History Of What Is Strategic Management

Published Date: 02 Nov 2017

All firms that engage in competition seek out different techniques in order to sharpen and develop the competitive skills that they posses. Penetrating into new markets via diversification is one of the competitive edges that only minimizes risk but the widespread rate of risk involved with operating in a mono-market system are greatly neutralized therefore enhancing their chances of higher profit making.

In our report we have chosen two Pakistani giants that have diversified via conglomerates and acquisitions, namely house of habib and Nishat group. Both the companies are humongous in terms of operations, market share, and profitability. The report all subsidiaries, and what function do they serve in the markets that they operate in.

These giant groups were the first amongst few of the organizations in South East Asia that expanded their operations beyond geographical barriers, or market constraints. Each of their subsidiaries has been able to expand in greater markets and diversify further. Therefore these groups have not only diversified in to new markets but further enables the subsidiaries to expand and diversify as well.

The importance of diversification has been discussed with respect to both domestic and international companies. Our report revolves around discussing how these giant conglomerates have been successful over the years with their unmatched business growth strategies.

Introduction: What is strategic management?

Strategic management not only works towards devising an organization`s mission and vision but also sets outlines for policy development and plans. Strategic management helps allocate resources in order to implement the policies and plans.

Strategies are usually derivative by the top executives of the company which are presented to the board of directors of the company. The implications of the selected strategy are of high importance, which are illustrated by achieving high levels of strategic alignment and consistency. These factors are related to both the external and internal environments of a business.

All strategic planning deals with questions of "What do we do?" "For whom do we do it?" and "How do we excel?" and "in what ways is Strategic management necessary for the development and expansion of all organizations?"

Strategy and a company's mission statement and vision are innately tied, and make up the core concepts allowing the company to execute its targeted goals. This being said, the company strategy must constantly be evolved so it moves in combination with the changing demands of the market.

However the first and foremost task in strategic management is to derive the mission and vision of the company and make sure it is diffused across the organization. All the people involved in the organization must know what they are working towards and how they are working towards company goals.

The management needs to ensure that they are fully understood by the organizational team in order to ensure both effective implementation and to infuse a sense of responsibility in the working class.

Studying the external climate can highlight all significant aspects that can affect an organization, this would not only uncover areas to capitalize on but in addition would draw attention to areas in which expansion may not be a feasible option.

Once these factors have been identified they have to be screened by the organization.

Managers at a corporation also need to address the suitability of the strategy and how it deals with the overall rationale of the business, the following questions could answer querries regarding a strategies suitability.

The company further has to work on the acceptability of a strategy by the stake holders of the company. Stakeholder benefits in comparison to the return risks.

Those products and services that fit in a strategy usually get higher acknowledgement however it is also necessary to acknowledge those that don`t.

The exact means of implementing a strategy may range from:

Partnerships with other firms to complete the competitive gaps,

Investments in internal progress

Acquisitions or mergers to reduce the time required to penetrate into newer markets.

Countries such as India and China practice such strategies where they provide business licenses to external firms if they agree to form a partnership or coalition with the local businesses. This is beneficial not only for the host countries but also minimizes the cost associated with penetrating into entirely new markets.

Implementing a strategy needs organizational changes, such as making new units or consolidating existing ones. Firms may want to limit territorial structures and spread them over to the overall functionality. Organizing is inclusive of bringing together factors and re-arranging them in the preferred order in order to set things straight.

Implementation of strategies may require significant budget movements which can impact human resources and capital expenditure. Employees that relate their primary interests with the financial benefits that they get from an organization may find it to be a discouraging.

Also, implementing a strategy requires string change management techniques to be applied in an organization. It may have effects that pervade throughout the system. Reducing disruptions as these can reduce costs and save time.

A well-formulated strategy can bring numerous advantages to a corporation:

Strategic management anticipates the future and provides the necessary tools to counter expected changes.

A strategy is usually formulated on rational and logical grounds, thus ensuring its efficieny and success.

Strategic management follows procedures therefore minimizing the rate of frustration associated with abrupt/planned changes.

It is an opportunist approach and therefore creates space for growth.

With strategic management organizations can avoid chaotic situations by maintain effective communication throughout organization which aids people to work directionally.

Strategic management gives a reputation of consistency to the organization which further gains it success

With strategic management companies can to some extent predict future changes, which in turn reduces the failure of a firm due to lack in strategy.

Strategic management assesses future threats, which it can neutralize with an effective management system.

Strategic management focuses on a proactive approach which provides these organizations to cease the first opportunities.

Diversification:

What is diversification?

Diversification is the strategy which is used in the corporate business to increase sales from products and entering and opening in new markets. Diversification can be done in the while expanding into a new branch of new business and also it can be done outside of the scope of the existing business. According to the researcher the diversification compromise on the basic four strategies which was presented and defined as

Product/Market Ansoff matrix

Ansoff diversification.JPG

Ansoff explained out the concept of the diversification as the combination of three strategies. These are three strategies are almost contain, include , the same mechanisms and framework of work which includes technical, financial and all other resources used for the original product line. And while talking about the diversification it requires a new field which consists of new skills, new techniques and new facilities.

Why international and national companies have gone for diversification?

Diversification is the part of growth strategy. These growth strategies increasing the performance of the product and swell as increase the market share of the company which when compared to past level of performance. There is one more growth strategy which is considered by the many managers and top executives. One of the key theme behind this strategy was the concept of bigger is better. Increase in sales is always being referred to measure of performance. Even if the profit is not much and growth is sale is present then the market will come to the point where they assume that if the growth is sale is present the profit margin will follow it.

When managers peruse the growth strategy the rewards for them are greater. Manager is given commission of sales. If the sales are increased the commission on sales will be according to the sales which resulted as the reward for them. Public recognition and giving, growing the power is also the step of managers of growing companies.

Growth also makes the substantial impact of the effectiveness of organization. The large companies have different advantages over smaller form which deals in the limited markets.

When the firm is larger in size have the larger market share which lead to economies of scale. Having the synergy concept in marketing and production department will reduce the changeover time, reduce time travel and distance production runs.

In the lower average unit the cost issue has been observed which affect the administrative expenses and other unseen costs as compared to larger unit volume.

Effective and improved coherent approach with other stages of production can also result from the firm who are larger in size. Better and effective linkage with the supplier often results in good and fast supply chain of material (discounts of quantity). Better and good relations with distribution channels may lower cost which depends of location of warehouse, effective and different advertisement and fast shipping. The size of organization has density to influence the customer and supplier bargaining power.

Having the effective communication channels and effective mutual sharing of information between units of the large firms gives the advantage of effective decision making also inform the other departments of their problems so they can take precautionary measures. Mostly the companies which are depended on technology, the reduction in R&D cost and the time consumed to develop new technology take the lager firm on the edge as compared with smaller firms

Larger firms take the advantage of geographical difference if present in market. For the multinational firm’s differences in the wages rates, government’s taxes variations, shipping cost and other trade restriction make the impact on cost of business.

Advantages and disadvantages of diversification:

Diversification advantage is to exposure of market swing. The concept is that devalue one sector and contain all other sectors in the longer term, and the growth is seen gradually. Also one advantage is to have good mix of common stock and fixed income securities that are suitable. 

The main pitfall of diversification is that firm only focused one sector or stock and growth is seen in that but whereas the other sectors are being ignored which increases the risk element. Another disadvantage of diversification is for smaller investors. Those investors which are not interested in limiting their risk can have diversified portfolio. Diversification always doesn’t give the guarantee that you will make profit; it just decreased the risk of losing money.

House of Habib:

House of Habib, one of the well known structured businesses in Pakistan which was stated back in 1941. That time, Mohammaed Ali Habib who is third son of Mr.Habib Esmail started with the collaboration with his two brothers; Habib bank Limited and Habib insurance Co.Ltd which was formed in 1941 and 1942 respectively. He the actual person behind all these business, who acted the leader, has the vision and strong determination.

House of Habib is involved in almost everything which starts from audio media to automobiles, building to banking, chemical to computer. They have almost 14.000 persons who are working as employee on this group.

Maintaining the network of both public and private companies and which is now part of Karachi stock exchange. This group has the collaboration from different counties of world, there main collaboration are with Japanese, Norwegian and British companies. The concept of this family could be called as the conservative, but they have main focus on the decentralized professional management, which is dynamic and progressive organization.

There are having different businesses and diversifications which are:

It is an automobile industry which is came to being with the joint venture b/w the "Toyota Motor Corporation Japan (TMC)", "Toyota Tsusho Corporation Japan (TTC)" and House of Habib. Under this joint venture house of Habib can assemble, progressive manufacture and market of Toyota vehicles in Pakistan. The IMC is the only sole distribution ship of Toyota and Daihatsu Motor Company Ltd.

IMC was established in Pakistan as the public company in 1989 which started its commercial production in 1993. This company is listed in the Karachi stock exchange and TMC and TTC have 37.5% shares in the company hold. Main potion of share belongs to House of Habib. This company includes several flagships which is "Corolla" the passenger cars and "Hilux" is one the light commercial vehicle segment. The manufacturing plant is located in Port Bin Qasim which is spread over 105 acres. The product reaches the end customer nationwide through different 35 independent Dealerships which owns a strong network.

Agriauto Industries Limited:

It was established in 1981 and is one of the leading company is automotive components. Also it is listed on stock exchange and having the first company with TS certification. It has much collaboration with international companies. Its product range varies from manufacturing equipment to aftermarket.

AuVitronics Limited:

It was established by House of Habib in 1983. It was the pioneer company which was using modern technology in its production. About 500 staff they are having in which one third is females and they are following 21 century dynamics by diversifying themselves into plastic elements.

Thal Limited Electric:

Thal Engineering-Electric Systems came of the form in the year 2000 when they signed the agreement of TAA (Technical Assistance Agreement) with Furukawa Electric Company. Furukawa is one the world best and leading company in supplying different parts of automotive wiring in the world and owns more than 50 subsidiaries in this new era. The collaboration acted in the most effective way and takes the company in the leading company of Pakistan in the supply of car wiring and also they are the manufactures of it in Pakistan.

Customer satisfaction level is being met by this company and when they came to serve the meet the international standards and also exceptional quality and in time delivery and cost effectiveness is the core competences of them.

Thal Limited Thermal:

The Thermal Systems business was operated in 1996. They manufacture the auto air conditioners for Toyota and Suzuki vehicles which are manufacture and also assembled in Pakistan.The thermal business is serving the demands in the automobile market but Thal diversified its products and start manufacturing the heater blowers and air container controls in 2001 and 2005 accordingly.

This diversification was then future expended with the addition of heat exchangers, such as heater core and mostly used aluminum radiators. They manufacture these parts of diversification in Pakistan. Since that time Thal Engineering's is serving and meeting the demands of market and the positive approach to meet the standards and keeping the quality as per their name in market and also established the range of excellent quality.

Shabbir Tiles & Ceramics Limited (STCL):

With collaboration of West Germany it is established in 1978 by "House of Habib" . STCL is first comer in the private sector of enterprises in the ceramic sector. In all 3 stocks of Pakistan it is listed and also it is the member of KCCI.

This company is at the top position in the sector of ceramic as they produce the most cost effective and maintain the international standard and they are always in the process of development of product. We make sure that the quality levels meet the international standards and our different range of size, design and color for the tiles in porcelain and ceramic. STCL is flourishing and enjoying the diversification in different related construction materials goods and obtain the leading position in market from the products of DIY (DO IT YOURSELF) products.

They own different manufacturing plants in different places of Pakistan which are located at Karachi, Lahore, Faisalabad, Islamabad, Multan and Peshawar. All the plants ensure the level of quality and serve the most valued customers. Company has opened their retail outlets all over the country with the name as "THE STILE EMPORIUM".

"Thal Limited – Baluchistan Laminates Division":

Thal Limited is the laminate division which came into existence in 1980 as the fist unit which manufactures different laminates for decoration and sell with the name of FOEMITE.

After fulfilling the basics, company has introduced the upstream and downstream integrations facilities to ensure the quality of its products. In 1982 company launched their first trial production of technical laminates under the named as Melamite. BLD in 1983 also produced the first laminated board using the high pressure of the main production line. After couple of years the short cycle press was taken into action.

Thal Limited – Papersack Division:

Thal Limited come on existence in 1966 and starts their journey as the public listed entity. At that time it is listed on stock exchange as well.

Thal limited operate under "House of Habib" group and has showed a lot of progress from its parent group. It also enjoys its own diversity. HOH is one of the leading and mature players providing the diversification in products. "From automobiles to audio media, building materials to banking and computers to chemicals", it is flourishing its business.

Thal Limited –Jute Division:

Since 1966 "Jute business is one the leading manufacturer and exporter of high quality Jute product in Pakistan". Also its operation was started in Muzaffargarh, Punjab. The company is equipped with different machinery. All operation is designed in such a way to gain the maximum production levels and maintain the quality standards and attainting the highest levels of efficiency. They ensure the quality standard and focus on the value added products to meet the customer satisfaction.

This jute company has almost 4000 employees which include both skill worker and unskilled worker as well. With the act the company is also contributed to the economy and also friendly environment lead this form to have good relations with its labor. In 25 countries it exports the jute which includes "Egypt, UK, Australia, Iran, Spain, Sudan, Turkey, India, Tanzania, UAE and USA".

Makro – Habib:

It is the leading wholesaler in the Pakistan and established the chain of stores in food and non food items. They offer the high quality of products in the most cost effective rates under one roof and consider making the competitive advantage in market. Currently this company owns five stores which are located in metropolitan cities of Pakistan .Over 50,000 customers belong to different social class walk in the stores for shopping every day.

"METRO- Habib Cash & Carry Pakistan":

 

In the year 2007 METRO launched its first "cash and carry whole center" in Pakistan and after in just 18 months they have expanded to 5 wholesale centers. METRO and Makro-Habib in July 2012 combined their business in Pakistan and start the long journey of partnership for the mutual benefits.

With the merger it allows the METRO and Makro-Habib to combine their resources and use their financial strength and techniques to lead and to grown together in this challenging era and to satisfied their value customer and suppliers as well. Today they own 9 wholesale centers which are located in different cities of Pakistan like Lahore, Karachi and Islamabad.

Habib Insurance Company Limited:

It was the one of the stating project of "House of Habib" and came into existence in 1942 in Bombay and then after Pakistan got independence in 1947, it opened its office in Karachi.

It has gone through different establishments and now it is one of the leading insurance companies and all this was only possible by the consolidation with itself. Through this is also investing and meeting the challenges according to market requirement. New markets and product are being identified and trying to come up. HICL is trying its best to provide the high quality services and retain its customers and satisfy all his shareholders by giving them a return on their investments.

Noble Computer Services (Private) Limited:

NCS is the subsidiary company of HOH (House of habib). NCSL was established in 1983. With an excellence and experience of over 25 years is resulting in to provide best standards in quality NCSL’s experience and solutions for cost-effective outsourcing.

NCS is taken its customer as a part of organization and to best meet customers’ expectations and securing all the data of customers NCS has a fool proof security system to overcome all the threats of data stealing of data and always provide best services according to the demand of the customer. NCS is a pioneer in data management and in excellence to commitment. Due to this NCS is best known in the market and having strong corporate position as compare to others.

NCSL is also known for the bureau of elite service of data processing. Noble computers are always remaining focus about its reliability in the eyes of the customers and up till now it is very much successful in this regard. Noble computers have a respect in the eyes of bankers, industry associates and also the competitors, while earning the respect of its competitors, bankers, and industry associates. Another important aspect of noble computers is the fair treatment of employees in every aspect from staffing to training and placement all this is being done on merit and in the best regard of employees. NCSL having best relations with industry and getting excellent product form industry.

Nishat Group:

Nishat Mills:

Nishat Mills Limited was established in 1951. Its annual turnover exceeds Rs.17 billion. State of the art the production facility of spindles 270,000 looms 740, and a huge dyeing and a printing capacity has made Nishat the largest composite textile set up in Pakistan.

D.G KHAN Cement:

D.G. Khan Cement Company Limited is a part of Nishat group and has the largest cement-manufacturing plant in Pakistan. It`s production capacity exceeds 5.5K tons of clinker every day. It has a countrywide distribution network; its products are preferred on projects are preferred in both domestic and international markets. It is also listed on all the Stock Exchanges of Pakistan.

ALTERNATIVE FUELS:

Fuel is one of the major inputs in cement manufacturing and its cost is ever increasing. This has forced the company to find out alternate cheaper fuels to maintain its positive

Further studies are being carried out to explore availability and usage of other alternate options as well. By investing in finding and using alternate fuels DG khan cement is playing its part in environmental protection and control as well.

Environment Protection:

DG khan cement makes it a point to work towards permanent reduction of environmental damage that its production operations may cause. It employs up to date technology at its plants that guarantees emissions stay below the standard specified National Environmental Quality Standards. 

The company shows social responsibility by investing a considerable amount of investment funds on environmental-friendly projects. It has opted for a detailed approach towards protection of the environment which based on the principals of sustainable development.

Financial Services:

MCB:

 Previously known as a (Memon Co-operative Bank), MCB was found by the Adamjee Group in the year 1947. The bank was formed with the basic motive of providing banking facilities to corporate community of south East Asia. During the era of Zulfiqar Ali Bhutto the bank was nationalized. It was purchased by a conglomerate Pakistani corporate group which was led by Nishat Group. The president of the bank is M.U.A Usmani and Nishat group held majority of its shared till the year 2008.

MCB has more than 1200 branches country wide and is the largest private bank of Pakistan that has its branch out of Pakistan as well.

MCB profitability:

MCB is Pakistan’s fourth largest bank by assets. Muslim commercial bank has an asset base of 7 billion US dollars.

The customer base at Muslim commercial bank is approximately 4 million and it has a nationwide distribution network of 1,190 branches which are inclusive if the 22 Islamic banking branches out of which eight are in Pakistan while the rest are outside country. The bank has over 650 ATMs in 110 cities where it’s recorded market with is over 190 million. In the last twenty years it has concentrated on growth via improvements in its service quality, investing in technology and people, maximizing benefits from its extensive branch network. Also by developing a large and stable deposit base it has been to manage its non profitable loans and assess risks more efficiently.

MCB has been successful in altering its operations since its privatization. it is moving forward to set performance standards with the nonstop support of its customers and leadership in banking technology.

"To further strengthen its financial services base, MCB has also incorporated an Asset Management Company in the year 2005 known as MCB Asset Management Company. MCB has also incorporated a leasing company in Azerbaijan in 2009."

Fully Owned Subsidiaries of MCB are:

• Muslim Commercial Financial Services (Private) Limited

• MNET Services (Private) Limited

• MCB Trade Services Limited

• MCB Asset Management Company Limited

• MCB leasing (Closed Joint Stock Company)

The Bank has been able to grow rapidly in the last few years. It worked towards mixing together different banking operations, escalating the rate of its retail banking. It also launched provided its customers with diversified products. This in turn gave more focus to consumer financing and further investments in information technology

Adam jee insurance.

The group was founded by Sir Adamjee Haji Dawood (1880–1948) who also played a vital role in the birth of the state of Pakistan by acting as a financial advisor and supporter to Quaid-e-Azam Mohammed Ali Jinnah, the founding father of Pakistan.

The Group has expanded into different sectors, the most prominent of which are the jute mills, textiles and the Adam jee insurance company. Adam jee is a household name in Pakistan and Bangladesh.

AICL Limited:

Adam jee insurance was first established as a Public Limited Company on September 28, 1960 and is listed on all the stock exchanges of Pakistan. The Company also happens to be registered with the Central Depository Company of Pakistan Limited which is primarily involved in the business of general insurance. The head office of adam jee insurance is in Karachi and it operates a network of branches all across Pakistan and two in UAE.

The Company started its operations with a paid-up capital of Rupees 2.5 million. This capital has grown phenomenally in the past fifty years to a whopping 1.24 billion rupees, as recorded on 31 December2011.

It secures the greatest share in clients in these sectors. On the other end of the field, AICL services the major industries of Pakistan by covering Textile and Sugar. AICL pioneered the coverage of Energy Risks. The company has also managed to secure the business of foreign investors entering Pakistan to execute and assemble. It is also the principal insurer of Kidnap & Ransom, Professional Indemnity, Product Liability and other specialized lines in Pakistan.

Conclusion:

Both the House of Habib and Nishat group diversified their business operations via acquisitions and conglomerates. High profile companies were acquired by consortium groups that gave them a strong hold in the respective markets they operated it.

Apart from the parent company’s success the subsidiaries were quite successful and had diversified bases. These companies have been able to gain the advantage of diversification in terms of both market penetration and market extension.

Both these giants have been operating in Pakistan with a huge base both domestically and internationally. Increasing sales, innovative products, customer orientation and diversified products and services have contributed towards making them the giant companies that they are today.