Friday, December 3, 2010


Strategic Management in Investments

Strategic Management has emerged as a systematic approach in properly positioning companies in the complex environment by balancing multiple objectives. In practice, therefore, a comprehensive Capital expenditure planning and, control system will not simply focus on profitability, as assumed by modern Finance theory, but also on growth, competition, balance of products, total risk diversification, and managerial capability and flexibility. there are umpteen examples in the developing countries like India where unprofitable ventures are not divested even by the private sector companies because of there desirability from the point of view of consumer and employees, in particular and society, in general. Such considerations are not at all less important than Profitability since the ultimate survival of companies (and certainly that of management) hangs on them. One must appreciate the dynamics of complex forces influencing resource allocating in practice; it is not simply the use of the most refined DCF techniques.
Certain other practical considerations are as follows.

  • Apart from the profitability of the project, other features like its (project's) critical utility in the production of the main product, strategic importance of capturing the new product first, adapting to the changing market environments, have a definite there bearing on investment decisions.
  • Take technological their developments play a critical role in guiding investment decisions. Government policies and concessions also have a bearing on these.
  • Investment in production equipment is the given top priority among the existing of products and the new project. Capital investment for expansion in existing lines where market potential is proved is given first priority capital investment for buildings, furniture, cars, office equipment etc., is done on the basis of availability of funds and immediate needs.

For problem solving under complexities and the relevance of strategic considerations in investment planning, it also implies that resource allocation is not simply a matter of choosing the most profitable new projects as shown by the DCF analysis. What is being stressed is that the strategic framework provides a higher level screening and an integrating perspective to the whole system of capital expenditure planning and control. Once strategic questions have been answered, Investment proposals may be subjected to the DCF evaluation.

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