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Strategic Thinking And Value Management From Experts

14008 Downloads1 I Published: 31 Mar ,2017

Significance Of Acquisition In Strategic Thinking And Value Management

Corporations that seeks for growth strategies have a wide variety of options available with them. Further acquisition is considered as one of the best strategy which can be adopted for higher growth and development. It can be defined as the process in which one organization buys/acquire another one (Kapferer, 2012). In modern era, it has become completely operational and strategic in nature. This report is based on acquisition of Altera by Intel. Further Intel corporation is an American based multinational company which deals in technology. On the basis of revenue, the brand is considered as the worlds largest semiconductor chip maker. On the other hand, Altera is an American based manufacturer of programming Logic Devices which are often termed as PLD's. This report focus on the entire process of acquisition of Altera by Intel (Intel $16.7 million deal, 2015). It demonstrate the significance and benefits of acquisition on Intel. On 1st July 2015, Intel announced the acquisition of Altera corporation for $16.7 Billion and that too in cash. The brand stated that it would be paying a sum of $54 per share to Altera (Intel, 2015). Acquisitions plays a very significant role in the strategic thinking and management of an organization.

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During the process, entire resources, technology, products and services of Altera will be purchased by Intel. Therefore, the brand will also try to make some modifications and will enhance the existing products which are offered by Altera. It can be stated that the concept of acquisitions play a very important role in the process of strategic thinking and management (Goetsch and Davis, 2014). Acquisitions helps an organization to enhance and boost up its position in market which is one of the core objective of strategic management. This areas is important because it assist businesses to make effective strategies and decision with regards to growth and expansion. I the present scenario, the competition among organization in almost every sector has become so intense that it is not easy for a business to survive without having effective strategies. With the help of acquisition companies are able to gain competitive advantages over other market players.

Like many other market players, Intel also seeks for opportunities to grow and develop in market (Koller, Goedhart and Wessels, 2010). It can be stated that the market of Personal computer is declining at a very fast speed which has created barriers in the growth of Intel. People in market are now looking forward smartphones and tables as internet can be accessed easily on them. The positive sign is that the demand of memory chips and processors will be increasing. Intel has observed and highlighted these two market segments as the most potential segments foe its future growth and development. The acquisition Altera by Intel will result in rapidly growing business for the brand. Along with this, it will also support the brand in getting competitive advantage over other market players in the situation of such an intense rivalry among businesses.

Concept and significance of acquisition

The concept of acquisition is termed as one of the best and most effective way to move a business forward. As per the view of Cartwright and Cooper, (2012) acquisition is defined as the process in which one company buys/ acquires another one (Cartwright and Cooper, 2012). In this process, the resources, technology, products etc. of a business enterprise are being purchased by another. This results in increasing the overall efficiency and productivity of the firm which has acquired another business. Acquisition is also considered as an tempting opportunity for an organization as running both the firm together directly results in cutting down or lowering down the entire cost of production. In addition to this, it also support in enhancing the overall brand image of the firm which acquires another business as combined companies results in more value. However Simons, (2013) argued that it is not necessary that buying another company is always beneficial of an organization (Simons, 2013). If the acquisitions are not well calculated than it can results in complete failure. This have an direct impact on sales, profitability and brand image of an organization. One of the major benefit of acquisition is that it helps in overcoming the obstacles faced by a businesses enterprise and increases its revenues. Has explained that Doyle, (2009) it also results in increasing sales and profitability as companies which acquires another firm have new distribution channels available with them. In addition to this, by buying another company, a business enterprise also enhances its overall technology and business processes. This makes the business more competent, productive and effective. Further the company is also benefited by the human resources and talented managers of other business. However Dess, Lumpkin and Eisner, (2010) argued that one of the most important thing which is required to be taken care of at the time of acquisition is the clashes. It may happen that the culture of one business organization clashes with another one. As per this view of Baptista Nunes and et. al., (2006) this will affect the overall productivity and work performance of organization as well as all its employees. The employee which has been acquired do not feel comfortable with new management or structure. This is also possible that some talented and skilled workers left the job which is a loss to the entire business. On the other side of this Chen and Huang, (2009) in case of the acquisition has been done by borrowing debts than it will directly increase the debt in balance sheet which is not good for a company.

Link between strategic management and acquisition

Acquisition has nowadays become more strategic and operational in nature. As per the view of, with the passage of time and changes in business scenario, acquisition has started to play very crucial role in strategic management of companies. As per the view of Keller, Parameswaran and Jacob, (2010) managers do not acquire other businesses because of their undervalued assets, rather they have other objectives behind the same (Keller, Parameswaran and Jacob, 2011). Some common objectives includes getting a well established customers base, distribution channels and talented pool of human resources. By acquiring all the above stated factors, businesses increases overall strategic objectives which are available with them (Wheelen and Hunger, 2011). In addition to this, it also supports in getting competitive advantages over other market players in industry. This also supports in enhancing strategic management of a business and maximizes its share value. Strategic planning is done with the core purpose of the developing strategies and action plan which can help a business enterprise in accomplishment of its aim and objectives (Dess, Lumpkin and Eisner, 2010). Further with the help of strategies such as acquisition, firms are able to achieve some of their objectives and aim. Acquisition has become more of a kind of growth strategy rather than being a strategy of cost saving. As per the view of Ashton and Morton, (2005) the result of such kind of strategies is either complete failure or high gain. Thus, it is required by every business enterprise to align their overall strategic goals and objectives with the strategy of acquisition. The growing competition among business has resulted in situation where only those firms can sustain which steals market share and customer base of its competitors. On the other side Eden and Ackermann, (2013) has explained that effective strategic management can be achieved only when businesses are able to deliver products and services at low cost and on time. Thus, with the help of acquisitions the departments and operations of one company are acquired and integrated by another. This leads to lowering down the overall cost of operations. By acquiring the channels of distribution of another firm, businesses are also able to provide products and services to customers on time. The rational behind using acquisition is to achieve strategic objectives of business and improve its overall strategic management (Child, Faulkner and Tallman, 2005).

In last few years there have been many successful acquisition taken place and other companies have learn lot of things from them. According to Baptista Nunes and et. al., (2006) Novartis purchase of the drug business of Glaxo smith is as famous acquisition which has taken place last year. In addition to this, the acquisition of Whats App by Facebook also generated much heat among people in the market. The above stated acquisition has been very successful and one thing which was common in both the process was that their decision were well calculated. At the time of making decision, businesses are required to become aware of the pros and cons which are associated with the same. Making an acquisition successful requires lot of time, hard work and efforts. Further there is no magical formula which can be used to make an acquisition successful. As per the view of Kapferer, (2012) at the time of dealing with things such as acquisitions, businesses needs to have their own set of strategic logic. The top level of management plays very important role in determine tools which can be used for effective strategic management. Along with this, top level also needs to make decision related to acquisitions. It can be stated that the strategy related to acquisition can be very risky and can affect the operations in short run.

However Hill, Jones and Schilling, (2014) argued that at the time of acquiring another company, people in management arr required to take care of the fact that objectives of both the companies do not gets conflict which eat other. It can be happened that the acquired organization may have different type of aim and objectives as compared to the firm which is acquiring it. When companies operates differently then, most of the time they have different kind of objectives. For instance, objective of one businesses can be achievement of high degree of customer satisfaction whereas for other it can be increasing sales and profitability. Cartwright and Cooper, (2012) has explained that conflict between objectives can be a barrier in the growth and success of business which uses the strategy of acquisition. Other than this, redundancy is another problem which has been associated with acquisition. When one company purchases another than, it may happen that the company is left with some employee which performs same level of function in organization (Doyle, 2009). For instance there can be two marketing managers, two HR managers etc. This will directly result in increasing the overall pay role of an organization as it will need to pay the cost of two employees for the work which can be done by a single worker. The transaction cost theory and resources based theory plays very important role at the time of making decision regarding acquisitions. As per the view of Hill, Jones and Schilling, (2014) by applying resources based theory, businesses are able to find out the ways through which they can gain competitive advantage over other market players. The theory clearly depicts a difference between tangible and intangible resources of the organization. Strategic management is the process in which resources of an business enterprise are arranged to accomplishment of its objectives and goals. Thus, resources based theory help a firm to separate all its resources and make the best use of them. It consist of four major steps which are resources, capabilities, competitive advantage and strategies. All these steps are directly linked with the strategic management of an organization. On the other side, transactional cost theory plays a very important role in the decision makingof an organization (Keller, Parameswaran, and Jacob, 2011). It supports in taking decision regarding make or buy which is very crucial for any firm. In addition to this, by applying transactional cost theory, businesses are able to become identify that whether buy or make decision will benefit them in accomplishment of their aim and objectives. Further it can be stated that before making any decision, businesses are required to become aware of the factors which affects transaction cost.

Critical Analysis Of Theoretical Perspective

In context of acquisitions, two important theories which can be used are transaction theory and resource based view. As per the view of transaction cost theory depicts what are the reasons behind expansion and exist of businesses from marketplace. This theory assumes that companies always seeks for cutting down their overall cost of exchanging their own resources with environment. The transaction cost of a business is divided into three main categories which are search and information cost, bargaining cost and cost of policy and enforcement. With the help of transaction cost analysis, organizations efficiency is being calculated. Further this theory supports in identification of the issues and challenges by carrying out the assessment of transaction rather than assessing commodities (Chen and Huang, 2009). This theory is applied to each and every level of an organization in order to determine their efficiency. During the first, assessment of structure is carried out in which businesses identify that how its operational parts are interrelated with each other. After this the transaction at middle level are being analysed and their overall efficiency is determined. At last businesses assess that how their human resources are managed and organized with each other. This theory was discussed in the context of decision making by companies regarding whether to outsources something or do it in house. Further this theory is related to make or buy decision of business enterprise. Eden and Ackermann, (2013) has explained that there are two methods which can be used by businesses to have control on their resources (Eden and Ackermann, 2013). First method is by having ownership over the assets and the second one is buying in the use of assets. With the help of transactional cost theory, business compare the two methods and then make decision regarding which method should be selected. Further the theory depicts that transactional cost is the cost which are indirect that is non production cost. In more simpler words it can be defined as cost incurred in carrying out or performing a particular business activity. For instance transaction cost can be the expenses incurred to through outsourcing. Other than this, transactional cost theory also arises at the time of dealing with external parties. (Ireland, Hoskisson, and Hitt, 2009) The example of this can be the cost occurred when business seeks for suppliers in the market. The cost incurred to monitoring the overall quality of operations and activities of a business enterprise. According to Cartwright and Cooper, (2012) the transactional cost theory, the cost is affected by two major factors which are opportunism and bounded rationality. Further these both factors are required to be taken into consideration by any business enterprise. In addition to this, there are some variable which have an direct impact on the transactional cost of organization. Bartlett and Ghoshal, (2013) has explained that the first variable is frequency of the transactions made. Other than this uncertainty and assets specificity also have direct impact on the transaction cost of a firm. In more simpler terms, it can be stated that the transactional cost theory deals with individuals transactions.

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On the other side of this, resources based theory is one of the major sources using through which companies can gain competitive advantage over other players in a industry. Further this theory depicts that organizations should seek for ways and alternative to gain competitive advantage within the internal management rather than looking for competitive environment with regards to the same (Goetsch and Davis, 2014). This theory lays emphasis on the fact that it is more advantageous and feasible for an business enterprise to exploit the external business opportunities using its existing sources. Rather than acquiring and employing new resources for each and every opportunities, it is more beneficial to use the existing internal resources. This theory explains that tangible resources such as machinery, land, capital etc. are very easy to bring in market and businesses cannot get competitive advantages on the basis of the same. In addition to this, there are some intangible assets such as brand image, trademarks etc. cannot be copied by someone else. Therefore, it is termed as one of the major sources of getting sustainable competitive advantage for any business. The two critical assumption of resources based theory is that the resources are required to be immobile and heterogeneous in nature (Eden, and Ackermann, 2013). The concept of heterogeneous depicts that the skills and resources of one firm are required to be different from another one. Furthermore, if they are not different then businesses cannot develop and implement different strategic which can provide them with competitive advantage. The strategies, operations, functions of organization's will be same and this means that there will be no competitive advantage. The second assumption of this theory is that the resources are required to be immobile which means that should not move from one company to another.

Both the theories are applicable in context of the case of Altera acquisition by Intel. As per the resource based theory, it can be stated that both the businesses have their own set of resources and skills on the basis of which they compete with each other. The advanced technology of Altera is termed as one of its major resources. On the other side, Intel is considered as the largest manufacturer of the chips. Therefore, by acquiring Altera, the brand will be able to protect and defend its presence in data centres. In addition to this, it will also help the brand to get more customers which will be the biggest factors that will contribute in getting competitive advantage. With the growing use of smartphones and tablets, the sales of Intel's PC has been declined to a great extent. Therefore, this investment will provide new customers and will increase Intel's opportunities for future growth. On the other side of this,on the basis of transaction cost theory, it can be stated that the brand will be required to determine the efficiency of each and every level of management before making any kind of decision. It is required by the brand to take care that all the levels, activities and operations do not have any kind of negative impact because of the acquisition (Ashton and Morton, 2005). By application of both the theories which is resources based theory and transaction cost theory, the firm will be able to determine whether the decision regarding Altera will be successful or not. These theories will support in identification of various factors such a cost, advantages and disadvantage which are associated with the acquisition.

Link Between Literature Review And Critical Analysis Of The Theories

In terms of acquisition and its role in strategic thinking and value management, both the transaction cost theory and resources based theory are essential. From the literature review, it has been analyzed that acquisition have done with the main motive of attaining a firms strategic objectives. The concept and significance of acquisition in organization has been changed with the passage of time. Nowadays acquisition are done in order to gain competitive advantage in market place. The situation of competitive advantage is the one in which people in market prefer to buy the products and services of one particular firm over its competitors. Therefore, resources based theory is directly linked with the strategy of acquisition (Steiner, 2010). As per the theory, competitive advantage can be achieved in case where the resources of two firm differs from one another. In situations where resources do not differ then the best alternative to gain advantage is by acquiring or purchasing another firm. The theory depicts that it is only because of the resources that an business enterprise gets advantage over other market players. Further at the time of making strategic plans and determining strategy regarding acquisition, companies are required to make assessment of their resources.

On the other hand, the transaction cost theory is also linked with the process of strategic planning and its implementation. While developing strategies such as acquisition, businesses are required to determine the effectiveness of its different levels of management. It can be stated that after carrying out this assessment, effective decision regarding acquisition can be made easily. From the above literature review, it has been analyzed that a wrong decision regarding acquisition can result in huge loss to any organization. The failure has an direct impact on sales, profitability, market share and brand image of an enterprise. Therefore, it is required by businesses to employ transaction cost theory before making any kind of decisions regarding acquisitions. The core purpose behind acquisition is to improve the market share and overall efficiency of organization (Bartlett and Ghoshal, 2013). Therefore, companies are required to become aware of the fact that the transaction which occurs at different level are efficient and effective or not. The overall concept of acquisition can be very helpful for companies which are seeking for growth and development. Further it can be stated that with the help of this strategy, organizations are able to enhance the overall market presence and lower down the degree of competition. On the other hand, the two theories can help a firm to determine what kind of impact does the strategy of acquisition will have on the overall activities and operations of an business enterprise.

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Conclusion

After doing the research study on strategic thinking for the acquisition process, it can be concluded that acquisition is a most important factor for the constant growth and development of an organization. Any firm who wants to grow in this competitive era, can adopt the strategy of acquiring their competitor's firm. Moreover, acquisition means that any firm who want to reduce the competitors acquire the other firm. Further, it can also be concluded that it is not always necessary that the firm who acquires the other company is a stronger firm and the enterprise which have been acquired is a weaker firm. Sometimes, the same level of organization also do this process. It is done in order to achieve sustainable competitive advantage in the dynamic industry. Furthermore, there are many benefits of acquisition that is, if a firm acquires another company which is its competitor than the amount of competition get reduced in the industry. Moreover, customers are also served with more advanced and better products and services in an effective manner. However, this may also have a negative impact on the minds of customers about the firm which is acquired because it is a myth among all the people that organization which have been acquired are weaker.

In addition to this, it is also inferred that firm which acquire the other company does not only acquire the premises or brand name but also all its resource that is financial, physical and human resource. This report contains the case of acquisition of Altera firm by Intel and in addition to this, Intel also acquire its financial, physical and human resources so that effectiveness and efficiency can be achieved. Furthermore, it depicts that acquisition plays a major role for the achievement of organizational goals and objectives. Intel's goal was to gain growth and development and by acquiring this firm, it can maintain its position and also gets an opportunity to grow at a constant rate. Similarly, it can be concluded that before doing acquisition of a company, a whole strategy is being made and in which the cost estimation is done. The Intel has made the strategies that how the valuation can be done, how to acquire the firm, what resources should be assessed, etc. Thus it can be said that strategic management is directly linked with the acquisition process. With the help of strategic management, businesses are able to make decision regarding what kind of prices can be offered to the firm which a company is planning to acquire. From the above report it can be also concluded that the resources based theory explains that competitive advantage can be gained only in case where two firms have different resource and skills. On the other hand, it can be also concluded that the transaction cost theory lay emphasis on determining the effectiveness of each and every level of an organization.

References

  • Doyle, P., 2009. Value-based marketing: Marketing strategies for corporate growth and shareholder value. John Wiley & Sons.
  • Eden, C. and Ackermann, F., 2013.Making strategy: The journey of strategic management. Sage.
  • Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. Pearson.
  • Hill, C., Jones, G. and Schilling, M., 2014.Strategic management: theory: an integrated approach. Cengage Learning.
  • Ireland, R.D., Hoskisson, R.E. and Hitt, M.A., 2009. The management of strategy. Mason, OH: South-Western Cengage Learning.
  • Kapferer, J.N., 2012. The new strategic brand management: Advanced insights and strategic thinking. Kogan page publishers.
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