Please help with the assigned discussion. The hyperlinks are attached. MY COMPANY IS WALMART

Assigned Discussions:

1. Develop and explain a recommended corporate strategy for the selected company. What competitive strengths does this strategy exploit? How is the strategy different from the current strategy? What are the risks associated with the new strategy and its chances for successful implementation?If the current strategy is considered to be the best alternative, carefully and thoroughly discuss and explain why?

2.For the selected company, develop and explain a recommended financing strategy. How much additional financing is needed? What should be the sources(s) of that new financing and why?Estimate the costs of the new financing?If the current financing strategy is considered to be the best alternative, carefully and thoroughly discuss and explain why?

3. What are the most important things that you learned from the study of this week's readings and assignments? Remember to always include appropriate references.

/content/enforced/247776-001119-01-2178-OL1-6380/2 Porter & What Is Strategy GLS 02142.xls

/content/enforced/247776-001119-01-2178-OL1-6380/Corporate Financial Strategy Flynn 20151.docx

/content/enforced/247776-001119-01-2178-OL1-6380/FPA As Business Partner 0317.docx

MICHAEL PORTER'S APPROACH TO INDUSTRY ANALYSIS Source: Hunger, J. David and Thomas L. Wheelen, Essentials of Strategic Management, Upper Saddle River, NJ: Prentice-Hall (2003) Future 1: Forces Driving Industry Competition Source: Porter, Michael, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press (1980) Potential Entrants Relative Power of Unions and Governments, etc. Other Stakeholders Threat of New Entrants Industry Competitors Rivalry Among Existing Firms Buyers Bargaining Power of Buyers Suppliers Bargaining Power of Suppliers Threat of Substitute Products Substitutes Porter says that a corporation is most concerned with the intensity of competition within its industry. Basic competitive forces depicted in Figure 1, determine the intensity level. The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long-run return on invested capital. The stronger each of these forces is, the more companies are limited in their ability to raise prices and earn greater profits. Porter mentions five factors - Other stakeholders is added to this analysis to reflect the power that governments, local communities, and other groups wield over industry activities. A strong force can be regarded as a threat because it is likely to reduce profits; a weak force can be viewed as an opportunity because it may allow the company to earn grater profits. WHAT IS THE THREAT OF NEW ENTRANTS? New entrants are newcomers to an existing industry. They usually bring new capacity, a desire to gain market share and substantial resources. Typically, they are threats to existing firms. The threat of entry depends on the presence of entry barriers and the reaction from competitors. A barrier is an obstruction that makes new entry difficult - some typical barriers are: 1. Economies of scale (scale gives existing firms advantage over new rivals). 2. Product differentiation (companies like P&G have high levels of expenditures for advertising and promotion). 3. Capital requirements (huge investment requirements such as facilities for airplanes). 4. Switching costs (difficult to cause customer to switch to new product - like Excel or Word). 5. Access to distribution channels (small producers often don't have access to supermarket shelf space). 6. Cost disadvantages independent of size (Microsoft's development of DOS for IBM PC's gave it a large advantage over competitors. 7. Government policy (Governments can limit entry through licensing requirements or restrict access to raw materials, such as offshore drilling). WHAT IS RIVALRY AMONG EXISTING FIRMS? Rivalry is the amount of direct competition in an industry. A competitive move by one firm can be expected to have an effect on competitors and cause retaliation. Intense rivalry is related to the presence of the following factors: 1. Number of competitors (with few competitors, like the U. S. auto industry, initiatives are matched by competitors who watch closely). 2. Rate of industry growth (slowing of growth in airline industry is likely to set off price wars as the only path to growth is to take sales away from competitors). 3. Product or service characteristics (when products are commodities, like DVDs, customers make selections based on location, variety and pricing). 4. Amount of fixed costs (airlines offer cheap seats on standby fares to fill seats). 5. Capacity (if new plants are expensive, they will be operated at capacity to reduce unit costs, thus reducing prices in the industry). 6. Height of exit barriers (exit barriers keep firms from leaving - no alternative use for the assets of a brewery). 7. Diversity of rivals (rivals with different ideas about how to compete are likely to cross paths often and challenge each other's positions). WHAT IS THE THREAT OF SUBSTITUTE PRODUCTS OR SERVICES? Substitute products are those products that appear to be different but can satisfy the same need as another product. Substitute products limit the potential returns in an industry by placing a ceiling on the prices firms can profitably charge. To the extent that switching costs are low, substitutes may have a strong effect on an industry. WHAT IS THE BARGAINING POWER OF BUYERS? Buyers affect an industry through their ability to force down prices, bargains for higher quality or more services, and play competitors against each other. A buyer is powerful if some of the following factors hold true: 1. A buyer purchases a large proportion of the seller's product or service. 2. A buyer has the potential to integrate backward by producing the product itself. 3. Alternative suppliers are plentiful because the product is standard or undifferentiated. 4. Changing suppliers costs very little. 5. The purchased product represents a high percentage of a buyer's costs, thus providing an incentive to shop around for a lower price. 6. A buyer earns low profits and is thus very sensitive to costs and service differences. 7. The purchased product is unimportant to the final quality or price of a buyer's products or services and thus can be easily substituted without adversely affecting the final product. WHAT IS THE BARGAINING POWER OF SUPPLIERS? Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. A supplier or supplier group is powerful if some of the following factors apply: 1. The supplier industry is dominated by a few companies, but it sells to many (e.g., the petroleum industry). 2. Its product or service is unique or it has built up switching costs (e.g., word processing software). 3. Substitutes are not readily available (e.g., electricity). 4. Suppliers are able to integrate forward and compete directly with their present customers (e.g., Intel could make a PC). 5. A purchasing industry buys only a small portion of the supplier group's goods and services and is thus unimportant to the supplier (e.g., lawn mower tires versus car tires). WHAT IS THE RELATIVE POWER OF OTHER STAKEHOLDERS? A sixth force, added to Porter's five, includes a variety of stakeholder groups from the environment some of these forces are governments, local communities, creditors, trade associations, specialinterest groups, and complementors (a company or industry whose product works well with a firm's product and without which the product would lose much of its value, e.g., Microsoft and Intel. The importance of these stakeholders varies by industry. Such groups can raise costs across the board with most of the impact on marginal production. ACCORDING TO MICHAEL PORTER, WHAT ARE COMPETITIVE STRATEGIES? Compeitive strategy creates a defendable position in an industry so that a firm can outperform its competitors. It raises the following questions: 1. Should we compete on the basis of low cost (and thus, price), or should we differentiate our products or services on some basis other than cost, such as quality or service? 2. Should we compete head-to-head with our major competitors for the biggest but most sought after share of the market, or should we focus on a niche in which we can satisfy a less sought after but also profitable segment of the market? Michael Porter proposes two "generic" competitive strategies for outperforming other corporations in a particular industry: Lower Cost and Differentiation: 1. Lower Cost Strategy - is the ability of a company or a business unit to design, produce and market a comparable product more efficiently than its competitors. 2. Differentiation Strategy - is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service. 3. Porter further proposes that a firm's competitive advantage in an industry is determined by its Competitive Scope, that is, the breadth of the target market. Figure 2: Porter's Generic Competitive Strategies Source: Porter, Michael E., The Competitive Advangage of Nations, Lower Cost Broad Target (Aim at middle of mass market) Narrow Target (Aim at a market niche) COST LEADERSHIP Low-cost competitive strategy Low costs permit heavy competition Low cost is entry barrier COST FOCUS Focuses on particular market Seeks cost advantage in segment Differentiation DIFFERENTIATION Product perceived as unique Can charge a premium Differentiation creates barrier DIFFERENTIATION FOCUS Focuses on specific buyers, products, or geography Serves special needs of market WHAT IS STRATEGY? TRADITIONAL PERSPECTIVE - An Integrated Set of Actions Leading to a Sustainable Competitive Advantage Based on the following assumptions: 1. Industry consists of unrelated buyers, sellers, substitutes and competitors that interact at arm's length. 2. Wealth accrues to companies that can erect barriers against competitors and potential entrants. 3. Uncertainty is low enough to permit making predictions about the behavior of industry participants and to choose a strategy accordingly. ALTERNATIVE VIEWS OF STRATEGY IMPLICIT STRATEGY MODEL OF PAST DECADE PORTER'S SUSTAINABLE COMPETITIVE ADVANTAGE One ideal competitive position in the industry. Unique competitive position for the company. Benchmarking of all activities and achieving best practice. Activities tailored to strategy. Aggressive outsourcing and partnering to gain efficiencies. Clear trade-offs and choices in comparison to competitors. Advantages rest on a few key success factors, critical resources, core competencies. Competitive advantage arises from fit across activities. Flexibility and rapid responses to all competitive and market changes. Sustainability comes from the activity system, not the parts. Operational effectiveness is a given. WHAT IS STRATEGIC MANAGEMENT? The Strategy-making, Strategy-implementing process consists of five interrelated managerial tasks: 1. Forming a strategic vision of what the company's future business makeup will be and where the organization is headed. This is to provide long-term direction, delineate what kind of enterprise the company is trying to become, and infuse the organization with a sense of purposeful action. 2. Setting Objectives Converting the strategic vision into specific performance outcomes for the company to achieve 3. Crafting a strategy to achieve the desired outcomes 4. Implementing and executing the chosen strategy efficiently and effectively. 5. Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or implementation in light of actual experience, changing conditions, new ideas and new opportunities. WHAT TO LOOK FOR IN A FIRM'S STRATEGY 1. Moves to diversify the company's revenue base and enter new businesses or industries. 2. Actions to respond to changing industry conditions (shifting customer preferences, new government regulations, globalization, entry or exit of competitors). 3. Fresh offensive moves to strengthen the company's long-term competitive position and secure a competitive advantage. 4. Efforts to broaden or narrow the product line, alter product quality, alter performance features, or modify customer service. 5. Efforts to alter geographic coverage, integrate forward or backward, or stake out a different industry position. 6. Actions to merge with or acquire a rival company, form strategic alliances, or collaborate closely with certain industry members. 7. Actions to capitalize on new opportunities (new technologies, product innovation, new trade agreements that open up foreign markets). 8. Defensive moves to counter the actions of competitors and defend against external threats. 9. Moves and approaches that define how the company manages R&D, manufacturing, marketing, finance, and other key activities. 10. Actions to strengthen the company's resources base and competitive capabilities. PRINCIPLES OF STRATEGIC POSITIONING Three Key Principles Underlie Strategic Positioning: 1. Strategy is the creation of a unique and valuable position, involving a different set of activities. Strategic position arises from three distinct sources: a. Serving few needs of many customers (Jiffy Lube). b. Serving broad needs of few customers (Certain banks target high-wealth customers). c. Serving broad needs of many customers in a narrow market (Carmike Cinemas operates only in cities with fewer than 200,000). 2. Strategy requires management to make trade-offs in competing - to choose what not to do. 3. Strategy involves creating \"fit\" (consistency) among a company's activities. CONSIDERATIONS ABOUT STRATEGY Operational Effectiveness is Not Strategy - Operational effectiveness can be copied easily. There is rapid diffusion of best practices. A Company Can Outperform Rivals Only If It Can Establish a Difference That It Can Preserve - A company must deliver greater value to customers or create comparable value at a lower cost, or do both. Greater value allows a company to charge higher average unit prices. Greater efficiency results in lower average unit costs. Competitive Strategy Is About Being Different - It means deliberately choosing a different set of activities to deliver a unique mix of value. The essence of strategy is to choose to perform activities differently or to perform different activities than rivals. The Essence of Strategy is Choosing What Not to Do - By choosing to compete in one way and not another, management makes organizational priorities clear. Companies the try to be all things to all customers risk confusion. Strategic Positions Should Have a Horizon of a Decade or More - Continuity fosters improvements in activities and fit across activities allowing an organization to build unique capabilities. FIVE GENERIC COMPETITIVE STRATEGIES 1. Low-Cost Leadership Strategy - Appealing to a broad spectrum of customers based on being the overall low-cost provider of a product or service. 2. Broad Differentiation Strategy - Seeking to differentiate the company's product offering from rivals' in ways that will appeal to a broad spectrum of buyers. 3. Best-Cost Provider Strategy - Giving customers more value for the money by combining an emphasis on low cost with an emphasis on upscale. 4. Focused or Market Niche Strategy Based on Lower Cost - Concentrating on a narrow buyer segment and out competing rivals by serving niche members at a lower cost than rivals. 5. Focused or Market Niche Strategy Based on Differentiation - Concentrating on a narrow buyer segment and out competing rivals by offering niche members a customized product or service that meets their tastes and requirements better than rivals' offerings. 13 COMMANDMENTS FOR CRAFTING SUCCESSFUL BUSINESS STRATEGIES Source: Thompson, Arthur A., Jr. and A. J. Strickland, Strategic Management, Concepts and Cases, 11th ed., Boston, MA: Irwin McGraw Hill (1999). 1. Place top priority on crafting and executing strategic moves that enhance the company's competitive position for the long term. 2. Understand that a clear, consistent competitive strategy, when well-crafted and well executed, builds reputation and recognizable industry position; a frequently changed strategy aimed at capturing momentary market opportunities yields fleeting benefits. 3. Avoid "stuck in the middle" strategies that represent compromises between lower costs and greater differentiation and between broad and narrow market appeal. 4. Invest in creating a sustainable competitive advantage. 5. Play aggressive offense to build competitive advantage and aggressive defense to protect it. 6. Avoid strategies capable of succeeding only in the most optimistic circumstances. 7. Be cautious in pursuing a rigid or inflexible strategy that locks the company in for the long term with little room to maneuver - inflexible strategies can be made obsolete by changing market conditions. 8. Don't underestimate the reactions and the commitment of rival firms. 9. Avoid attacking capable, resourceful rivals without solid competitive advantage and ample competitive strength. 10. Consider that attacking competitive weakness is usually more profitable and less risky than attacking competitive strength. 11. Be judicious in cutting prices without an established cost advantage. 12. Be aware that aggressive moves to wrest market share away from rivals often provoke retaliation in the form of a marketing "arms race" and/or price wars. 13. Strive to open up very meaningful gaps in quality or service or performance features when pursuing a differentiation strategy. Corporate Financial Strategy. By: Flynn, Simone I., Research Starters: Business (Online Edition), 2015 Available at: http://eds.b.ebscohost.com.ezproxy.umuc.edu/eds/detail/detail?sid=30174ca0-dfe9-4b13-a6e92319c0625379%40sessionmgr101&vid=1&hid=108&bdata=JnNpdGU9ZWRzLWxpdmUmc2Nvc GU9c2l0ZQ%3d%3d#AN=89163618&db=ers Corporate Financial Strategy This article focuses on corporate financial strategy. It provides an overview of the history, strengths, and weaknesses of the corporate financial strategy field. The main components of corporate financial strategy, including value-based management, strategic planning, mergers and acquisitions, cost analysis, and capital budgets, are addressed. The relationship between corporate financial strategy and investor relations are described. Keywords Business Strategy; Business Units; Capital Budgeting; Capital Budgets; Corporate Development; Corporation; Cost Analysis; Cost Benefit Analysis; Cost-Effectiveness; Financial Strategy; Growth; Growth Companies; Investor Relations; Operating Business Plan; Performance; Strategic Planning; Value-Based Management; Vertical Merger Corporate Financial Strategy Overview Corporate financial strategy is a business approach in which financial tools and instruments are used to assess and evaluate the likely success and outcomes of proposed business strategies and projects. In the twenty-first century, corporate leaders and decision makers use corporate financial strategy to: Actively enhance shareholder value Fundraise Attain venture capital Promote corporate growth. Corporations promote growth through organic or inorganic business activities. Corporate growth refers to economic expansion as measured by any of a number of indicators such as: Increased revenue, staffing, and market share. Issues that affect corporate value and growth include human capital, intellectual property, change management, and investment funding. Growth corporations tend to have an operating business plan that guides the company toward growth choices and activities. An operating business plan refers to a dynamic document that highlights the strengths and weakness of the company and guides the company toward learning and increased efficiency. A corporation's operating business plan is informed and driven by its corporate financial strategy. The Combination of Finance & Strategy The field of corporate financial strategy brings together the forces of corporate finance and corporate strategy to compliment and balance one another. In successful corporate finance strategy, corporate finance and strategy functions work together to create shareholder value. Corporate financial strategy is a multi-faceted and multi-field approach to business operations and management. The history of finance and strategy in corporate settings has been one of 1 divisiveness and territoriality. Finance and strategy, and financial and strategic decision making in general, have long been considered separate intellectual and decision-making forces. Chief financial officers have been known to favor either finance or strategy as their main decision making influence. For example, chief financial officers and managers that favor economic or finance-based decision-making may rely on managerial economics or applied economics to make business decisions. Ultimately, there is no substantial conflict between corporate finance and corporate strategy tools and instruments. Finance and strategy, which have a history of being separate endeavors in the corporate sector, are complimentary functions that have the potential to reinforce and balance one another. Corporations that integrate finance and strategy functions have the greatest opportunities for growth and value added endeavors (Thackray, 1995). Corporations, in the twenty-first century, share many of the same characteristics. For example, the modern corporation is usually organized into business units. Each business unit within the modern corporation is accountable for its' own profits or losses. Business planning is generally decentralized. Business unit product line managers focus on profits for single products over the shorter term. Rapid development and innovation in information technology continues to change production functions and the nature of the products and services sold and delivered to customers (Egan, 1995). Despite the similarities that characterize modern corporations, corporations do differ in their ability to combine finance and strategy factors. In the increasingly competitive global market, successful integration between finance and strategy dimensions may mean the difference between corporate success and corporate failure. Chief financial officers, managers, and planning teams that use financial strategy as their decision-making compass may create more wealth and growth for their companies and shareholders than those corporations that base their business decisions on either finance or strategy. Steps for Developing Successful Corporate Financial Strategy Corporate financial strategy is most successful when the strategy is maintained internally and aligned with the operations of the corporation. Fully integrated corporate financial strategies can be developed using the following steps (Mallette, 2005): Build a sufficient capital structure: Capital structure refers to the means through which a company finances itself. Financing may come from long term-debt, common stock, and retained earnings. Corporations can determine the best capital structure for its purposes through the use of three forms of analyses: Downside cash flow scenario modeling, peer group analysis, and bond rating analysis. Downside cash flow scenario modeling is a process in which a capital structure is taken from a set of downside cash flow scenarios. Peer group analysis is a process in which common capital structures and fads of peer businesses, are evaluated for insight into operating features. Bond rating analysis is a process in a review of the debt capacity within certain debt ratings. Determine the correct market valuation: Correct market valuation evaluates whether the corporation is undervalued or overvalued in the marketplace. Market valuation refers to a measure of how much the business is worth in the marketplace. Review financial measures such as investor expectations for growth, margins, and investments. Compare investors' expectations and managements' expectations to check for disparity. Establish the optimum corporate financial strategy: Develop an optimum strategy for value creation that provides sufficient funding, financial balance, and a growing cash reserve. Ultimately, corporate financial strategy is a firm-specific enterprise. Corporations design their individual corporate financial strategies based on their available tools, resources, insights, 2 goals, and objectives. Common components of corporate financial strategies include: Valuebased management, strategic planning, mergers and acquisitions, cost analysis, and capital budgets. The following section describes and analyzes the main components of corporate financial strategies used today in the private sector. This section serves as the foundation for later discussion of the relationship between corporate financial strategy and investor relations. Applications Chief financial officers, managers, and planning teams develop their corporate financial strategies to maximize and optimize growth and shareholder value. Corporate financial strategies are characterized as return driven strategies. A return driven corporate strategy refers to a set of corporation specific guidelines for creating, maintaining, and analyzing corporate strategy focused on utmost, long-range wealth development. In the twenty-first century, managers have an increased responsibility to create shareholder value, watch the performance of a business, and safeguard long-term business success. Return driven corporate financial strategy prioritizes value added outcomes and directs the business with a critical eye toward return, value, and growth (Frigo, 2003). The following components of corporate financial strategies, including value-based management, strategic planning, mergers and acquisitions, cost analysis, and capital budgets, are used by chief financial officers, managers, and planning teams to create shareholder value. Value-Based Management Chief financial officers, managers, and planning teams may choose to base their corporate financial strategy on the principles of value-based management. Value-based management refers to a management approach focused on maximizing shareholder value. Value-based management includes strategies for creating, measuring, and managing value. Value-based management is an integrated and holistic approach to business that encompasses and informs the corporate culture, corporate communications, corporate mission, corporate strategy, corporate organization, corporate decision making, and corporate awards and compensation packages. The economic value added (EVA) strategy is one of the most common tools used in value-based management. Economic value added refers to the net operating profit minus a charge for the opportunity cost of all the capital invested in the project. Economic value added analysis is considered a beneficial lens for looking at varying company unit performances on a cost-of-capital basis where risks are adjusted. Value added managers may receive compensation based on the outcome of economic value added analysis. Ultimately, the economic value added approach is a measure of economic performance and a strategy for creating shareholder wealth (Bhalla, 2004). Critics of economic value added approaches have two main complaints. First, critics argue that economic value added approaches are too costly to apply. Second, critics argue that economic value added approaches are too intellectually rigorous and demanding for many managers to use successfully and effectively (Thackray, 1995). Strategic Planning Chief financial officers, managers, and planning teams may choose to base their corporate financial strategy on strategic planning. Growth companies tend to engage in active organizational and strategic planning. The leaders and managers of growth companies tend to excel at understanding, assessing, and forecasting potential problems. This long-range vision allows managers to address problems and plan solutions before situations become destructive to the organization and inhibit growth. Strategic planning refers to the process of establishing a 3 business's long-term corporate goals and deciding on the most effective way to achieving those aims. There are five key elements vital to strategic planning (Bhalla, 2004): Identification of the problems and opportunities that exist Formation of goals and objectives Procedures for providing solutions or paths that the firm can follow Choosing the best solution based on possible solutions and firm objectives Instituting a review procedure to evaluate how the best solution has performed. Corporations' strategic plans and corporate financial strategies are usually integrated intro a general business strategy. The corporate business strategy refers to the context for specific business decisions and operating strategies. Examples include a strategy for growth, business focus, product cannibalization, partnerships, and global focus. All successful corporations engage in corporate development and strategic planning. Mergers & Acquisitions Chief financial officers, managers, and planning teams may choose to base their corporate financial strategy on corporate mergers and acquisitions as the vehicle for creating growth and shareholder value. The convergence of the financial industry that began in the 1970s started a process of ongoing and frequent mergers and acquisitions. Corporations that choose merger and acquisition as their path or engine for increased value and growth must make decisions regarding what mode of merger or acquisition to choose based on their resources, industry, and goals. There are three main types of mergers and acquisitions: Horizontal merger, vertical merger, and conglomerate merger. Horizontal merger refers to the business act in which one company obtains the rights to another company that whose products are similar and whose consumers are in the same area. Thus, competition is greatly reduced and, in many cases, eliminated. Vertical merger refers to the business act in which one company acquires customers or suppliers, thereby lowering the cost of production and distribution. Conglomerate mergers refer to all non-vertical and non-horizontal mergers and acquisitions. Examples of common conglomerate mergers and acquisitions include pure conglomerate transactions, geographic extension mergers, and product-extension mergers. Determining Merger Type Corporations decide what type of merger or acquisition to pursue based on their overall financial strategies, objectives, and resources. Corporations with significant capital resources may choose to pursue the purchase of assets. In the purchase of assets scenario, the buyer purchases another company's assets and, in some instances, its debts. Corporations may choose to pursue the purchase of stock. In the purchase of stock scenario, the buyer purchases some of the seller's stockholdings and inherits the seller's obligations and rights, including debt, in proportion to the purchased share. Corporations may choose to pursue a statutory merger. In the statutory merger scenario, the merger allows the merging companies to continue existing as a single legal entity. Ultimately, there are numerous different types of mergers and acquisitions that correspond to varying business needs and business models (Lu, 2006). Common management problems and issues experienced during and after mergers and acquisitions include strategic, moral, organizational, legal, financial issues, and human resource issues. Merger & Acquisition Management 4 Mergers and acquisitions, throughout their lifecycle from first proposing the idea to post-merger, require careful oversight and management. Corporations are increasingly implementing ongoing merger and acquisition management policies to guide merger and acquisition activities. Corporate merger and acquisition management policy ranges from very simple to very complex. Simple corporate merger and acquisition policy generally includes the mandate that any merger and acquisition transaction over a certain dollar amount must go to the board of directors for approval. Complex merger and acquisition management policy may include, for example, rules and strategies for strategic plan approval, sale of company assets, reporting of inquiries, and formulating a takeover defense. Corporate development officers are generally in charge of developing merger and acquisition management policy as well as overseeing all merger and acquisition proposals (Liebs, 1999). Cost Analysis Chief financial officers, managers, and planning teams may choose to base their corporate financial strategy on the data gathered from ongoing cost analysis. Cost analysis refers to the microeconomic techniques used to assess the effectiveness of production, the best factor allocation, the economies of scale, and cost function. Cost analysis incorporates the expenses associated with raw materials, components, subassemblies, communications, transportation, and customer support services (Egan, 1995). Corporations use multiple cost analysis tools to aid financial and strategic decision-making. There are four main kinds of cost analysis: Costbenefit, cost-effectiveness, cost-minimization, and cost-utility. Each of the four types is used by corporations for decision-making share the same the same framework or guiding principles. For example, the type of cost analysis: Specifies the analytic perspective that provided the framework for determining who pays the costs for and who benefits from a particular service or intervention. Defines and specifies the anticipated benefits and outcomes of a service or intervention. Identifies all of the actual and potential costs using the specified analytic perspective to determine the costs. Accounts for how time may affect projected costs. Evaluates the results and considers alternative explanations for the conclusions. Calculates a cost-benefit or cost-effectiveness ratio as a summary measure (Beyea, 1999). While there are four related types of cost analysis, cost benefit analysis is the most popular and widely used analytical tool for economic decision-making in the private sector. Cost benefit analysis (CBA), a type of investment appraisal also referred to as benefit-cost analysis, is one of the most prominent and widely used analytical and quantitative tools for decision making in the corporations. Cost benefit analysis produces data about the cost and benefit of a product, service, production method, or investment. These data can be presented in three main ways to aid the evaluation stage of analysis: First, data can be presented in a cost-benefit ratio. Second, data can be presented through a calculation of the present total project value. Third, data can be presented by evaluating the internal rate of return of the investment. The third method, the internal rate of return, or rate-of-return analysis, is the most common cost benefit analysis tool used to evaluate investments and make decisions (Hough, 1994). Capital Budgets 5 Chief financial officers, managers, and planning teams may choose to base their corporate financial strategy on their capital budgets. Capital budgets, determined in the capital budgeting process, refer to a financial plan to finance long-term capital expenses such as fixed assets, facilities, and equipment. Capital budgeting is the analytical process of determining the optimal investment of scarce capital so as to realize the greatest profit from that investment. Capital budgeting ranks proposed investments in order of their potential profitability. There are two main criteria for selecting potential business investments: First, business managers, engaged in capital budgeting, generally have a minimum desired rate of return specified as the cut-off point to determine whether or not a project should be accepted of rejected. Second, business managers, engaged in capital budgeting, generally experience constraint from top management regarding the total amount of potential investment. Corporate managers, engaged in capital budgeting, take hold of stockholders' funds and work to maximize their earning potential through four main strategies: The postponability method, the payback method, financial statement method, and discounted cash flow technique. Corporate managers engaged in capital budgeting also develop an economic forecast for each proposed project. The corporate manager generally chooses the project that has the highest future earnings and the lowest associated costs. This approach is complicated by the different risks associated with each potential project. Thus, competing investment projects have different levels of associated risk (Parkinson, 1971). Ultimately, the components of corporate financial strategies, including value-based management, strategic planning, mergers and acquisitions, cost analysis, and capital budgets, can lead organic and inorganic corporate growth efforts. Investors and economists debate the relative strengths and weaknesses of organic and inorganic business growth. Inorganic and organic business growth each move in and out of favor depending on the strength of the economy, political environment, and government regulations. Organic growth is created by expanding existing business resources rather than through mergers and acquisitions. Inorganic growth is created by corporate development practices. Corporate development refers to the activities that companies undertake to grow through inorganic means such as mergers and acquisitions, strategic alliances, and joint ventures. Issues Investor Relations as Corporate Financial Strategy Corporate financial strategy is a holistic endeavor that involves every level and aspect of corporate life. Corporate financial strategy, which endeavors to create shareholder value, is dependent on successful and harmonious investor relations. Investor relations refer to the communication of company information to the financial community, analysts, investors and potential investors. An investor relation is a strategic tool in a corporation's overall financial strategy. Corporations rely on investors to provide capital. Corporations turn to investors for fundraising and raising capital. To facilitate this relationship and promote trust, corporations engage in investor relations. Investor relations offer present and future investors with the precise portrayal of a corporation's accomplishments and potential and influences the corporation's overall image and financial reputation. Financial reputation refers to the general assessment of a business's economic prospects made by the financial rating industry. Investor relations, also referred to as customer relationship management (CRM) or investor communication, is overseen by corporate communication executives; financial directors; 6 company secretaries; or external consultants. \"Investor relations involves continuous, planned, deliberate, sustained marketing activities that identify, establish, maintain and enhance both long and short term relationships between a company and not only its prospective and present investors, but also other financial analysts and stakeholders. Corporate communication strategy attempts to win the approval of financial stakeholders\" (Dolphin, 2004, p. 25). Investor relations help corporations gain support of important financial opinion formers. Ultimately, strategic corporate marketing combines the disciplines of finance and communication for the purpose of creating shareholder trust and value (Dolphin, 2004). Conclusion In the final analysis, corporate leaders and managers, including the chief executive officers of large firms and the business managers of small family businesses, need to have an understanding of how market forces affect business practices in order to be competitive in their industry. Corporate decision makers use and rely on the tools, methods, and approaches of corporate financial strategy to make informed business decisions that maximize profit and secure market share. Terms & Concepts Business Strategy: The context for specific business decisions and operating strategies. Business Units: Self sufficient groups within a form that create and distribute pre- and postorder supporting services for different products to consumers worldwide. Capital Budgeting: The analytical process of determining the optimal investment of scarce capital so as to realize the greatest profit from that investment. Corporate Development: The activities that companies undertake to grow through inorganic means such as mergers and acquisitions, strategic alliances and joint ventures. Corporation: A firm that is owned by stockholders and managed by professional administrators. Cost Analysis: The microeconomic strategies that evaluate and assess the effectiveness of production, the best factor allocation, and the economies of scale and cost function. Cost Benefit Analysis: A systematic and formalized set of procedures for assessing whether to fund and implement a service, product, or program. Cost-Effectiveness: An orderly and measurable method for examining the costs of various ways of gaining the same stream of benefits or a specific goal. Growth: Economic expansion as measured by any of a number of indicators such as increased revenue, staffing, and market share. Growth Companies: Companies whose rate of growth considerably surpasses that of the typical in its category or the inclusive rate of financial gain. Operating Business Plan: Dynamic document that highlights the strengths and weakness of the company and guides the company toward learning and increased efficiency. Performance: The overall results of general activities of an organization or investment over a certain period of time. Strategic Planning: A company's strategy of detailing its strategy, or initiative, and deciding on how to allocate its financial resources to most efficiently achieve the goals. Vertical Merger: The business act in which one firm acquires either a customer or a supplier. 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G., & Stanley, K. L. (1987). Financial strategy: planning and managing the corporate leverage position. Strategic Management Journal, 8, 15-24. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. Slater, S., & Zwirlein, T. (1996). The structure of financial strategy: Patterns in financial decision making. Managerial & Decision Economics, 17, 253-266. Retrieved September 9, 2007, from EBSCO Online Database Business Source Premier. Thackray, J. (1995). What's new in financial strategy? Planning Review, 23, 14-19. Van Auken, H., & Holman, T. (1995). Financial strategies of small, public firms: A comparative analysis with small, private firms and large, public firms. Entrepreneurship: Theory & Practice, 20, 29-41. Retrieved September 9, 2007, from EBSCO Online Database Business Source Premier. Walker, J., & Price, K. (2000). Perspectives: why do mergers go right? Human Resource Planning, 23, 6-9. Suggested Reading Breen, W., & Lerner, E. (1973). 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She is a writer, researcher, and teacher in Amherst, Massachusetts. 9 CFO Journal - Wall Street Journal - Mar. 21, 2017 FP&A as a Business Partner: It's All About Collaboration By: Steven Ehrenhalt and Anton Sher QUESTIONS FOR DISCUSSION: 1. Do you agree that \"FP&A can benefit greatly when its activities are moved out of accounting and made a separate function?\" CFOs focused on creating closer ties between the finance department and the rest of the organization may achieve that stronger connection by elevating the contribution of the financial planning and analysis (FP&A) function. That's because FP&A often houses the analytical skillsets and business knowledge needed to provide business units with data-driven insights to support and inform decision-making. To increase the strategic contribution made by FP&A, finance leaders should consider a \"Three C's\" framework that addresses Capacity, Capability and Collaboration. As previously addressed in the other articles in this series, start by focusing on capacity, a multi-step process that can provide FP&A with the time and resources it needs to focus on high-impact activities. With capacity in place, the next move is to enhance the capabilities of FP&A team members to help ensure that they have the skills and experiences needed to help the business address strategic issues. The final elementcollaborationcenters on helping to ensure that FP&A team members have access to key business stakeholders and form strong relationships with them. One important contributor to effective collaboration involves the structure of the finance department itself: FP&A can benefit greatly when its activities are moved out of accounting and made a separate function, a step that will likely enhance the perception, both inside and outside finance, that FP&A is poised to add more value in a business partnering context. \"This is a crucial move in evolving finance from a siloed department to one that not only cooperates with the business but is fully integrated with it, thanks in large part to the establishment of close working relationships between FP&A team members and business unit leaders,\" notes Steven Ehrenhalt, principal and Global Finance Transformation leader, Deloitte Consulting LLP. \"The head of FP&A should report to the CFO,\" says Anton Sher, principal, Deloitte Consulting LLP. \"And at every level below the head of FP&A, there should be a business partner matched to a member of the FP&A team. The business-partner construct is all about facing off in a oneto-one manner.\" As individual FP&A professionals seek to build strong working relationships with their direct business partners, they should focus on questions such as, \"How can FP&A help?\" and \"Are we delivering against your expectations?\" Most importantly, FP&A professionals should be asking the business partners, \"How can we help you deliver results and future growth?\" Effectively building relationships requires proactively reaching out to the business, understanding their concerns and priorities, and sharing the value proposition that FP&A can bring to address them. Having started the conversation, follow up by providing data-based insights. For example, a business partner who expresses concern around optimizing sourcing capabilities and procurement strategies would likely welcome analysis regarding the key drivers of unit cost, the impact of vertical integration and the financial strength of suppliers. \"FP&A is well-positioned to connect the dots on these issues and provide not just a spreadsheet report, but analysis that takes into account the business objective at the heart of the request,\" notes Mr. Ehrenhalt. Going Beyond the \"Ask\" to Provide Insight In order for FP&A to turn a simple data request into a meaningful opportunity to add strategic value, the analyst receiving the request should ask the kinds of questions that will reveal the broader issue the business is trying to address. For example, an analyst who receives a data request for the SKU-level margins for a subset of the company's products could easily pull and send the requested data. An integrated business partner, however, would engage with the requestor to understand what is special about those particular SKUs, the overall objective of the request, and who or what is driving the inquiry. This creates an opportunity to provide analysis that truly addresses the business question. With this background information, the analyst can use salient metrics to identify potential additional SKUs for review and present the data in the context of the holistic SKU portfolio. \"The key is to provide analysis to answer questions, not just data to fulfill a request,\" Mr. Ehrenhalt says. At this point, the interaction approaches a tipping point where the business can choose to either archive the additional analysis or get FP&A more deeply involved. The latter approach is significantly more likely when the FP&A analyst has built a personal relationship with the business partner. Getting a seat at the table and permission to actively participate depend on building strong relationships on an ongoing and proactive basis. Building credibility through insight-driven partnership with the business on day-to-day operations can also open the door to FP&A participation as a partner in special project work that can benefit the broader organization, like enterprise analytics or management reporting that captures both financial and nonfinancial KPIs across the enterprise. Arriving at this fully integrated state doesn't happen overnight. \"Improving FP&A's business partnering practices is an evolutionary process, not a Big Bang singular event,\" notes Mr. Sher. \"Since effective business partnering happens at the individual level, driving improvements requires deliberate action by each professional within FP&A.\" CFOs can foster this process by thinking through how to recognize business partnering excellence in the FP&A organization. What specific behaviors matter most? Are certain actions inadvertently discouraging people in FP&A from building relationships with their business partners, or taking a consultative approach in those relationships? Are there other steps that can be taken to move FP&A and the entire finance organization toward a fully integrated interaction model with the business? The answers to those questions can go a long way toward determining when and to what degree FP&A ultimately functions as a true business partner within the organization