24-08-2013, 04:30 PM
OPERATIONS STRATEGY
INTRODUCTION
Students being given knowledge: to understand theory and practice of operation ration strategy to formulate operations strategy and its course of action to be competent in analyzing the effectiveness of operations strategy. Operations is increasingly seen as the area where the dynamic requirements of the marketplace and the developing capabilities of the organization’s resources must be reconciled. Building on concepts from strategic management, operations management, marketing and human resources, this course takes the students towards a rich and potent understanding of operations strategy. The course covers such topical issues as supply networks, capability development, learning and risk It also includes many international boxed examples from a wide range of industries.
THE NATURE AND SCOPE OF FINANCIAL STRATEGY
Although the capital market assumptions that underpin modern finance theory are highly suspect, it is still widely accepted that the normative objective of financial management is the maximization of shareholder wealth. We observed in Chapter One of our companion text (SFM) that to satisfy this objective a company requires a “long-term course of action”. And this is where
THE FUNCTIONS OF STRATEGIC FINANCIAL MANAGEMENT
We have observed financial strategy as the area of managerial policy that determines the investment and financial decisions, which are preconditions for shareholder wealth maximisation. Each type of decision can also be subdivided into two broad categories; longer term (strategic or tactical) and short-term (operational). The former may be unique, typically involving significant fixed asset expenditure but uncertain future gains. Without sophisticated periodic forecasts of required outlays and associated returns that model the time value of money and an allowance for risk, the subsequent penalty for error can be severe, resulting in corporate liquidation. Conversely, operational decisions (the domain of working capital management) tend to be repetitious, or infinitely divisible, so much so that funds may be acquired piecemeal. Costs and returns are usually quantifiable from existing data with any weakness in forecasting easily remedied. The decision itself may not be irreversible. However, irrespective of the time horizon, the investment and financial decision functions of financial management should always involve:-The continual search for investment opportunities. The selection of the most profitable opportunities, in absolute terms. The determination of the optimal mix of internal and external funds required to finance those opportunities. The establishment of a system of financial controls governing the acquisition and disposition of funds. The analysis of financial results as a guide to future decision-making. None of these functions are independent of the other. All occupy a pivotal position in the decision making process and naturally require co-ordination at the highest level.
DEBT VALUATION AND THE COST OF CAPITAL
Firms rarely finance capital projects by equity alone. They utilise long and short term funds from a variety of sources at a variety of costs. No one source is free. Moreover, as the following table reveals, some have an explicit cost but others only an implicit or opportunity cost. For example the marginal cost of earnings retained for new investment is measured by the current return foregone by shareholders, whereas debt is sourced at an explicit market rate of interest. Explicit or not, in order to establish the overall cost of capital as a project discount rate, management must first identify the current (marginal) cost of each type of capital employed (debt, as well as equity).The component costs must then combined to form the marginal, weighted average cost of capital (WACC).