aluation and integration.# Strategic alliances can $e e"uit( or non=e"uit(. Ie( moti,es &or strategic alliances include scale, access, com%lementarit( and collusion.# *he strategic alliance process relies on co=e,olution and trust.# /he choice $et+een ac"uisition, alliance and organic methods is in&luenced $( &our )e( &actors: urgenc(, uncertaint(, t(%e o& ca%a$ilities and modularit( o& ca%a$ilities.