A Strategy Implementation case presentation –

Abhishek, Atul, Charu, Gayatri, Gunjan, Issac, Rani,

Tulika, Vibhu
 Companies get into
Acquisitions and alliances,
to boost sales, profits and
stock prices.
 American companies
created a titanic wave-
74000 acquisitions and
57000 alliances from
1996 through 2001.
However most of them
fail.
Making a mess of M & A: Companies take over firms that they
should have collaborated with and ally with those, they should
have bought. Main Reasons for failures were.
•Acquisitions - either destroy or don’t add to shareholders
value.
•Alliances - create little wealth for shareholders.
For successful collaboration: companies must weigh the
merits and demerits of both strategies before choosing one.

ACQUISITIONS ALLIANCES

• Competitive • Cooperative
• Based on Market • Based on Negotiations.
Prices • Less Risky
• Risky • Motive - Entering into
new markets, regions &
• Motive - Increase sales customer segments
or cut costs

The companies must consider following factors before deciding on

a strategy
1.Resources and Synergies
2.Marketplace
Modular Synergies: Manage resources independently, pool only
results for greater profits
•Modular synergies - independent resources generate them
•Non equity alliances best suited to generate them.
e.g. Airline and a hotel chain plan a collaboration

Sequential Synergies: When one company completes its task

and passes on the result to a partner to do its bit .
•Resources are sequentially interdependent.
•Partners sign rigid contract that they monitor carefully.
•Enter into equity based alliances.

Reciprocal Synergies: By working closely together and

executing task through an iterative knowledge sharing process.
•Combine & customize resources to make them reciprocally
interdependent
•Acquisitions are better than alliances for the companies that
Synergies with Hard resources - Acquisition because their
valuation is easy & synergies can be quickly generated.

Synergies with Human Resources – Avoid Acquisitions ,

because in acquisitions employees tend to become unproductive.
Equity alliances are better bets where people are involved –
allows company to control the actions of their partners, monitor
performance & align the interest of two firms more closely.
Study: Acquirers of companies that had largely soft assets lost
more value over 3 year period than did acquisitions with mostly
hard assets
Redundant Resources
o Estimate the amount of redundant resources.
o Use the surplus resources to generate economies of scale, or
cut costs by eliminating resources.
o Large amount of redundant resources - Opt for Acquisitions
Uncertainty
 Evaluate degree of uncertainty- low/high/moderate associated
with technology or product discussed.
 Technology must be superior to existing or potential rivals.
 Assess if consumers will use the technology/product &how much
time will it take to gain acceptance.
 If outcome is high or moderately uncertain - Non equity or
equity alliance rather than acquisition.
Competition
Wise to check if there are rivals for potential partners.
Avoid takeovers when business uncertainty is high.

COLLABORATION CAPABILITIES
 Companies believe that there core competencies – lies either in
acquisition or alliance. This creates a problem because companies
stick to their core strategy even if they are not right.
 Smart companies prevent such mistakes by considering both the
 ALLIANCES
 Wal Mart and Bharti Group (Equity JV)
 Sequential Synergy

 Competition – Low

 Low soft resources

 Low/Medium Redundant resource

 Low degree of market uncertainty

ACQUISITIONS
 Tata’s acquisition of Corus
 Reciprocal Synergies – strategy to exploit the
potential synergies in manufacturing, logistics and
sharing best practices
 High soft resources and medium soft resources

 Competition High

 Market uncertainty -high

ACQUISITIONS
 Jet Airways Acquiring Sahara Airlines
 Reciprocal Synergies – strategy to exploit synergies
of extensive route network and wider reach, airport
facilities & parking slots
 High Soft resources and medium Hard resources -
Many employees and Good Fleet strength to
compete with Indian Airlines
 Competition – High with many no frills operators

 Market uncertainty -high

ALLIANCES

 Mahindra and Renault (Failed alliance)

 Sequential Synergy - – however, the synergy failed
to create common value
 Competition – High- Thus an alliance was not
recommended
 High degree of market uncertainty - many
international car makers entering the market
changed the market dynamics
•Help defines strategies to be adopted : ACQUISITION VS.
ALLIANCE
E.g: M&M and Renault Vs. M&M and Kinetic
•Provides opportunities for producers in emerging markets to
access
foreign markets and vice versa.
Tata’s – Corus : Europe
Bharti – Zain : Africa
•Silent about organic growth
•There can be long gestation periods involved before the new
entity can be
declared profitable or a failure.
• Skewed towards the economic benefits only.
• Critique’s have defined M&A as a perfect corporate
crime
Value of Vodafone in terms of market capitalization stands at $161.4 billion (as on
July 24, 2008), down by a sickening $203.6 billion, a fall of 53% . Now stands at
$141 billion.
• SapientNitro Succes Story (Q4 Revenue : 40% from Interactive services)
• Sapient – Consulting
• Nitro – Interactive services
• The acquisition of Sun Microsystems by Oracle Corporation in January,
2010
• HP acquired EDS in May, 2008